Tom Keene Talks to Harris Associates' David Herro

Tom talks with David Herro, chief investment officer for money manager Harris Associates, about fear, and bonds vs. stocks

How long is it going to take to put bonds behind us and fall in love with equities again?
You do have investors clinging to the free zone, which is the bond market. But at some point, and I think we’re already starting to see some investors budging, you will see movement out of bonds and into equities, which when you look at earnings and cash flow appear extremely underpriced versus bonds.
If you didn’t get into the market at the start of the year, is it too late?
Absolutely not. Picture a teeter-totter, and if you think of the fat kid being all the people in safe places like bonds, that teeter-totter is all the way down to the ground. Up on top is equities, and at some point that teeter-totter’s going to start moving.
For all of 2009, 2010, 2011, and the recent first quarter, you beat your peers by 900 basis points per year. How did you do that?
In 2008, what most people forgot about was price and good quality—for instance, consumer discretionary companies. I’m talking about luxury businesses such as LVMH, Richemont, and BMW. These companies got clobbered because people thought we were going into a global depression. So we just maintained and increased our positions in those quality companies and waited. I think the big problem investors have today is A, they lack patience, and B, they are too afraid to buy low and to sell high.

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