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Joe Mansueto and Bill Nygren: The Importance of Having Conviction

Former co-workers revisit a shared history.

Morningstar Advisor, 07/05/2006

In 1983, Joe Mansueto and Bill Nygren were hired as analysts within a week of each other at Harris Associates in Chicago. Their timing couldn't have been better. It was the dawn of a new era: The bull market had just begun and the great expansion of the mutual-fund industry was about to occur.

One year later, Mansueto left Harris to found Morningstar. Nygren stayed at Harris and helped create the Oakmark family of mutual funds. He manages the Oakmark Fund OAKMX and Oakmark Select OAKLX, and he was Morningstar's Domestic-Stock Manager of the Year for 2001. He gave a keynote presentation June 30 at the 2006 Morningstar Investment Conference. (An audio recording of his address is now available.)

Before the conference, we asked Mansueto and Nygren to sit down and discuss their history together and investing. The following conversation took place June 7 at Morningstar's offices in Chicago. It has been edited for clarity. A shorter, video version of the conversation is also available for viewing.
 
The Harris Years
Joe Mansueto: I was hired by Bob Harper, who was Harris Associates' director of research then. I harassed Bob for months calling him for an interview. Bob was a very busy guy and didn't answer any of my calls. It was hard to get his attention. But I was very persistent, and I finally got an interview with him.

Besides interviewing with Bob, I also remember talking to Ralph Wanger [manager of Acorn Fund, which was advised by Harris]. Ralph slid the Acorn report across the desk and said, "Know any of these companies?" [Laughter]

I had followed Ralph for years and was able to describe many of them, even obscure ones such as Grief Brothers, a company that makes barrels. So I think Ralph thought I was okay. I also remember interviewing with Peter Foreman, a senior partner. Peter gave me the annual report of AM Castle CAS, a steel distributor in Chicago, to analyze. It had a big LIFO reserve; i.e., the inventory of its steel was worth a lot more than what its carrying costs on the books were. I think Peter was interested in seeing whether I could identify the LIFO reserve--a kind of hidden asset. It was an interesting interviewing process. It spoke a lot about the culture of the firm.

Ultimately, I was hired. I believe I was one of the few people they've ever hired without any security analysis experience. Probably the last, given that I only stayed a little over a year. [laughter] But I loved working there.

Bill Nygren: In my interview, I met with [Harris Associates partner] Clyde McGregor, Bob Harper, Peter Foreman, and Ralph Wanger. We talked about stocks. They asked me what I was looking at, and I told them that Hasbro was one of my favorite companies--it was selling at like four times earnings. And I saw all these strange glances around the table. "Talk about something else you've looked at," they said. "Cluett Peabody," I said, "below book value, some real estate value, four times earnings." Same reaction.

It turned out the ideas that I was thinking about were exactly the names that they were working on seriously or owned already. I knew immediately that the meeting of the minds in terms of investment philosophy that had been lacking at my current job [at Northwestern Mutual] would be present at Harris Associates.

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