Within the OppenheimerFunds Value Equity team, we have a lexicon of terms we use on a daily basis to talk about our research and communicate more effectively with each other. Some we’ve developed on our own, but many we’ve picked up from influential books we’ve read (many outside what would be considered “financial” in nature), influential people we meet or prior work experiences. One of my favorites is the term ”student-minded.”
To us, student-minded is a daily reminder not to be closed-minded, caught in the trap of our own biases, and to not be completely open-minded, accepting everything at face value with little or no skepticism. Being student-minded is being open to the possibilities, with a willingness to explore an idea or topic by seeking out contradictory opinions with the curiosity of a student.
Most investment teams out there generate ideas either through quantitative screens, meetings with company managements, or maybe use Wall Street to guide them towards a conclusion. Don’t get me wrong, the OppenheimerFunds Value Equity team does some of that too! As individuals we develop dynamic screens looking for specific characteristics and we do spend time speaking with both Wall Street analysts and company management teams. But by far our most unique way of sourcing good ideas for the portfolio is approaching potential investments with a student mindset.
Here’s an example. Kyle Bergacker is a member of our team who loves cars. He enjoys the industry, he understands their systems and components, and he works on them. What makes this interest student-minded is when Kyle’s research led him away from his long-held belief that auto part suppliers are cyclical, capital intensive, low return businesses to a different, more secular growth view of the industry.
You see, in order for automakers to meet U.S. car and light truck fuel economy – or CAFE – standards, they’re going to require alternative fuel sources along with lighter vehicles with more advanced technology. As it turns out, light-weighting of vehicles and technologies used to make engines more efficient have huge investment implications for parts suppliers, adding a longer term secular growth story to the industry that may lead to expanding margins and improving returns for years to come. This insight would never have happened without Kyle’s student-minded willingness to seek out and listen to contradictory opinions.
Different team members have taken their own student-minded paths into areas of dynamic change to find interesting stock ideas within the healthcare, industrial, financial services and technology sectors. Some examples of my own student-minded interests include education, the housing industry, retailing and restaurants. Where does your student mind lead you?
Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes and geopolitical risks. Value investing involves the risk that undervalued securities may not appreciate as anticipated. Small and mid-sized company stock is typically more volatile than that of larger, more established businesses, as these stocks tend to be more sensitive to changes in earnings expectations. It may take a substantial period of time to realize a gain on an investment in a small or mid-sized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss.