Daniel O'Keefe, Artisan Global Value: How He Avoided Bank Value Traps

In this interview preview, Daniel O’Keefe tells WealthTrack host Consuelo Mack why he avoided banks, even before the financial crisis, and why he bought Google in the midst of it:

“So banks were at a low price to earnings multiple. So were they cheap? They were statistically cheap, but were they truly cheap? Well, when we looked at banks, because we didn’t own any for years leading up to the financial crisis, we acknowledge the low P/E, but we looked at the risk. Okay? Because this business is as much about risk as it is about reward. We looked at the risk, and we said, well, the leverage is 20 times. The businesses have been growing their loan books without interruption. They haven’t taken any reserves against potential credit risks. There’s a lot of risk in there.”

“We bought Google in 2008, and Google Inc (NASDAQ:GOOG)’s a great example of what we do, because it gets to the heart of the distinction between something that is merely statistically cheap and something that is fundamentally undervalued. So Google Inc (NASDAQ:GOOG) at around 12 times our estimate of earnings when we purchased it was not necessarily the cheapest company in the universe. You could buy plenty of stocks at nine or 10 times earnings.”

“But Google Inc (NASDAQ:GOOG) is a better value over a long period of time at 12 times earnings than an average or mediocre company at nine times earnings even though it’s a higher multiple. Why is that? Because it has huge operating margins. It operates in a long-term secular growth market. It has significant competitive advantages, and it’s worth 20-plus times earnings whereas an average company at nine times earnings, yes, the multiple is lower, but what is it worth? Twelve or 13? Would you rather buy something at 12 that’s worth 20 and growing or something at nine that’s worth 12 that may or may not grow?”

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Since July 2005, Consuelo Mack WealthTrack has provided trustworthy, understandable advice about building and protecting wealth over the long-term from the best minds in the business world. The weekly financial series remains the only program on television devoted to long-term diversified investing. In season 10, WealthTrack continues to give viewers pathways to build their financial security and tackle economic, market and political changes, featuring new interviews with “Great Investors” and “Financial Thought Leaders,” including David Winters, Dan Fuss, Richard Bernstein, and Bill Miller. Anchor, Executive Producer and Managing Editor Consuelo Mack, an award-winning, veteran business journalist with an extensive rolodex, handpicks each guest based on their professional credentials, performance and integrity. Following an in-depth discussion about the most significant current trends affecting investors, guests recommend “One Investment” that every individual should own in a long-term diversified portfolio. Each week’s episode concludes with Consuelo’s “Action Point,” one to-do item to help viewers achieve financial security. The series website –