Strandberg: Corporate Governance Has Improved Over My Career

This video is the first of three with Diana Strandberg. You can watch two and three here.

Andrew Daniels: Hello, I'm Andrew Daniels from Morningstar, here at the Morningstar Investment Conference in Chicago, Illinois. Today I'm joined by Diana Strandberg, manager of Gold-rated Dodge & Cox International Stock and Gold-rated Dodge & Cox Global Stock.

Diana, thank you for being here today.

Diana Strandberg: I'm really pleased to join you, Andrew.

Daniels: During your career, what do you think has changed the most and perhaps remained stable in international investing?

Strandberg: I would say, to answer the second half of your question first, I would say the things that have remained enduring are that earnings and cash flow really drive the value of companies. So, we remain intensely focused through our bottom-up research on really identifying the earnings power, the capital allocation, the cash generation of the businesses that we're looking to invest in. I would also say that what's remained the same is that it's really important to not get overly distracted by a lot of noise in the markets and to really look for that signal. We think that of course macro is important, but share price movements are much more dramatic than the underlying change in the value of the businesses that they represent. And the third thing that really hasn't changed is we think starting point is an essential ingredient to long-term returns. Starting point being valuation, is really important.

I would say in terms of what's changed. There have been some improvements we think in corporate governance generally. I remember at the beginning of my career we would try to meet with German companies and they pretty much wouldn’t meet with us because they had all the financing they needed from their banks. And didn’t really see the need for shareholders really or the need to talk to shareholders. So, I think governance has generally increased transparency, accountability has generally increased around the world. So, I'd put that in the plus category. I would say in the minus category is that I think things have become more and more short-term. Both in terms of idea, the duration of an idea and I think that’s partly because we just have immediate access to information. But I also think we've put more and more tools into investors' hands for them to make shorter and shorter-term decisions. And that’s great to be in charge of your destiny, but the research that we've seen including Morningstar's own research is that investor behavior can run counter to their long-term goals by jumping in and out at the wrong time.