From Book Value To Brand Value. Bill Nygren On Why Modern Investing Requires Seeing Beyond The Balance Sheet

[Jonathan] (0:05 – 1:47)
Before we get started, just a quick note: Boyar Research will soon be releasing our flagship annual report, The Forgotten Forty, which highlights 40 of our most compelling catalyst-driven stock ideas for the year ahead. You can learn more at boyarresearch.com/2026. Now let’s get to the show.

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Welcome to The World According to Boyar, where we bring top investors, best-selling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I’m your host, Jonathan Boyar. Our guest today is Bill Nygren, Partner, Portfolio Manager, and Chief Investment Officer for U.S. Equities at Harris Associates, the firm best known for managing the Oakmark funds. Bill is widely regarded as one of the world’s leading value investors and today oversees billions of dollars across both the Oakmark Fund and the Oakmark Select Fund, and private accounts. Bill has been consistently recognized not only for amassing one of the best track records in the investment management industry, but also for his thoughtful, disciplined approach to investing. Bill, welcome to the show.

[Bill] (1:48 – 1:51)
Thanks for having me, Jonathan. It’s a treat to be here with you today.

[Jonathan] (1:51 – 2:05)
Thank you for joining. I’m really excited. I have a lot of questions for you. First, you’re generally thought of as a value investor. What does that term mean to you now as compared to what that term was when you started your career in the ’80s?

[Bill] (2:06 – 5:19)
The similarity today relative to 40 years ago is if you’re a value manager, it’s like being a value shopper: you want to make sure you get more than you pay for. It’s about looking for deals.

Back in the ’80s, you could largely look for stocks that were selling at a discount to their book value or a very low P/E. If you invested with decent management and the entry price was low, you could kind of sit back and expect that over the next three to five years you’d have a regression to the mean. That would be enough to get you a pretty decent outperformance. The important change that the value investing community has been slow to adapt to is how important intangible assets have become and the fact that the accounting world doesn’t really do a good job of reflecting those values.

Early on in my career, I think it was in the mid to late ’80s, Warren Buffett—who I think most all of us would say is the best of the long-term value investors—shocked the value investing world when he bought Coca-Cola. Everybody wondered: how in the world can you call Coca-Cola a value investment?

It was trading at a large premium to its book value. And Warren’s answer was that the most valuable asset at Coca-Cola isn’t even on the balance sheet: it’s the brand name.

And all of the advertising they did to increase the value of that Coca-Cola brand went straight through the income statement. So Warren was teaching us that you needed to make adjustments for intangible assets. The way we think about value investing at Harris/Oakmark today reflects that a lot of the most important investments companies are making are being expensed straight through the income statement, even though they have long-term value.

The conservatism in the accounting world is: if you can’t touch or feel an asset, it’s not worth anything. That means that customer acquisition costs, advertising, R&D, global IT infrastructure—many of the investments that have become so valuable today—need to be taken out of the income statement and treated the same as buying a new plant would have been for a steel company 40 years ago. And a lot of the work we do at Harris/Oakmark is coming up with our own accounting statements.

We readjust the income statement. We take those long-term investments, we put them on the balance sheet, we depreciate them. In our view, then, some of the companies that don’t look cheap on book today—on GAAP book—don’t look cheap on GAAP earnings; when you adjust for those investments, they actually meet the terms that we would have said historically would have made something a value investment. It just takes a little bit of explaining to do.

[Jonathan] (5:20 – 5:29)
Accountants generally aren’t known to be forward thinkers or revolutionaries. How come they haven’t adapted GAAP to reflect this new paradigm?

[Bill] (5:30 – 5:50)
I think it’s because they value conservatism over accuracy. It’s something that lots of value investors took pride in as well—I think to their own detriment. And something we’ve fought hard to do at Harris/Oakmark is to prize accuracy over conservatism.

[Jonathan] (5:50 – 6:01)
What gave you that aha Coca-Cola moment in your investment career to adapt—go from deep value to the Munger approach to investing?

[Bill] (6:01 – 8:19)
For us, the biggest eye-opener was back in the 1980s when cable TV systems—the public companies—were losing money. They had negative book value. And yet we saw this consistent private market develop for cable systems where they were selling either to private equity or to other larger cable companies at about 11× EBITDA.

And the question was: what was going on between that EBITDA line and the net income line that didn’t reflect real-world economics? To us, there were two things. One, the wires that were in the ground were being depreciated over five, six years; their economic life was probably three to four times that long. So depreciation cost was way more than economic depreciation. Secondly, this was at a time when cable TV systems were growing very substantially.

So a lot of money was being spent on customer acquisition. Once a customer was acquired, they tended to stay with their cable service until they moved, and then they would immediately seek out the new cable service for their new location. But those customer acquisition costs were going straight through the income statement.

When we adjusted for those two items, we thought that a lot of public cable TV companies were selling at barely double-digit P/E multiples, despite pretty rapid growth and good free cash generation. We started to think then: this can’t apply only to the cable TV industry. What other industries are spending a lot of money to create future growth, but it’s going straight through the income statement?

You saw packaged-goods companies with large advertising expenditures, healthcare companies with large R&D expenditures. And we would take those expenses out of the income statement, put them on the balance sheet where they belong, depreciate them. And it helped highlight a cheapness that wasn’t apparent in GAAP statistics.

[Jonathan] (8:20 – 8:43)
So that seems like a very different investment process than looking at net-nets when my dad started the business in the ’70s—where the biggest competitive advantage was having a calculator. Have the skills needed to be a great investor when you guys started in the ’70s and ’80s versus today changed? It helps to still be good at a calculator.

[Bill] (8:44 – 11:32)
There are definitely things that have changed. When I started in the business, one of the industries I covered was retail. This was before I joined Harris/Oakmark.

My prior experience had basically been accounting. I was an accounting undergrad with a finance master’s degree on top of that. But looking at the retail industry, I got really frustrated that some companies owned all their stores, some leased their stores.

Some had big credit-card operations; others relied on cash, MasterCard, and Visa. So when you looked at the accounting statements, they were very, very different.

Also, LIFO vs. FIFO accounting. Back when I started in the early ’80s, double-digit inflation made a big difference if you had accelerated depreciation, if you had LIFO or FIFO. And I started by hand to adjust all of these companies as if they had the same things.

If I valued the credit-card operations separately, if I valued the real estate separately, and then treated them all like their retail operations had no credit-card operations and they leased all their stores—it was a massive undertaking. Most people today would say I would have been foolish to have undertaken that.

But the output—because it was something so different from what other investors had—was very valuable for our stock selection over the next couple of years at the company I worked for before Harris. Today, my assistant, who’s not trained in finance or accounting, could basically run that spreadsheet on FactSet in five minutes or so. And because it’s become so easy to get, it’s not nearly as valuable as it once was.

That’s where the qualitative side of value investing has become important today. It’s knowing when you have information that isn’t readily accessible to the market—public information, but that others haven’t bothered to go to the trouble of recreating. It’s knowing when that has value and when it doesn’t, because everybody’s got it.

I lived in that same world your father did, where we were excited for our Value Line screen to come once a month that would give us a rank order of 1,500 companies on a price-to-book and on a P/E basis. If I told the twenty-somethings that today, they’d laugh at me because they can run that instantly. Because it’s available so easily, it’s just not very valuable.

[Jonathan] (11:33 – 11:45)
I’m reading now Andrew Ross Sorkin’s book about the 1929 crash, and they were talking about the information advantage of having a telephone to be able to call the floor to find stock prices. Things just evolve.

[Bill] (11:46 – 11:50)
I’m anxious to hear your review of the book, because it’s on my weekend reading list.

[Jonathan] (11:51 – 13:14)
It’ll take a lot of weekends. It’s really long, but so far, so good. Before we get back to the conversation, I want to take a quick moment to tell you about something we’re really proud of at Boyar Research.

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Every company has been thoroughly analyzed in a full-length Boyar Research report—the same in-depth research trusted by some of the world’s leading institutional investors, hedge funds, and family offices. Those who pre-order will receive a substantial discount and our latest Boyar Research Issue, which includes four full-length reports spanning more than 45 pages. Learn more at boyarresearch.com/2026. Now let’s get back to the show. Switching gears a little bit: you manage two major mutual funds as well as, I’m sure, separate accounts. Just in terms of how you manage them, are you always fully invested?

[Bill] (13:14 – 14:42)
I would say the answer to that is practically yes, but I think to be 100% invested in an open-end mutual fund is not really prudent. The way we think about it, we don’t consider ourselves market timers. Our cash position is not moving up or down based on our guess of whether the next market move is likely up or down.

But we do tend to have about 5% cash in both funds. I think of that as: about half of it is offensive, in that I want to have the cash available to take advantage of a market dislocation and somebody else who’s a forced seller. I don’t ever want to be that forced seller.

And then the other half of that 5% would be to deal with unanticipated redemptions. I theoretically could come into the office any morning and see that somebody had redeemed a couple percent—or multiple investors in total had redeemed a couple percent of the fund—and I don’t want to have to scramble to instantly find things to sell and tell the traders that regardless of what the other side of this trade looks like, this has to be done this morning. We don’t time the market.

We’re much more in the Buffett school that being a long-term investor in America is way more productive than trying to guess market direction.

[Jonathan] (14:42 – 14:52)
I know you have one concentrated and one somewhat diversified fund, but for both, how do you think about position sizing—both at purchase and as a stock appreciates?

[Bill] (14:53 – 18:18)
In the Oakmark Fund, which is by far the larger of the two, we’re looking at trying to buy roughly 55 big businesses. I say big businesses because sometimes big businesses aren’t necessarily the same as the large-cap universe. That was a big issue back in the time of the internet bubble around 2000.

It’s becoming a big issue again today. By Morningstar definition, there are only 100–150 or so large-cap companies. We think instead of the 250 largest companies on fundamental metrics like sales, EBIT, book value; we’re trying to identify the 55 of those that we think are most attractive.

If you think about the portfolio being 5% cash, that means a normal position size for us is somewhere more than 1.5% and less than 2% of the portfolio. The Oakmark Fund is a portfolio that we would say an average investor could think about putting the majority of their assets in and check back with us in five or 10 years and see how they’re doing. So we don’t want single-security risk to ever become the dominant risk factor in that portfolio.

So if a position gets to double that 1.5–2% and the market continues to take it higher, we’ll trim to bring it down to what we think is a more responsible risk level for a portfolio that someone could use as a single solution for their domestic equity investments. We also don’t want to end up with 100 stocks. We try not to have positions that are less than 1% of the portfolio.

And if they fall beneath that, we see a decision point where we’re either going to be adding to the name or getting rid of it, because we don’t want to end up with a lot of tag-ends that aren’t really important enough to the portfolio to have us continue investing in them. The Select Fund is a little different. In Oakmark Select, we’re targeting about 20 positions, same ~5% in cash.

So a normal position there is more like 4–5% of the portfolio. We think in terms of not wanting it to get much more than two times that size. So if the market would take it up to a double-digit weighting, we’re probably going to be trimming it back down.

So it’s a high single-digit weighting. One of the reasons we treat the risk differently is because we expect that the Oakmark Select investor will own multiple mutual funds. Maybe they’ve taken half their portfolio and indexed it and they’re looking for some satellite managers to an indexed core.

Maybe they’re going through all the Morningstar style boxes and looking for a fund or two in each of those. But because they’re taking some of the diversification responsibility on themselves, we don’t feel we have to be quite as focused on how much risk any individual security would be adding to that individual’s overall financial picture.

[Jonathan] (18:19 – 18:36)
Obviously, you can’t argue with success—you’ve been extremely successful in doing this. What about the situations where you had a great business that doubles, triples, quadruples, and it’s still really cheap? Aren’t you missing some of the Berkshire Hathaway-type compounding?

[Bill] (18:37 – 19:30)
Absolutely. But you mentioned Munger earlier, so I would try to invert that question. Let’s say you’ve got two different managers and one purchased this stock a long time ago. They put it into their portfolio at 3–4% and it’s done so well that now it’s 30% of that portfolio.

If you got a new account today, would you start that position at 30%? And if not, then there’s a disconnect—because other than taxes, there really shouldn’t be a difference between those two clients. We have tended to be quite successful at managing taxable distributions in the Oakmark Fund.

Avoiding taxes alone wouldn’t be a reason to continue with a holding that had done really well and had become oversized in the portfolio.

[Jonathan] (19:31 – 19:40)
That makes sense. It’s just one of those things we struggle with too. And we’re, like you, very tax-efficient investors and our investors hate to pay taxes.

So it’s a tough situation.

[Bill] (19:41 – 20:14)
I guess we’ve both got smart investors. Everybody should hate to pay taxes they don’t have to pay. One of the reasons people make that decision difficult for themselves is focusing solely on return.

You look at it and say you would have been reducing your return to bring the winner back down to a reasonable size. I think when you look at portfolio risk as being as important as return, it makes it much easier to see that resizing that position as it continues to succeed is probably the right thing to do.

[Jonathan] (20:15 – 20:33)
Currently, I took a look—at least as of, I guess, 9/30—you’re significantly overweight financial stocks, significantly underweight technology shares. Did that happen deliberately or is this where you just currently think the best risk-reward is, and it kind of organically happened that way?

[Bill] (20:34 – 23:05)
Let me give you a few answers to that. One is the people who decide what industry companies belong in for the S&P increased our financial weighting when they took a lot of the fintech companies out of technology—because they were concerned that tech was becoming too big a sector in the S&P—and they moved those into financials. Part of that increase, we didn’t do anything.

We woke up one morning and the S&P was calling these companies something different. We’ll probably get into this later, but I think investors need to be paying attention when you see people like the S&P or Morningstar starting to change their rules because they’re trying to avoid an outcome that has occurred because of appreciation in a certain part of the market. But also it’s intentional on our part.

We think that financial services in general are one of the most attractive areas in the market today. There are a lot of banks that are much better businesses than they were 15 years ago that are selling at barely double-digit P/Es, small premiums to book value. And that just seems to be an entirely different world than the 24× earnings S&P 500.

We think the businesses are better run in general. If you look at the banks—even some of the insurance companies—much less focus on top-line growth today. We like businesses that think about denominators: return on invested capital, not just gross return; earnings per share, not just earnings.

Almost every large financial company today would tell you they think about goals on an earnings-per-share basis, rather than just trying to grow earnings or grow loans. And I think that makes them much lower-risk businesses than they were 20 years ago, when they would continue to focus on growth in total loans outstanding or just growth in earnings, and not bring it back to a per-share level that allows them to pull capital out of the business when they think the low-risk loans aren’t as available as they are at other times in the cycle. That’s how you can make a business that is in some ways like a commodity business a good business: if you have managements that return capital to shareholders and are as excited to do that as they are to make their businesses bigger.

[Jonathan] (23:06 – 23:25)
You own, I think, at least two big money-center banks—Bank of America and, I think, Citigroup. How do you get comfortable, because it’s somewhat of a black box with these loans, etc., that some things you can’t find until it’s too late? How do you get comfortable in the analysis to put it as a decently large position?

[Bill] (23:25 – 26:12)
It’s funny. A lot of value investors, going back to the GFC, had been heavy investors in banks. Like us, they lost a lot of money on banks, and they tended to blame it on the opacity of the financial statements.

I don’t know—we look back on it and said, if you took an industry that was collecting deposits and then loaning that out against real estate, and we went through the biggest decline in real-estate value that we’d had in 100 years—how did you think that was going to turn out? I don’t blame our mistakes on “we didn’t understand what the banks were doing.” We blame our mistakes on “we didn’t look at a broad enough range of outcomes for what real-estate values could do.” And we weren’t as on top of how loose lending standards had gotten for a lot of the large banks. So we look at them today and say there’s twice as much capital relative to assets as there was back then.

There’s less lending at the peak of the cycle than there was back then. There are much bigger competitive advantages from scale than there were back 15 years ago. All those things point to them being much lower-risk businesses than they were back then.

Yes, there’s still some opacity. We tend to underestimate how much opacity there is in any business we look at. It’s prevalent across businesses.

And at some point you have to get to a level where you say, I’m invested with people that I trust, and I think they are going to make the right decisions. And that’s probably most important when you’re in levered businesses like the financials. And it’s why at Oakmark we spend as much time as we do trying to get to know the people that are running the businesses we’re invested in.

There are some financial companies that we say we haven’t gotten to a point where we can trust the people enough—and it doesn’t matter if that’s at book value and 10× earnings. We’d rather pay a little bit of a premium and be invested with people we trust.

Because at any company there are decisions they can make that you’ll never fully be able to see how they were making the decisions. And you have to trust that they are motivated by maximizing long-term per-share value. We look to make sure they’re compensated on metrics that tie to long-term per-share value growth.

I don’t think we treat financials any differently than we do any other industry we invest in.

[Jonathan] (26:12 – 26:20)
When you go to these management meetings, what are you looking for? What are the types of questions you’re asking?

[Bill] (26:20 – 27:53)
One of the biggest things you learn from 40-plus years in the business is if you are lucky enough to get an hour of time with the CEO of a large business, you’re wasting everybody’s time if you’re trying to use that hour to tweak your model: is the margin going to be 14.6% or 14.9%? Is growth likely to be 3% or 4%?

What you can do in that hour is get to understand who these people are. What motivates them? How are they compensated?

How do they look at their own career arc and how will they define success? We’re trying to understand the same things you would understand any time you’re making a decision to partner with someone. They’re going to make a lot of decisions that you aren’t going to be there to observe them making.

Is there a value structure underlying their decision-making that squares enough with yours that you’re okay not being there to oversee all those decisions being made? Our interviews tend to be quite different than what managements are used to doing. It’s trying to get to know them as people rather than a cookbook-y list of 25 questions that will help with the precision of my Excel model.

[Jonathan] (27:54 – 28:07)
How many CEO meetings do you think you’ve been on in your career? Thousands. Has there ever been a time where they answered with this unusual candor where you’re like, “Wow, I can’t believe he or she said this”?

[Bill] (28:08 – 29:29)
Sure, but it can’t be on questions like “How much do you think sales are going to grow next quarter?” It can be more on the personal side where there’s extreme candor about things they’ve been through personally and how that will motivate them going forward. There are times where you really feel like you get to know the individual because of candor like that, and those tend to be the meetings that we love the best.

Will you invest in a company where you don’t have access to management? That’s hard to answer. What does it mean when you say you don’t have access to?

We’ve got an investment with Alphabet. Sundar is not sitting down with us on a one-on-one basis. We’re not that large an investor for that to be a good use of his time, but there is a lot of access to Sundar and how he thinks and how he is motivated that’s available to anybody who wants to go on the internet and track it down.

We also have reasonably good access there to the IR department, a low level of access to the CFO, but it’s not like they are completely isolating themselves from investor contact. They’re saying a lot about what they’re trying to do and how they’ll define success.

[Jonathan] (29:30 – 29:42)
Switching gears a little bit in terms of the macro—we’re obviously living in a crazy world, although you could probably say that about any time period. Do you spend much time thinking about the environment we’re in?

[Bill] (29:42 – 32:37)
Quick answer to that is no. The longer answer is that first, from the investment side, you need to make sure the analysts are working from consistent economic assumptions. We do think about that in terms of trying to make sure that when our analysts are projecting out seven years from now to what they are thinking is a normal world, that we’ve got unanimity of thought there, because if the analysts are all defining seven years out differently, we can’t get the rank ordering of the attractiveness of our ideas the way that makes our process work.

The second reason we have to think about it is clients want to talk about it and we have to be prepared to try and disarm their concerns to help them get through difficult periods. Because one of the things we all learn as a long-term value investor is if the people who entrust their money to you have a shorter time horizon than you do, it’s probably not going to work out well for anybody. It was funny, after the GFC it became very popular in value-investing circles for people to say, “Yes, I’m still value, but I have to have a macro overlay on this to be effective.”

Almost to a person, their macro overlay was that economic growth was likely to be slower coming out of the GFC than it had been historically. If your macro overlay is a consensus overlay, it’s really not worth anything. I think people forget that to put a macro overlay on top of your business-value estimates, for it to add value it has to both be different than consensus and it has to be right.

And that’s a hard combination. And then on top of that, you’re facing the very strong long-term trend upward of U.S. markets. So if your macro overlay happens to be bearish, you’re also betting against a pretty strong trend in the market.

We put numbers together for our clients all the time—something like from the start of Oakmark in 1991 (so we’re up to 34 years now). Look at the list of all the things that have gone wrong in the world since then.

And I won’t bore you with it, but it’s an overwhelming list. And during that period, the S&P is up something like 30-fold and we’re up something like 60-fold. Trying to put a macro overlay to say “this is the time I want to be bearish” is a dangerous game.

[Jonathan] (32:37 – 32:43)
Agreed. Are there major risks out there in the system that people aren’t really paying attention to?

[Bill] (32:44 – 36:27)
In our investing world, even professional investors are underestimating the concentration risk they’re taking in the S&P 500. It’s been drummed into us for the past 50 years that the S&P 500 is a broadly based index representative of the whole U.S. economy. If you don’t have an opinion and you just want to ride the wave of long-term stock-price performance, just own the S&P and don’t think about it.

And that’s the low-risk alternative for investing. As recently as 10 years ago, that was probably even true. Top-10 names were like 15% of the index—good diversification across industries.

But look at what the S&P 500 has become because of a handful of extremely successful companies: it’s basically become a concentrated technology mega-cap growth fund. Morningstar changed its definitions of value and growth to avoid calling the S&P 500 a growth fund.

The S&P has pulled financial-technology names out of the tech sector. They’ve pulled information-technology names like Alphabet and Meta out of technology. Because if you hadn’t done that, tech would now be like 45% of the index.

Living in the United States, we’ve had a luxury that most of the world hasn’t had that just says: if you buy our local economy, it’s a pretty well-diversified basket. People who live in South Africa or Australia—the investment advisors would never be telling them “just invest in the local economy,” because it’s enormously tilted toward metals and mining. Just as we’ve all gotten used to the idea that index investing in the S&P 500 is the safest way to invest, it’s actually become the most unsafe index out there.

Think about something like the Russell Value—that’s an alternative index that 10 years ago was a pretty slow-growth index. Today, the Russell Value has 870 of the thousand largest companies in it because the really big companies have crowded everything else out, and growth names like Amazon, Alphabet, Meta, Coinbase—those are all in the Russell Value. Now the Russell Value today looks a lot like the S&P 500 did 10 years ago in diversification, in growth characteristics.

The biggest risk out there for individuals and advisors in our industry is keeping everything we do tethered to an index that we want to believe is diversified but really isn’t. It’s imperative for advisors in our industry to be explaining this risk to their customers and bringing back the indexes we measure ourselves against to things that are more tethered to our investors’ financial needs. Whether or not NVIDIA triples in size from here over the next couple decades really has very little to do with whether the average person’s savings are going to help meet their retirement needs or help put their kids through college.

Tying everything we think about to the S&P 500 is just becoming more and more divorced from our investors’ needs. To me, that’s a big risk.

[Jonathan] (36:28 – 36:48)
Is part of that caused by just the way the market structure is—that you have constant passive flows on the 15th and 30th of every month and it props it up? Part of it is also as a financial advisor years ago: you never got fired for recommending IBM. You’re not going to get fired if you put someone in an S&P 500 fund.

[Bill] (36:49 – 37:55)
That’s probably true. It might be a risk reducer for the investment manager. I don’t blame it so much on passive flows, but on where those passive flows go.

There’d be no problem right now if advisors were saying you should be passively invested in the Russell 1000 Value. It’s a good diversified index, good growth. And if those passive flows were going broadly to those companies, I wouldn’t have any problem with that at all.

But passively going into a mega-cap technology growth fund—I think that’s a problem. Recommending the core of somebody’s portfolio today be the S&P 500 is as irresponsible as it would have been 40 years ago to say Janus 20 or Oakmark Select is a core product that you should have almost all your assets in. You can sleep well at night.

No, you couldn’t. Those are highly volatile funds. There’s a place for them, but it’s not at the center of the portfolio.

[Jonathan] (37:56 – 38:21)
To switch gears a little bit, I was just going through some of your latest holdings. One that interests me was Merck, which we also own and we’ve written favorably about. The stock’s undeniably cheap, but the knock on the name is Keytruda—their blockbuster cancer drug—is, I think, roughly 50% of sales, and it goes off patent in a few years. How do you weigh patent risk against a cheap valuation in a pharma company like Merck?

[Bill] (38:22 – 39:38)
In any company, a P/E is just a shortcut to doing a DCF model from today out forever. In companies where you know assets have limited lives—could be an oil well, could be a patented medicine—we think it’s really important that you actually go to the trouble of doing a DCF asset by asset. What we conclude on Merck is that if you look at the runoff value of Keytruda and then the other businesses they have, we’re getting a business value that’s slightly higher than the current price.

There’s a tremendous amount of money that Merck is spending trying to combine Keytruda with other compounds or other existing drugs in a way that would dramatically increase its value and extend the life of Keytruda. We think of that as what we’re getting for free when we’re buying the stock today. We’re also getting for free that it may not be the easiest drug out there to do generics on.

It may extend the life a little bit beyond when the actual patents come off.

[Jonathan] (39:39 – 39:54)
At Harris, at least as far as I know, everyone’s a generalist in terms of the analyst team. How do you get comfortable analyzing a company like Merck unless you have a science-based person on staff? Do you rely on the sell side? How do you do it?

[Bill] (39:55 – 41:25)
I think it’s kind of a misnomer out there that as generalists, we’re just permanently disadvantaged on any company because we don’t know the depths of every product as well as an industry specialist would. There are a few things that I think help here. One is I think our generalist focus has us much more attuned to how a company like Merck is going to invest its free cash flow over the upcoming years and what kind of value that’s likely to create.

You find most specialists don’t really like to think so much about cash flow, value-add to share repurchase, potential value-add to bringing other businesses onto the Merck platform. But then when it comes to specifically looking at products, we’ve got access to all the sell-side specialists, to expert networks. There’s a tremendous amount of information available on the internet today.

And I think in the handful of companies where we think generalist knowledge would put us at a distinct disadvantage to specialist knowledge, we’ll pay outsiders to fill those gaps. Where I think our generalist structure gives us a big advantage is in thinking about how attractive Merck is relative to General Motors or Citigroup, as opposed to just thinking Merck vs. Pfizer and Johnson & Johnson.

[Jonathan] (41:26 – 41:39)
Just for the record, I fully agree with you. Everyone on our team is a generalist. My dad has kind of instilled in me: the sell side can tell you everything there is to know about a stock—except when to buy it.

There’s a use for the sell side, but generally their timing is not the best.

[Bill] (41:39 – 42:35)
We would completely mimic that with the way we do things. I think you’d be foolish to say that someone who has spent the bulk of their career in one industry hasn’t built up a knowledge base that it would be valuable for us to access. But we’ve got a very disciplined way of investing.

It’s not the way that most people invest. The sell side would not be a profitable business if everyone had such low turnover as we tend to have. To rely on that individual to tell us when to buy and sell a stock is definitely something we don’t want to do.

But to me, it’s fingernails on a chalkboard when I hear people in the value-investment community just write off the sell side as worthless. It’s not worthless. There’s tremendous value there.

It’s just not necessarily in helping us figure out when we want to buy and sell positions.

[Jonathan] (42:36 – 43:02)
Another overlapping holding that we have and we’ve researched is Airbnb. It’s a name we really like a lot. We love these companies that are both a noun and a verb.

It’s ubiquitous. One of the things that we get a lot of pushback on is the share-based comp, and it’s pretty high at Airbnb. For Airbnb specifically and in general, what are your thoughts about share-based comp and how it should be used?

[Bill] (43:03 – 46:05)
In concept, we like the idea of aligning employees with the outside shareholders—having them focused on trying to pursue paths of action that will grow the long-term share value. Where it becomes somewhat controversial is in the accounting for it, where you’ve got a lot of the tech industry that would prefer that issuing options not be treated as an expense. We think that’s foolish.

Share-based compensation is every bit as much an expense as healthcare or cash compensation. If they weren’t issuing those options to employees and they instead went out and purchased those options from a third party, it certainly wouldn’t be free. We think you have to be careful—maybe not focus so much on what is the cash-flow yield of a tech company.

If it’s got a cash-flow yield of 10%, but the share base is increasing 10% a year, it really doesn’t have a yield at all. We treat option issuance as much as an expense as any other expense of labor would be. What attracts us to Airbnb is the amount of money that’s going into adjacencies today, trying to grow revenue.

One of the ways we look at valuing Airbnb is: if they had a take rate similar to Booking’s, what would that do to their earnings? Is it reasonable to think the service they provide is as valuable as what Booking provides? I think, given the scale advantage that Airbnb has—that most of the supply at Booking vs. Airbnb is very small individuals, much smaller than it is for Booking.com—it’s absolutely reasonable to think they could get the same take rate. If they had that same take rate, Airbnb would be selling at a below-market P/E multiple. Those are the kinds of re-imagining-the-accounting exercises that we are frequently doing at Harris/Oakmark that allow us to think with a value philosophy but still end up owning an Airbnb; or we took a lot of flak for owning Netflix a few years ago at a time where if what Netflix was charging for its business was the same as what HBO was charging, it would have been at a below-market multiple. If you put the same per-sub value on a Netflix sub as you put on an HBO sub, it was selling at a fraction of its value.

I think that kind of creative thinking about where value is really being created is maybe another one of those differences that your dad and I didn’t have to do as much 40 years ago as is valuable to do today.

[Jonathan] (46:05 – 46:25)
We were talking offline briefly about family-controlled businesses, and you brought up a company that we discussed years ago. Airbnb, I believe, is controlled still by the founder, and minority shareholders do not have much in the way of rights. How do you get comfortable with that?

[Bill] (46:26 – 48:52)
To us, that gets back to getting to know the management. It’s not trying to figure out to the right of the decimal point what their take rate will be or what their eventual operating margin will be, but it’s trying to understand the hopes and dreams of those people that do have more control today than the outside shareholder has. From a lot of the reading that we have done about Brian, from listening to investor presentations he’s made, we think it becomes pretty obvious that he is going to measure his success by metrics that matter to the outside shareholder.

Where you get in trouble is when you have a controlled situation and the control family is extracting value in a way that the public shareholder doesn’t have the same opportunity to extract. We just don’t see that as a problem in the companies where we’re invested today. One of the companies we’re invested in where it’s close to family control is First Citizens.

I’ll tell you, it does not take too long sitting down with the CEO, Frank Holding, to understand he measures his success by long-term growth in book value per share. The fact that he has more voting control than economic control, to us, gives us comfort. In our first meeting with them—and this gets back to how your discussions with management are different than a typical discussion—we started to ask about what they consider core competencies for their business.

He said he thought one of their core competencies was buying troubled banks from the FDIC. That’s an answer I’ve never heard before. How do I put that into a spreadsheet?

And then two years into our owning the stock, they come close to doubling per-share value by an attractive acquisition of SVB, when the FDIC was very anxious to put that in strong hands over a weekend, needed to deal with somebody who could make a quick decision. Sometimes what you learn that you can’t put in the spreadsheet ends up being way more valuable than anything that does fit into an Excel model.

[Jonathan] (48:53 – 49:17)
One last industry—Comcast and Charter. We’re big John Malone fans. The cable providers have been in the penalty box for years. We own Comcast.

It’s undeniably statistically cheap, but it’s testing our patience. Are the fears of fixed wireless overblown? What are we potentially missing?

How do you go through it?

[Bill] (49:17 – 55:18)
There’s no question that these names are statistically cheap now, even on GAAP metrics. Don’t have to go through any of the growth accounting that we used to have to do to demonstrate cheapness. Our basic thesis on this is that the wire that brings internet into your home at incredibly rapid speeds should be thought of as almost an infrastructure asset.

The market focus on decline in video is completely misplaced because that just isn’t a very valuable asset to the cable companies today. They probably shouldn’t be called cable-TV companies; they should be called internet companies.

Fixed wireless has certainly done an effective job of taking some of the low-hanging fruit, and it’s a technology that will continue to improve—maybe at some point becomes a viable competitor to the internet infrastructure the cable companies have constructed. But if you look at companies like Charter and Comcast today, the value that would have to be transitioned from mobile communication to fixed wireless isn’t in the economic interest of AT&T, Verizon, T-Mobile to, at scale, move everything to fixed wireless. When you’re paying as low a multiple as we are on companies like Charter and Comcast today, the cash flow that they’ll generate in the next five years becomes a very significant part of what we’re paying.

Something investors often get wrong is you look at a technology where there’s competition 10 years out that might be threatening—maybe you could say this in GM’s case too. Our ability to predict what the company will look like a decade to two decades out is very, very dim.

And because of that, they’ll conclude that the investment is high risk. But the fact is you’re getting something like 20% of your value back each year. Even if the business isn’t worth much a decade from now, you can more than justify the current price based on the cash flows that you’ll get before the new technology becomes completely damaging to the businesses.

But we’re in the same boat you are. We’re frustrated with Charter and Comcast. We’re second-guessing ourselves as to whether we’ve taken fixed wireless seriously enough and whether the timetable is becoming more compressed than we thought when we initially made these investments.

It’s something that we’ve got in what we would call our mistake-management protocol. Something I think value investors generally aren’t good at is considering the fact that new information might be breaking your thesis. We’ve all got this instinct to say the news might be bad, but the stock’s down more so it’s cheaper today than it was yesterday.

Our analysis of our own historical data says that’s often not true. It makes us turn up the temperature on companies where the chance is greatest that we don’t have our thesis correctly represented in our quantitative models. We make analysts do reports more frequently. We have more frequent devil’s-advocate reviews.

We consider transferring the names to other analysts to get a fresh look. Charter and Comcast are in that position today where we say if you look over the past year, the fundamental growth in business value wasn’t what we expected—and let’s have an intense focus on what we might have wrong. I think one of the things that differentiates value investors from growth investors is how far out we think we have any ability to make a prediction that a company will be something other than normal.

We’ve kind of decided that’s about seven years for us, and if a company can’t grow its way into a below-market multiple in that timeframe, we don’t want to be needing to be right in what happens after seven years to justify an investment today. And it’s funny, it’s a debate I get into all the time with our younger analysts. There’s always a company that might be Mastercard or Visa or Moody’s or Alphabet, Amazon—that they’re saying, “It’s just so obvious that we know what this company will look like 15 years from now.”

And I tell them I used to think like that, but then the businesses that I was told were the safest early in my career were mail-meter companies like Pitney Bowes, or Yellow Pages, or landline telephones, or network TV—then it was cable-TV content. We’ve seen all these companies disrupted by new technologies. I just think, as a value investor, one of the ways we lower the risks for our clients is just saying maybe there are people out there that can project the world beyond seven to 10 years—I kind of doubt it—but I know we’re not in that category, and we’re not going to expose their portfolio to risks that come from needing to be right more than seven years into the future.

[Jonathan] (55:19 – 55:46)
It’s difficult. I don’t know if you saw this chart that J.P. Morgan put out. They took—starting from 1985—every 10 years, what were the top-10 market-cap companies, and they went by.

There were none that were there the whole time, and only two were in four of the five cohorts. I think it was Exxon and GE, and we know how that turned out. Nothing’s forever.

[Bill] (55:47 – 58:25)
There are a ton of rational arguments why the top-10 companies in the S&P that make up something like 45% of the weight in the S&P—there are really good arguments why this time might be different. But I think you have to recognize the risk that you are betting on this time being different. And if you’re wrong, the cost is really high if that’s the majority of your portfolio.

Do I think NVIDIA could be this generation’s Cisco? I was on a panel talking to the investment society in Scottsdale back in February with Rob Arnott, talking to the CFA Society, and Rob Arnott talked about what are the assumptions that might make sense if you look out the next decade for NVIDIA. How much is the market going to grow?

What kind of market share do you think they’ll have? How much do you think the price per unit of compute will go down? He informed a lot of his assumptions based on what actually happened to Cisco, because back in 2000 it was the arms-race leader of the internet revolution.

And he threw out all of these assumptions that one-on-one all sounded reasonable—and then tied it to: and what happens if it sells at a market multiple at the end of that time? And it started to be very difficult to justify the current price, much less the idea that you’d earn 20% a year investing in NVIDIA. I think it’s a great exercise to go through.

You’ve also got the past history. I’m old enough to remember the computer revolution, the internet revolution. Wall Street’s go-to is to go to the equipment companies.

Rarely in hindsight are those the biggest beneficiaries. IBM and the Seven Dwarfs—the other seven large computer companies: Burroughs, Control Data, Digital Equipment, NCR—that wasn’t a pretty picture.

The internet bubble in 2000—everybody thought AOL and Cisco were the two names that you could extrapolate out forever. The winners ended up being, in both revolutions, the ones who used the technology better. And that’s kind of how we’re playing AI at Harris/Oakmark.

We’re expecting the winners will be traditional businesses that increase their competitive moats by using AI better—like Walmart did to Sears and Kmart with the computer and internet revolution.

[Jonathan] (58:26 – 58:41)
Have you looked at SS&C? We have. They’re going to be huge beneficiaries of it.

They’re taking out so much cost in their business. I think they said $200–300 million in the last year or two, I think. It’s directionally correct.

[Bill] (58:41 – 59:13)
And the question becomes, how much better do they do that than their competitors do? Well, they have very little competitors—that’s the beauty of it.

We look at a company like Capital One and credit cards that’s always been on the leaderboard for rapid adoption of new technology. We think they are utilizing AI faster than anybody else in financial services. And if we’re wrong, what are you paying—like 12× earnings for a leader in the credit-card business?

Probably a cheap stock anyway.

[Jonathan] (59:14 – 59:30)
This has been fantastic, Bill. Thank you for your time today. I enjoyed hearing about your remarkable career, your thoughts on various companies, your investment philosophies, how you select stocks, and so much more.

Really, the hour flew by, and thank you so much.

[Bill] (59:31 – 59:32)
Thank you, Jonathan.

[Jonathan] (59:32 – 59:44)
It was a pleasure talking to you. I hope you enjoyed the show. To be sure you never miss another World According to Boyar episode, please follow us on X (Twitter) at @BoyarValue.

Until next time.