Jeff Ptak: Let's touch briefly on energy. I think I've read that your long-term crude oil forecast, if you had to set a price for it, the equilibrium is maybe $70 a barrel, if I'm not mistaken. Obviously, we had crude oil prices that were trading well below that through portions of last year and remain below that level today. It looks like you nibbled, added Chesapeake (CHK), built up your position in Apache (APA), if I'm not mistaken. One question is why didn't you do more? Did you not find more bountiful value within the oil patch or the energy sector more generally?
Bill Nygren: I think one reason to have not done more is the sensitivity of the two names that we purchased to oil and gas prices is significantly higher than most companies in the S&P 500. So, our way of thinking about it was that we could invest a relatively small percentage of the portfolio in these names and have a very significant upside if prices return to what we think long-term market clearing prices need to be.
One of the nice things about oil and gas compared with some of the metals commodities is that because of the decline in production that you get in all the existing wells, we're going to know relatively soon what level prices really need to get at to induce more spending, more drilling, and creating more supply of oil and gas. I think it's highly unlikely that demand changes enough to fall to the decline curves that existing wells have.
So, the nice thing is we will have an answer relatively soon. For us, where we think in seven- to 10-year timeframes, thinking that in two to three years the market will need to be back at a market clearing price, that doesn't test our patience all that much. But as we saw prices go down to $40, you saw drilling come to a screeching halt in a lot of the U.S. That drilling needs to come back to meet long-term supply.
The only question is whether that will be at $60 or at $80 a barrel? We have reasons to believe it's going to be more toward the high end of that. But again, the nice thing is that we should know relatively soon.
We picked Chesapeake and Apache because we believe both management teams there think very intelligently about deploying shareholder capital.