In an interview with WealthTrack’s Consuelo Mack, top fund manager Donald Yacktman talks about how he has been able to outperform 99% of funds in his category over the past 3, 5, and 10 years. “We think of stocks as though they were bonds,” Yacktman says. He says he determines an expected forward rate of return for a stock by looking at cash generation power, growth, profitability, reinvestment, and inflation — and then applies a quality grade to the stock, just as rating agencies do for bonds. He uses those two factors — the expected rate of return and the quality rating — to find the stocks with the best projected risk-adjusted returns. Yacktman also discusses what he thinks are the lessons of the financial crisis, the reasons he thinks high-quality stocks are undervalued, and why he thinks growth/value distinctions are often overused.
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