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The JRo Show

Estimating mid-cycle, normalized earnings with Alex Fitch and Michael Nicolas from Harris Associates (Oakmark Funds)

Feb 19, 2024
Estimating mid-cycle, normalized earnings for value investing, discussions on CBRE and SCHW examples, adjustments for software companies like Salesforce, Amazon and Alphabet examples, P/E ratio determinations, Masco and American Express examples, dealing with stocks with wider range of outcomes, picking required rate of return, idea generation and research process at Harris Oakmark, qualities needed in an analyst, fostering a culture of humility and debate
01:06:04

Podcast summary created with Snipd AI

Quick takeaways

  • Valuing companies based on mid-cycle or normalized earnings helps avoid value traps and ensures investments at a discount.
  • Earnings normalization reveals true economic power by adjusting for items like stock-based compensation and non-recurring charges.

Deep dives

The Importance of Value Investing at Harris Oakmark

Harris Oakmark is a value investing firm that focuses solely on buying businesses for less than their worth. They prioritize long-term fundamental intrinsic value investing and look for opportunities to invest in businesses at a discount. They emphasize the importance of valuing companies based on their mid-cycle or normalized earnings power. They have a broader definition of value and consider factors such as management quality, potential for per share value growth, and undervaluation. They set sell targets for their investments and focus on valuing companies based on their mid-cycle or normalized earnings power.

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