In a recent interview with Barron’s, top fund managers Daniel O’Keefe and David Samra discuss the value-focused approach they’ve used to beat the market and most of their peers over the past several years.
“They’re looking for firms that trade at steep discounts to underlying value, with strong balance sheets and savvy management,” Barron’s says. “The result: A focused portfolio, with just 44 stocks, recently tilted toward the U.S. … and, to a lesser extent, Europe. They’ve largely steered clear of emerging-markets stocks, though many of their multinational holdings get some of their profits or revenues there, and they’ve currently got minimal exposure to Asia.”
The duo is currently finding value in the financial sector, and in older tech names like Oracle and Microsoft. “These companies are integral to the efficiency and productivity of the corporations they serve,” O’Keefe says of the older tech firms, “yet they trade based on near-term quarterly movements in guidance, instead of as the hugely entrenched, steady cash-generating businesses they have evolved into.”
Samra and O’Keefe also talk a bit about broader value investing mentality. “One does not become a value investor unless you really have the personality for it,” Samra says. “You end up owning things like Oracle and Tesco, where you are banging your head against the wall because the valuation is cheap and you can see that you would make money if the news would just get a little better. Most investors are psychologically ill-prepared to deal with that kind of negative information flow on a daily basis…. Dan and I have the kinds of personalities that lend themselves to it.”