Oakmark’s David Herro has beaten the market handily for more than a decade, and in a recent interview with Morningstar, he says that long term thinking and having the courage of his convictions are two big reasons for his success.

Herro says he uses a bottom up approach that looks for quality companies whose shares are trading at attractive prices compared to the value his team sees in them.
“A, you got to be able to price something right; and B, you have to have the courage of your conviction,” Herro said. “You have to be able to truly buy a quality business that’s falling for nonfundamental reasons, and you have to sell a business as it hits its price point. You have to have that discipline. I think that second aspect is what we do very well where that discipline comes in that perhaps others do not have.”

Herro says time horizon is also critical. The market is “inherently short-term focused, and because of this we have opportunity to buy quality at low prices,” he says. “If we’re going into an economic slowdown, the market might want to flee all consumer discretionary stocks or all heavy industrials, whereas, we have the luxury of looking through the cycle to take advantage of it.”

“You can’t be afraid to underperform in the short period,” he adds. “If you’re constantly trying to match short-term results, guess what, I don’t think you’re going to perform over the medium and long term. So I truly believe that there is a trade-off between medium- and long-term results and short-term results, and we are more than willing to give up short-term if it means more for medium and long-term.”