We asked Oakmark International's David Herro to answer our 10 Questions.
View the video version of this interview here.
Morningstar has named you international Manager of the Decade. If you gave an acceptance speech, which three people would you thank first?
First, I'd have to thank my parents. Second, I had a couple of economics professors who taught me a way of thinking that made me a better investor. One of them was John Simonson, and another one was Bushra Megali. They were two very, very great economists from whom I learned how to think like an economist.
If you look over the past decade, what immediately comes to mind?
Turmoil, instability, and lots and lots of change.
What are going to be the biggest challenges of the next decade?
Being somewhat of a believer in mean reversion, maybe the next decade will be a lot quieter.
What do you think is the least-investor-friendly country?
The least-investor-friendly country that I'm familiar with has to be Russia, because there is not a consistent rule of law. At this point it isn't a transparent and safe place to invest.
Governments have reacted to the financial crisis with increased regulation. Which countries do you think are going too far?
The United States. ... We overcompensate, and when you overdo a correction, it, too, becomes a mistake. Does the concept of thinking of a group of countries as emerging markets still make sense? I think it does to some degree. But a lot of these countries have almost emerged. On the other hand, there still are certain characteristics that makes these countries "emerging"--but less so from a negative perspective.
What's your favorite personal getaway?
There is a place off the Great Barrier Reef in Australia called Lizard Island. It's a nice, rustic but high-quality resort, and if you like scuba diving, there's nothing better to clear your mind than to scuba dive. A close, quick, and dirty one is tailgating outside of Lambeau Field. So if I can't get up to Lizard Island, there's nothing better than a day at Lambeau.
Who makes the currency-hedging decisions with your funds?
I initiated the policy when we first started it in 1992, but now it's somewhat of a joint decision. "Joint" meaning we measure currency levels, we measure purchasing power parity, and we make sure that the portfolios remain aligned.
How can you know that a currency is over- or undervalued, when it's completely different from valuing a company?
A company is much more finite. This is why, in currencies, we realize that we're never going to be exact; it is very inexact. But there is a fundamental basis between currencies' value, and that is what each currency buys in a similar basket of traded goods. This is not exact, and this is why we won't hedge unless a currency is at least 20% overvalued. It has to be at least 20%, because it is very inexact.
What's the best book you've read in the past year?
I'm currently reading the second Freakonomics book. They're on the best-seller list, but I still think they're very well-written and there's a lot to be learned, not just by reading it, but by trying to understand how economic theory fits.