Rather than worrying about short-term, market-moving events, Randall Dishmon, Portfolio Manager of the Oppenheimer Global Equity Team, is simply focused on buying strong, undervalued companies at the best prices possible for shareholders. This approach has served Dishmon well over the last decade.
We recently sat down with him to discuss his approach to answering the three questions that drive his investment process:
- Is this company worth owning, ever?
- What's the right price?
- Is management working for shareholders?
Here are some highlights from our conversation.
Gregory Brown, Income Strategist: Your investment strategy takes a global approach. What’s your perspective on the global markets right now?
Randall Dishmon, Portfolio Manager of the Oppenheimer Global Equity Team: I’ve always looked at the world as one stock market, so to look at the U.S. specifically for opportunities, or to look at Germany specifically or India has never made any sense to me. What I do know is that good companies are the result of a few people getting together with a great idea and backing that idea.
Then pouring tons of sweat equity into it to make it real. If they have the right integrity, shareholders can benefit from that. This happens all over the world. It’s cross cultural. It has nothing to do with political or geographic borders.
Brian Levitt, Senior Investment Strategist: In 2009 or 2010, I asked you where you saw the best opportunities. At the time, you said in the United States. Do you still feel that way, even after a long period of outperformance?
Dishmon: When people talk about long, extended runs, and they talk about the U.S. being expensive relative to other markets – if you really drill down and force them to tell you what their process is, they say the P/E on the MSCI EAFE, or the P/E on the MSCI ACWI ex U.S., is lower than that of the S&P 500.
You have to start with the facts. What’s really getting you to the point where you can say that it’s cheaper? When you get to that point, what you find is it’s something that you can identify as nonsense. P/E being lower outside the U.S. than inside the U.S. is largely a function of index composition. The U.S. is quite tech-heavy and innovation-heavy, and other parts of the world are industrials-heavy, or commodities-heavy or financials-heavy.
This explains nearly all of the people out there making this comment about P/E. The other thing is – they’re talking about market aggregates. I’m not buying the market. I’m trying to give people a fairly filler-free look at my best ideas.
Brown: Looking back at your last 10 years, what are the most valuable lessons you’ve learned both with your hits, and your misses?
Dishmon: I study my losses quite actively and they’ve yielded a number of insights over the years. Such as, there are two kinds of risks when it comes to investing. There’s operational risk, and there’s financial risk. You can buy one or you can buy the other. A business that’s slightly wounded is operational risk. A business with a bad balance sheet – but where the business is performing, is financial risk. Those are solvable problems by good, sensible, hardworking people. If you buy those two things in the same package, you might as well light a fire to the money. I have very rarely seen a bad business escape a bad balance sheet and a broken business model.
Experience teaches you that broken businesses tend to stay broken, and broken balance sheets tend to stay broken as well.
Brown: What are the themes that you find interesting right now?
Dishmon: Amazon’s purchase of Whole Foods really was a shot heard ‘round the world, and just the whole remake of the traditional bricks-and-mortar retail supply chain. If that didn’t get boardroom doors slamming around the world, I don’t know what would.
When I’ve watched industries go through transformational structural change, they tend to go from thinking incrementally to thinking, ‘oh no – now we need a stick of dynamite and some new thinking.’ I believe the purchase by Amazon officially put this into motion for the retail sector.
Brown: Take us through the next 10 years of your career, as well as the next 20 – or 30. What do you see going forward?
Dishmon: My philosophy about how I pick an investment and how I look at investments hasn’t changed much over the last 10 years. I expect that to remain stable. I ask myself three questions about everything I look at. Is this company worth owning, ever? Find the ones that are worth owning, and then at what price? That’s a critical feature. You buy the past, the present and the future. The people, the intellectual property and the risks – you buy it all at a given number. Make sure you pay the right price and make sure the people are working for you. I don’t care if they get rich along the way as long as my shareholders benefit as well. That’s not going to change.
As a portfolio manager, I certainly spend my time preparing. There’s a Boy Scout element to it – reading all the time, even when nothing is happening. And making sure you are prepared for change so you can evaluate it, figure out where it’s going to go, then get in the way of the winners and stay out of the way of the losers.
Non U.S. investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Value investing involves the risk that undervalued securities may not appreciate as anticipated. Mid-sized company stock is typically more volatile than that of larger company stock. It may take a substantial period of time to realize a gain on an investment in a mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.