Morningstar Advisor - April/May 2010 - 16

10 Questions

An Early Start
David Herro manager, Oakmark International OAKIX, Oakmark International Small Cap OAKEX 1 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.
2 If you look over the past decade, what immediately comes to mind?

Turmoil, instability, and lots and lots of change.
3 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.
4 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.
5 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.
6 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.
7 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.
8 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.
9 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.
10 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 wellwritten and there’s a lot to be learned, not just by reading it, but by trying to understand how economic theory fits.
16 Morningstar Advisor April/May 2010

Morningstar Advisor - April/May 2010

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