Herro: What's Changed, What Hasn't, Since the 1980s

Katie Reichart: I'm Katie Reichart with Morningstar. I'm here with David Herro, Manager of Oakmark International.

David, thanks for being here.

David Herro: Thank you for inviting me.

Reichart: You've been running this fund for 26 years. So, during your career what's changed the most about international investing and what hasn't changed?

Herro: One of the things that I think has really changed since I started back in 1986, is the pace at which information flows around the world. I mean it used to be, you really didn't know what was happening, sometimes till the next morning. And I remember traveling overseas and if I wanted to know share prices I got a fax and faxes were relatively new in the '80s. I got a fax from the hotel that showed me the closing prices of stocks, when a company reported a news event, you didn't necessarily know until sometimes a day or two after. And of course today we have our handhelds, Bloomberg, or whatever information source. Instantly you know things. And I think that could be plus or a minus. I think all too often people may react too rapidly without thinking. They get the information they do a knee-jerk reaction and they maybe perhaps do something they wish they wouldn't have done. On the other hand, for an investor who's a patient long-term value investor, when investors make knee-jerk reactions often we benefit from that. So, I think clearly the pace at which information flows and the type of information that flows has changed dramatically since I started.

What hasn’t changed, fear and greed. I mean these basic elements of people wanting to like a stock that goes up, and wanting to dislike a stock that's gone down. Which of course is perverse to what leads to successful investment, buying low and selling dear. But there is a psychological need to want to be invested in something that goes up even if it's expensive, and that psychological distraction we'll call it, is something that emotion that investors make emotional rather than practical decisions I think is something that hasn’t changed. And again, ultimately, its good for long-term value investors.

Reichart: Corporate governance is another issue. Have you seen any changes there particularly in Japan, any improvements?

Herro: It's gotten better. I will say it has gotten better over the decades. Is it good? No. I don't think it's good. I don't think corporate governance still is good anywhere even in the United States. It's better, but we still don't have what I think should be a laser beam focus on value creation. We as investment managers have a responsibility to take people's savings and to invest them into businesses and their responsibility should be to create shareholder value. And I don't know how many times we have wrestle and fight. There's all kinds of other things. There's all kinds of other agendas. And even under the banner of ESG there are agendas perhaps that even conflict with value creation. Of course, we want all our companies to be good corporate citizens. It's very important to obey all laws. But what we want is value creation to be first and foremost on management's plate. It's better, certainly better in Europe. I mean I remember some of the prices the European companies paid for acquisitions, just awful. But it still is wanting. We still want boards and managements to think first and foremost the job of this business is to create wealth for the investors first. There are other jobs. I am not saying it's the only thing. But it should be first and foremost.

Reichart: Very good. David, thank you so much for joining us today.

Herro: Thank you for having me.

Reichart: I'm Katie Reichart with Morningstar.