Podcast Summary: RWH058: Winning Ways with Bill Nygren

Podcast Information:

• Title: We Study Billionaires - The Investor’s Podcast Network
• Host/Author: The Investor's Podcast Network
• Episode: RWH058: Winning Ways with Bill Nygren
• Release Date: June 22, 2025

Introduction

In episode RWH058 of We Study Billionaires, host William Green engages in an in-depth conversation with Bill Nygren, the Chief Investment Officer at Harris Associates. With over 30 years of stellar investment performance managing approximately $25 billion, Nygren shares his insights on sustaining long-term investment success, his disciplined approach to value investing, and the importance of team dynamics and mentorship in his career.

Early Years and Investment Philosophy

Bill Nygren reminisces about his formative years, highlighting his early passion for mathematics and investment. Growing up in Minnesota, Nygren frequented the local library, immersing himself in investment literature, particularly Ben Graham’s Intelligent Investor. This period shaped his foundational belief: "You're maximizing your chance of success in investing if you behave the same way as an investor as you do in the rest of your life." (06:14)

Nygren explains his resistance to the prevailing Efficient Market Hypothesis, influenced by his reading order and personal experiences. He found books advocating for growth and momentum investing unaligned with his methodical, value-oriented mindset. Instead, he resonated with authors like John Templeton and Ben Graham who emphasized buying undervalued stocks and patiently waiting for their true value to be recognized.

Education and Mentorship

Nygren pursued an accounting degree at the University of Minnesota, recognizing early on that "accounting was the language of investing." (23:39) During his undergraduate studies, he ambitiously wrote a business plan to start a mutual fund, only to face skepticism from his peers. This experience, where his proposal was met with "loud laughter," strengthened his resolve: "the more people told me that I couldn't do it, the more I was committed that I was going to achieve it."

A pivotal moment in Nygren's education was joining the University of Wisconsin's Applied Security Analysis Program, directed by Steve Hawke. This program, which combined academic finance with real-world investment management, profoundly impacted Nygren. He credits Steve Hawke for bridging the gap between theoretical knowledge and practical application, fostering a collaborative environment that emphasized continuous learning and adaptation.

Joining Harris Associates

After a stint as a stock analyst at Northwestern Mutual Life Insurance, Nygren was introduced to Clive McGregor of Harris Associates through mentorship. This meeting culminated in Nygren joining Harris Associates in 1983. Reflecting on his first interactions, Nygren recalls how seamlessly his investment philosophies aligned with those of Harris's partners, reinforcing his belief that "the similarity in how we thought about investing... was tremendously reassuring." (44:38)

Investment Process and Core Principles

Nygren elaborates on the three foundational investment principles guiding Harris Associates:

1. Buying at a Large Discount to Business Value:

   • Nygren emphasizes purchasing stocks at substantial discounts, aiming for "something in the 60s, cents on the dollar" relative to their estimated intrinsic value. This conservative approach ensures a margin of safety in investments.

2. Combining Dividend Income and Growth:

   • The firm seeks companies where the combination of dividend yield and expected earnings growth surpasses the S&P 500. For instance, a firm like Altria with a 9% yield or a growth-centric company like Alphabet, even without significant dividends, fits this criterion.

3. Exceptional Management:

   • Nygren underscores the importance of investing in companies led by management teams aligned with shareholder interests, focusing on "maximizing long-term per share business value." This principle ensures that management decisions positively impact shareholder value over time.

These principles, Nygren asserts, have remained consistent over four decades, adapting only to accommodate the evolving economic landscape. He notably discusses how Harris Associates has adjusted its valuation metrics to account for intangible assets, such as brand value and customer acquisition costs, exemplified by their investment in Netflix.

Team Dynamics and Culture

A cornerstone of Harris Associates’ success, according to Nygren, is its collaborative team culture. He highlights the importance of "aligning yourself with as many top decile people as possible," fostering an environment where team members challenge each other’s ideas constructively. Nygren explains how the firm employs a devil’s advocate approach in investment meetings, ensuring that every investment hypothesis is rigorously tested from multiple perspectives.

Nygren also emphasizes the significance of hiring individuals who are not only technically proficient but also ethical and team-oriented. This approach cultivates a supportive work environment where knowledge sharing and mutual respect are paramount.

Handling Market Cycles and Emotional Resilience

Nygren addresses the psychological pressures of investing, especially during turbulent market periods like the dot-com bubble, the 2008 financial crisis, and the COVID-19 pandemic. He stresses the importance of maintaining confidence in long-term investment theses, supported by a disciplined process that allows for rapid identification and rectification of mistakes. Nygren notes:

"Another way to categorize mistakes is in terms of company fundamentals, not stock price. So to us, a mistake is we didn't project company fundamentals correctly either direction." (94:33)

To manage stress and emotional challenges, Nygren relies on his passion for the investment game and the rewarding nature of helping clients achieve their financial goals. He also fosters a culture of support within Harris Associates, ensuring that team members feel secure and valued even during downturns.

Evolving Investment Philosophies

Nygren discusses how Harris Associates has adapted its value investing approach to the modern economy, where intangible assets play a more significant role. He provides examples of how they recalibrated depreciation schedules for cable TV companies and redefined valuation metrics for companies like Netflix. By incorporating non-GAAP metrics and reassessing traditional accounting principles, Harris Associates continues to uncover value opportunities in the information-driven market.

Nygren asserts that value investing remains robust, countering the narrative that it is obsolete. He believes that "the high concentration in mega-cap growth stocks... is almost a bet against capitalism," as these companies struggle to sustain unprecedented growth rates.

Philanthropy and Personal Life

Beyond investing, Nygren is deeply committed to philanthropy through the Bill Nygren Foundation. He focuses on educational initiatives, particularly for first-generation students facing economic challenges. Nygren shares:

"We set up scholarship funds for kids in the county that we live in who have achieved academic excellence despite the challenges that they've had to overcome." (115:49)

His philanthropic efforts extend to community organizations like Maggie’s Strides for Peace, aiming to reduce gun violence and support youth education. Nygren emphasizes the importance of giving back, reflecting on his own privileges and the desire to provide opportunities for disadvantaged children.

Future Outlook and Concluding Thoughts

Looking ahead, Nygren remains optimistic about the enduring relevance of value investing. He contends that as long as value investing principles adapt to the changing economic landscape, they will continue to offer robust opportunities. Nygren concludes with a reflection on the collective effort behind Harris Associates’ success:

"This wouldn't have been possible without the team around me. I'm a baseball fan. One of my favorite quotes is a Casey Stengel quote that says managers get paid for home runs other people hit. That's just as true of portfolio managers as it is of baseball managers, that it's very difficult to be a one man show and be successful for any extended period of time." (130:47)

Nygren attributes Harris Associates' resilience and sustained performance to its disciplined process, collaborative culture, and unwavering commitment to core investment principles.

Notable Quotes

• Bill Nygren: "You're maximizing your chance of success in investing if you behave the same way as an investor as you do in the rest of your life." (06:14)
• Bill Nygren: "Management is aligned with outside shareholders in having a goal of maximizing intermediate to long-term per share business value." (56:09)
• Bill Nygren: "Our belief is if a stock attains that [sell target], then to continue owning that stock rather than recycling that capital into another that's at 60% of what we think it's worth would be hurting our expected return." (72:39)
• Bill Nygren: "We think the group is small enough and we all have an ability to challenge any decisions. It's not overwhelming to try to get one other person out of two people to agree with you." (91:35)
• Bill Nygren: "This wouldn't have been possible without the team around me. Managers get paid for home runs other people hit." (130:47)

Conclusion

Bill Nygren’s insightful discussion in episode RWH058 underscores the importance of disciplined value investing, continuous learning, and fostering a collaborative team environment. His journey from a mathematically inclined teenager to a successful CIO offers valuable lessons for investors aspiring to achieve long-term success. Nygren’s unwavering commitment to core investment principles, adaptability to evolving market dynamics, and dedication to mentorship and philanthropy exemplify the qualities that distinguish exceptional investors in the financial world.

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