Master Speak 2017 (Bill Nygren - the chief investment officer @ Harris Associates, oversees about $27 billion)
Valuation: More and more of the opportunities in the market are going to involve more complex type of valuation work. Value is no longer just low P/E. There has to be something else tied to it that will be harder for a computer to figure out. An investor who tries to cut short the valuation approach by just focusing on P/E is sure to miss significant pieces of value.
Pricing power: It is hard to come up with companies that have pricing power today because so much of the opportunity, and venture capital money, is in finding a way to get a product directly from the producer to the consumer.The pricing power is probably with those companies that are earning almost no money because they are massively growing scale to become the dominant player and only then worry about monetising. Today, pricing power is in a different place than it was 20 years ago.
Companies that maximise per share value, no matter if that means they don’t grow or even if they shrink, will be great bets.
EPS growth: If we’re only in a 2% inflation environment and we only have 2% growth, it means that companies are retaining too much of their income to support a 4% nominal growth rate. They will then be able to use cash to purchase other companies or purchase their own stocks. So we see earnings per share (EPS) growth significantly exceeding net income growth. When you adjust to that, our expectations for EPS growth and dividends are not that much different from what it has been for the past decade.
The last thing we want is it [the management] trying to reinvest in an industry that isn’t going to grow.
Alphabet: When a company like Alphabet invests for growth, it is done through their income statement, which depresses its current earnings. When someone new looks at Alphabet and they see it trading at 35x earnings, they would say that it’s almost twice the market multiple and does not obviously look like value. If you look deeper, you may find they are losing $5 a share per year on some bets they are making. But when you consider what the Google search engine is worth, it’s not generating just the amount of reported earnings; it’s generating $5 a share more. These are VC-like investments made in the company that, if made through a VC firm, would be showing up on the balance sheet as an investment and not going through their income statement.
Mistakes: Not getting over the hump to make the investment in companies that went up by multiples of the price.
Evolution as a value investor: The definition of value always has had to be somewhat fluid to be more advanced than what other people are doing e.g. this company does not look cheap on a P/E basis but if you think about the following adjustments, it would be cheap.
Source: https://www.outlookbusiness.com/amp/specials/masterspeak_2017/companies-that-maximise-per-share-value-even-if-they-dont-grow-will-be-great-bets-3783