Q&A: ROBERT SANBORN: ‘I DON’T THINK PEOPLE ARE THAT IMPORTANT, IN ALL HONESTY’; VITAE

More exposure is not exactly something that Robert Sanborn needs. Hailed as one of the nation’s best large-cap value stock pickers, the manager of Harris Associates LP’s flagship Oakmark fund is a darling of the media and of fee-based advisers who recommend his funds.

“I hope in 10 years I’m a little less visible, but this is a great place,” Mr. Sanborn says. “I’m not complaining. Life is good.”

Oakmark shareholders would agree with the ever-approachable Mr. Sanborn, who began his investment career in the early 1980s as an analyst with the State Teachers Retirement System of Ohio.

Oakmark’s assets keep piling up, but the fund keeps apace, continuing to rate five stars, Morningstar Inc.’s highest risk-adjusted score.

Like buy-and-hold guru Warren Buffett, Mr. Sanborn sticks with what he likes: companies selling at no more than 60% of the value of their underlying business. He sells when the price reaches 90%. No exceptions.

The fund’s turnover rate, as a result, virtually never exceeds 20%. (His largest holding, Philip Morris Cos., has been a staple since the fund’s 1991 inception.) So when he moves into new companies, it’s news. These days he can’t stop talking about the latest additions to his fund, including Columbia/HCA Healthcare Corp., a contrarian bet given that federal investigators have charged it with defrauding Medicare of tens of millions of dollars.

Q What’s your cash position today?

A It’s risen in the last week. It’s about 15%. We had a number of opportunities: No. 1 was Nike, my third-largest holding. I love being able to have bought that company because I did own it in ’93 and sold it prematurely. Nike underperformed the market last year, I think, by 50% to 60% – it came down big. It was somewhat of a worst-case scenario, with Asia falling apart. That’s a very big market for them. And secondly, the U.S. basketball sneaker market inexplicably was down 50%.

The biggest criticism of the company is the fashion business. I think Polo is a fashion business. N
ike is not. I think the brand reflects all the athletes whom it’s aligned itself with. So out goes Nolan Ryan, in comes Bo Jackson. Out goes Bo Jackson, in comes Michael Jordan. Out goes Michael, in comes Tiger (Woods).

Because they have such dominance, they’re able to spread those contracts over the maximum number of shoes and apparel, they have a competitive advantage in securing the athletes who drive the brand. If you believe as I do that sports and fitness as a percentage of the world economy is going to go up inexorably and that their relative position in the world is pretty much unassailable, at this valuation for a five- or 10-year period this is really a slam dunk. (As of mid-February, Nike’s price/earnings ratio was about 15.)

Q Talk to me about Columbia/HCA. Obviously, they’re not out of the woods, by any stretch.

ANo, and I’m worried about it. It’s the flip side of Nike. Nike, I believe the short term is very uncertain, but the long term is very good. In Columbia, maybe it’s a little bit reversed. The stock trades in the mid-20s. I think the logical imperative there will be to pay the fine and break up into a bunch of companies. Some of those pieces are very easily north of 40 when they do that. There’s Value Health, which is a diagnostic company. You’ve got a home-health operation. They’ve got to separate all these things they’ve put together. And I think they were good acquisitions, and I think they’re going to end up getting market valuations that are higher than what they paid for them.

But I have some severe doubts about what those businesses are going to be worth in five years. What’s the relationship between the hospitals, the HMOs, the doctors, the insurance companies? I think that could be a tough place to make money in the long run.

It’s an unusual holding for me.

Q Talk about Mattel.

AIt’s a better-than-average business, but not the quality of a Gillette Co. or Colgate-Palmolive Co. But it doesn’t trade at 23 or 24 times EBITDA (earnings before interest, taxes, depreciation a
nd amortization). It trades at 14 times. I think Mattel is going from a toy business to being a consumer branded business. I think it’s one of those companies where it’s a superior business, but it doesn’t have that kind of crazy valuation. The odds of Coke and Gillette being revalued upward are pretty darn close to zero.

Q In what ways are you a different manager today than when you

started?

AI would just say that I’ve made the same kind of change that Buffett seemed to, where, as he got older, he was moving more away from lousy businesses at very cheap prices – cheap widget companies, cheap steel companies.

The other thing is, I don’t think people are that important, in all honesty, in general. I think the average American management team is good, but I’d much rather invest in a business than a management team. I will never follow a management team to another investment just because they’re going. Five or 10 years ago, I would travel the circuit with them. Now I wouldn’t do that.

Vitae

Robert Sanborn, 40, executive vice president, Harris Associates LP, manager, Oakmark Fund.

Co-portfolio manager, New England Star Advisers Fund and Star Worldwide Fund.

Oakmark Fund (assets: $7.3 billion): One-year return, 27.11%; three-year, 27.44%; five-year, 22.44%

Standard & Poor’s 500 stock index:

one-year, 26.9%; three-year, 30.49%;

five-year, 20.31%

Large-cap value average: one-year, 21.44%; three-year, 25.36%; five-year, 17.36%

Returns through Jan. 31. Annualized for periods over one year.

Source: Morningstar Inc.