http://finance.fortune.cnn.com/2012/06/14/retirement-guide-herro-europe/?iid=SF_F_LeadThe vaunted international stock picker David Herro is betting big on banks in France, Spain, and Italy. But he doesn't call himself a risk-taker.
FORTUNE -- David Herro seems awfully relaxed for a man who has more than $1 billion invested in European banks. It's a sunny morning in late May, and I'm sitting across from the boyish 51-year-old fund manager in his downtown Chicago office. He's giving me his full attention, but I can't stop glancing at the headlines blinking on the Bloomberg terminal behind him. The euro is about to hit a two-year low. Greece is on the brink of disaster. Spain's real estate market is in shambles, and Italian sovereign debt is as fragile as stained glass. The global economy is roiling, and Herro is positively beatific.
"Eventually they're going to get these problems solved," he says. "If you look at the economic history of the world, problems come and problems go. There are problems, and they do have to be dealt with. And our view is that all these problems are manageable."
Comments
Thank you for the story link. Although our house has never been invested in this fund; the author picks and digs around into the "person" responsible for the fund's well being; and I find all of the little trinkets of information about Herro to be of great value and a refreshing presentation.
Wondering though, whether he (Herro) has any of his own money in OAKIX?
I am not, however; impressed with the fund's performance.
Aside from the main thrust of the story about Herro and his thinking; also indicated is that when one finds a passion or intuitive connection in life, regardless of C's and D's on the high school report card, many other positive possibilites exist for our time on this rock.
Regards,
Catch
I wouldn't be relaxed about the problems Europe faces and I absolutely think there will be better opportunities to invest in Europe than now. I wouldn't look at the financials unless you believe that they're just going to be continually bailed out as needed and even then the headwinds they are going to face are going to persist for years. What's the investment thesis, other than hoping that "problems will be fixed." - and doubtfully will be fixed in ways other than bailing out.
I'd rather look at consumer staples, industrials,energy and real estate that may have been thrown out. Things along the lines of Siemens trading not far from a 52wk low.
Herro's bet on European banks isn't nearly as concentrated as the bet Berkowitz made but I think it's a terrible choice and just because these banks are cheap doesn't necessarily make them values. You have TBTF banks in this country trading at a fraction of book value and continue to do so - is Bank of America trading at 0.39x book value (a level which it's been at for months) because it's a screaming value or because the market believes the book value is BS? I'm guessing the latter, and same for many of the European banks.
There is great value in Europe and there is going to be greater value in Europe, but the banks aren't it.
" just as there are a number of US banks that were not involved in this economic fiasco."
How do we know that?
What I find rather baffling is the willingness of investors to have faith in the financials despite all manner of negative surprises (my favorite being the parent company of Spanish bank Bankia revising its 2011 performance from a 41M Euro profit to a $3.3b Euro loss - Ooopsie!) in recent years, not to mention potential counter-party risk.
As I noted above, Bank of America trading at 0.39x book is either a screaming bargain or the market doesn't believe their book. I'll continue to go with the latter.
Are there some good banks here and elsewhere? Sure. However, as I noted above, there are going to be headwinds that likely last for years. Making a large bet on financials is at best, an issue of opportunity cost. Picking a few financials that might be winners over the long-term? fine. I don't own it right now (nor do I really own any financials in terms of single stocks), but I do rather like Glacier Bancorp (GBCI) and there are a few other banks here and elsewhere that I think are interesting but nothing I'd invest in now or for the foreseeable future.
Lastly, just because "the crowd" dislikes something doesn't always make it a value.
"There is great value in Europe and there is going to be greater value in Europe, but the banks aren't it."
I agree with you. If we parallel what's going on in Europe and how they will recover to the US recovery, every US sector has recovered and then some except financial. If you graph all the sector ETF's starting from the start of 2008 to the present, the only sector that has not come back is financial, still down about -35%. Compare that to sectors like consumer discretionary and consumer staples, up ~ 50% and 40% respectively since start of '08. If Europe's recovery is similar to the US recovery, sectors other than financial offer much better opportunities then the financial 'value trap' (as you said). As seen in the US, the European financial sector could take many years to reach a positive slope to recovery. -just my 2cents.
Have a good wked, Derf
Have a good weekend and happy fathers day to you.
Spain is in the process of getting worse and worse economically and at the beginning stages of some needed bailout money.
For the US banks - let's see how things play out 5 years from now.
Remember - we've heard on Fox Business News and all the capitalists about government interference and contraining the bank's potential for earnings BUT the Canadian banks have chugged along in a more stricter regulatory environment and have held safer/higher capital ratios yet have absolutely wonderful 10-year returns!
TD Bank: 15.34%
Royal Bank of Canada: 13.59%
Bank of Nova Scotia: 14.34%
Strong, well-run banks with dividend growth can do well.
I'm not saying now is the time to jump into Spanish Banks as I would let the volatile environment play out longer but eventually averaging into a top-notch Spanish bank could be a decent *long-term* play.
Do you know what the worst asset class was in 2000?
==> Emerging Markets! Were they in good shape? No, they're considered EM because their markets were not mature, riddled with debt, have to borrow from IMF and where we had witnessed major fallouts from the Asian contagion, Russian default and Argentina collapse right before our eyes. And we heard many investors say that they wouldn't touch EM with a 10-foot pole.
Fast forward 10-12 years later and what has happened to what was the worst & scariest asset class? In fact, in 1999 - probably the worst Tech Stock was probably Apple.
Why do you think John Templeton jumped into Japanese stocks in the 60's and 70's after being beaten to a pulp that no American would come near a Japanese stock --- and he made an absolute killing for over a decade. No, not in 6 months, 1 year or 2 years time.