market folly

Donald Yacktman of Yacktman Asset Management recently had a talk at Google about investing and viewing stocks as bonds.

When talking about investing, Yacktman says that, "You're almost always wrong to some degree." 

He goes on to note, "Conceptually, if you think of what you're doing when you're buying an equity is you're buying two cashflows: the cashflow given out as a dividend and the cashflow that is retained by management or invested on your behalf and that's the wildcard.  And the longer term your investment horizon is, the more important that part of the investment equation becomes.  Because it can affect rates of return over long periods of time."

Yacktman also talks about risk management and conviction, noting that you should always allocate more capital to the ideas you have higher conviction in and where you perceive there to be lower risk.  And then your position sizes on less confident names should obviously be smaller.

The key to investing he says: "Have patience. Have a very long horizon time."

He also goes on to do a Q&A session.

Yacktman said there's 3 opportune times to buy: when the whole market goes down/collapses (like the financial crisis of 2008), an industry shortfall (like 1993 with concerns of changing the healthcare industry), or an individual stock temporarily out of favor.

When he can't find bargains, he says "cash is a residual.  When you think about cash, it shouldn't be because you're trying to predict the market. When you don't have opportunity, sometimes it's better off to just sit on it (cash)."

Embedded below is the video of Yacktman's talk at Google: