Viewing Stocks as Bonds – Donald Yacktman

Drawing on his four decades of experience, Don Yacktman identifies the three key characteristics of value stocks.  In this talk, he shares his investment philosophy along with the lessons he has learned from the markets and from life. Don Yacktman is Partner and Portfolio Manager of Yacktman Asset Management.

“We like to buy beach balls being pushed underwater with the water level rising” – Don Yacktman

Investment Goals

  • Protect capital against permanent loss of capital + inflation
  • Grow capital by making double digit returns overtime
  • Exceeding the SP500 index return from market peak to market peak

How to Invest Money

Good business that dominates their industry

  • High market share in principal products and/or service lines
  • High cash return on tangible assets
  • Relatively low capital requirement allowing business to generate cash while growing
  • Short customer repurchases cycles and long product cycles
  • Unique franchise characteristics
  • Secular growth, not cyclical growth preferred (secular is defined as non seasonal or cyclical, they remain consistent over time)

Shareholder Oriented Management

  • Reinvest excess cash back into the business
  • Make synergistic acquisitions
  • Buy back stock
  • Reduce debt
  • Pay a dividend

Lower Purchase Price

  • Sell for less than what an investor would pay to buy the whole company
  • Buy way below intrinsic value, and cut back when it nears that value

3 Opportune Time to Make Purchases

  • When the market goes down (market collapses)
  • Industry shortfall
  • Individual stock that’s temporarily out of favor