Mutual Admiration
An early lesson from his father, a fascination with numbers, and the pull of investing real money have shaped UW grad Bill Nygren into one of the country's most successful mutual fund managers.
By Erik Ahlberg '97
Bill Nygren MS'81 was just ten years old when he got his first lesson about the dangers of gambling.
During a family vacation to Disneyland that had a stopover in Las Vegas, his father, John Nygren '51, led him to a slot machine in the entryway of a Kroger grocery store and began a lecture about foolish risks.
Nygren's father took five nickels out of his pocket, smiled at his son, put the first coin into the machine, and pulled the handle. Seven nickels clanged down. The older Nygren frowned. Determined, he dropped the second nickel into the coin slot. Five more nickels dropped noisily into the tray.
"I was begging Dad to stop while he was ahead," the younger Nygren remembers. "It took half an hour, but the smile finally returned to his face when he succeeded in losing his twenty-five cents. The lesson he had hoped to teach me wasn't quite the one I learned — the seed was planted for a lifelong fascination."
By Erik Ahlberg '97
Bill Nygren MS'81 was just ten years old when he got his first lesson about the dangers of gambling.
During a family vacation to Disneyland that had a stopover in Las Vegas, his father, John Nygren '51, led him to a slot machine in the entryway of a Kroger grocery store and began a lecture about foolish risks.
Nygren's father took five nickels out of his pocket, smiled at his son, put the first coin into the machine, and pulled the handle. Seven nickels clanged down. The older Nygren frowned. Determined, he dropped the second nickel into the coin slot. Five more nickels dropped noisily into the tray.
"I was begging Dad to stop while he was ahead," the younger Nygren remembers. "It took half an hour, but the smile finally returned to his face when he succeeded in losing his twenty-five cents. The lesson he had hoped to teach me wasn't quite the one I learned — the seed was planted for a lifelong fascination."
More than thirty years later, Nygren now makes a living by betting on the biggest and riskiest slot machine of them all: the stock market. And thankfully, the nickels have continued to fall.
Nygren's back-to-basics approach to investing has made him one of the most successful mutual fund managers around. His name often peppers the pages of publications such as the Wall Street Journal and TIME, and his face often pops into living rooms via the business cable network CNBC. In short, Nygren, a graduate of the business school's elite Applied Securities Analysis Program (ASAP), has become a bona fide celebrity.
"I just feel fortunate that I get to do something I love," he says.
Nygren's back-to-basics approach to investing has made him one of the most successful mutual fund managers around. His name often peppers the pages of publications such as the Wall Street Journal and TIME, and his face often pops into living rooms via the business cable network CNBC. In short, Nygren, a graduate of the business school's elite Applied Securities Analysis Program (ASAP), has become a bona fide celebrity.
"I just feel fortunate that I get to do something I love," he says.
At first glance, Nygren looks like a typical, number-crunching finance guy. He's tall and spindly, has a toothy grin, and wears thin wire-frame glasses. His dark, swirling hair looks like it was combed in several directions at once.
But when Nygren speaks, it's with a deep and confident voice. He looks you right in the eye and talks in a matter-of-fact tone that's easy to understand. He uses a constant rhythm and never trips over his own words.
Put simply, Nygren sounds smart. Really smart. And in a business that depends on trust and a lot of brainpower, it's clear after just a few minutes that he's got the right tools.
Each day, from his modest office in a shiny downtown Chicago building, Nygren keeps watch over more than $9 billion of other people's money — an amount roughly equal to 300,000 times the cost for an out-of-state student to attend UW-Madison for one year. Nygren manages two different mutual funds for Harris Associates, Inc., one of which became so wildly popular in May 2001 that he actually stopped accepting new investors.
But when Nygren speaks, it's with a deep and confident voice. He looks you right in the eye and talks in a matter-of-fact tone that's easy to understand. He uses a constant rhythm and never trips over his own words.
Put simply, Nygren sounds smart. Really smart. And in a business that depends on trust and a lot of brainpower, it's clear after just a few minutes that he's got the right tools.
Each day, from his modest office in a shiny downtown Chicago building, Nygren keeps watch over more than $9 billion of other people's money — an amount roughly equal to 300,000 times the cost for an out-of-state student to attend UW-Madison for one year. Nygren manages two different mutual funds for Harris Associates, Inc., one of which became so wildly popular in May 2001 that he actually stopped accepting new investors.
During the past five years, Nygren's trademark Oakmark Select fund has posted an impressive 13 percent return, compared to a 1 percent loss for the S&P 500 stock index, a common measuring stick for mutual funds.
Nygren refutes the common perception that money managers spend twenty-four hours a day locked away in their offices in order to achieve the best results. "That's just silly," he says.
Even though the markets have been roiling over the past year, Nygren, who's single, sets aside plenty of time to attend the sporting events of his thirteen-year-old daughter and fourteen-year-old son. He also blows off steam as a pitcher for the company softball team, The Mighty Oaks.
Nygren refutes the common perception that money managers spend twenty-four hours a day locked away in their offices in order to achieve the best results. "That's just silly," he says.
Even though the markets have been roiling over the past year, Nygren, who's single, sets aside plenty of time to attend the sporting events of his thirteen-year-old daughter and fourteen-year-old son. He also blows off steam as a pitcher for the company softball team, The Mighty Oaks.
Much of Nygren's topnotch performance on Wall Street comes from his approach to buying and selling stocks. He is a so-called value investor, which means that he uses a number of basic accounting and financial measures to determine a company's value. Nygren then hunts for good companies that are selling at bargain-basement prices and buys stock before other investors realize the discount. He is always on the lookout for diamonds in the rough.
"One thing you hear throughout the mutual fund industry is that people are just impressed with how smart Nygren really is," says Scott Cooley, a senior analyst at Morningstar, Incorporated, a Chicago firm that studies mutual funds.
Cooley talks with Nygren about four times a year to pick apart Nygren's recent investment decisions and thoughts on where the market may be headed. In 2001, Nygren was named Morningstar's domestic stock manager of the year for his top-tier analysis and adept stock picking.
What always stands out during the discussions, Cooley says, is Nygren's levelheadedness and extreme attention to detail. "I don't think that other managers are quite as diligent as Nygren is — it's amazing how logically he thinks about everything," he says.
"One thing you hear throughout the mutual fund industry is that people are just impressed with how smart Nygren really is," says Scott Cooley, a senior analyst at Morningstar, Incorporated, a Chicago firm that studies mutual funds.
Cooley talks with Nygren about four times a year to pick apart Nygren's recent investment decisions and thoughts on where the market may be headed. In 2001, Nygren was named Morningstar's domestic stock manager of the year for his top-tier analysis and adept stock picking.
What always stands out during the discussions, Cooley says, is Nygren's levelheadedness and extreme attention to detail. "I don't think that other managers are quite as diligent as Nygren is — it's amazing how logically he thinks about everything," he says.
Nygren's approach brings frequent comparisons to billionaire investing guru Warren Buffett, often called "the Oracle of Omaha." Buffett, known just as well for his love of cheeseburgers as his financial know-how, made a name for himself by sticking to a simple but often ignored mantra: buy low, sell high. The philosophy has also worked well for Nygren, dubbed a "Warren Wannabe" by Fortune magazine last year. As it turns out, the two often make identical investment decisions, buying shares of the same companies at nearly the same time.
"Buffett's thinking has helped shape how we approach investing," Nygren told Fortune. "And because of that, there is an overlap — enough of an overlap that it shouldn't surprise people when we buy the same stocks."
Nygren's conservatism, however, can put him at odds with the rest of the market. In the late 1990s, when Internet stocks were booming and investors were swooning, he refused to get swallowed up by the party. The bargain-basement prices were gone, he said, as were many of the fundamental signs of healthy businesses. Some investors complained; others simply cashed out of his mutual funds and starting making their own bets.
"Buffett's thinking has helped shape how we approach investing," Nygren told Fortune. "And because of that, there is an overlap — enough of an overlap that it shouldn't surprise people when we buy the same stocks."
Nygren's conservatism, however, can put him at odds with the rest of the market. In the late 1990s, when Internet stocks were booming and investors were swooning, he refused to get swallowed up by the party. The bargain-basement prices were gone, he said, as were many of the fundamental signs of healthy businesses. Some investors complained; others simply cashed out of his mutual funds and starting making their own bets.
But Nygren stuck to his guns, even publishing a sarcastic "Top 10 Reasons to Sell Internet Stocks" list in January 1999. "Catching up by buying hot performers wins less often than the Chicago Bears do," he wrote, adding that you know you're in trouble when "the line for a new Internet initial public offering is longer than the line to buy Furby.
"Our investment approach identifies stocks at substantial discounts to current business value, where we are confident business values grow with time, and where we believe managements will get rich only if the outside shareholders do. The Internet names fail on all measures," he wrote.
The rest, as they say, is history. The Internet craze turned out to be just that, and Nygren's Top 10 list is still talked about as one of the first warnings.
"Our investment approach identifies stocks at substantial discounts to current business value, where we are confident business values grow with time, and where we believe managements will get rich only if the outside shareholders do. The Internet names fail on all measures," he wrote.
The rest, as they say, is history. The Internet craze turned out to be just that, and Nygren's Top 10 list is still talked about as one of the first warnings.
Nygren grew up in St. Paul, Minnesota, and attended St. Paul's Harding High School. His father was a director of credit for 3M, known for its Post-it Notes and Scotch Tape products, and his mother was a stay-at-home mom.
From a very young age, Nygren had a fascination with numbers. Each day, he eagerly ripped through the St. Paul newspaper in search of sports statistics. A self-acclaimed baseball fanatic, Nygren would scour columns of data on batting averages and on-base percentages.
In 1965, when Nygren was seven years old, the Minnesota Twins and slugger Harmon Killebrew made it to the World Series against the Los Angeles Dodgers. Four of the games were played at Metropolitan Stadium, located about fifteen miles from Nygren's boyhood home. The stadium was demolished in 1985, and the site later became home to the sprawling Mall of America.
As it turned out, 1965 wasn't Minnesota's year. Sandy Koufax, the Dodgers' pitching ace, silenced Minnesota's bats in the seventh game of the series, leading Los Angeles to a dramatic 2-0 victory and the world championship.
Just as his father's gambling lesson had led to an unexpected result, so, too, did Nygren's unyielding devotion to balls and strikes. As Nygren grew older, his eyes would often drift from the box scores to the business section's stock charts, which were located on an adjoining page of the newspaper. Though he didn't know much about what the numbers and fractions represented, he scanned them anyway.
From a very young age, Nygren had a fascination with numbers. Each day, he eagerly ripped through the St. Paul newspaper in search of sports statistics. A self-acclaimed baseball fanatic, Nygren would scour columns of data on batting averages and on-base percentages.
In 1965, when Nygren was seven years old, the Minnesota Twins and slugger Harmon Killebrew made it to the World Series against the Los Angeles Dodgers. Four of the games were played at Metropolitan Stadium, located about fifteen miles from Nygren's boyhood home. The stadium was demolished in 1985, and the site later became home to the sprawling Mall of America.
As it turned out, 1965 wasn't Minnesota's year. Sandy Koufax, the Dodgers' pitching ace, silenced Minnesota's bats in the seventh game of the series, leading Los Angeles to a dramatic 2-0 victory and the world championship.
Just as his father's gambling lesson had led to an unexpected result, so, too, did Nygren's unyielding devotion to balls and strikes. As Nygren grew older, his eyes would often drift from the box scores to the business section's stock charts, which were located on an adjoining page of the newspaper. Though he didn't know much about what the numbers and fractions represented, he scanned them anyway.
"I later learned from my dad that these numbers actually meant money, and that made them even more interesting," Nygren says. "By the time I got into high school, I knew that I wanted to study finance."
From his mom, Nygren learned how to be frugal. On shopping trips for groceries for her middle-class family, she always looked for price-cuts and coupons, sometimes spending hours driving around town to seize upon sales at different stores. Little did she know that her son was a pint-sized mutual fund manager in training.
"I'm still the same way today — I still buy two cases of soda during a sale and look for buy-one, get-one-free shampoo," Nygren says.
His hunger for learning about business and the stock market during his teenage years was insatiable. Nygren boasts that he read every book about investing he could find at the neighborhood library, located about one mile from his house — though he admits the selection was limited to a single, four-foot-long shelf space.
Upon graduation from high school, Nygren attended the University of Minnesota, where he obtained an accounting degree in 1980. He was then faced with a tough decision: where to go for graduate school. Though Stanford University's business school had a trendy, glossy catalog and the pull of a warmer California climate, Nygren had other ideas.
"At Madison, the students were allowed to run portfolios of real money," Nygren says. "The day I graduated, I moved down there."
From his mom, Nygren learned how to be frugal. On shopping trips for groceries for her middle-class family, she always looked for price-cuts and coupons, sometimes spending hours driving around town to seize upon sales at different stores. Little did she know that her son was a pint-sized mutual fund manager in training.
"I'm still the same way today — I still buy two cases of soda during a sale and look for buy-one, get-one-free shampoo," Nygren says.
His hunger for learning about business and the stock market during his teenage years was insatiable. Nygren boasts that he read every book about investing he could find at the neighborhood library, located about one mile from his house — though he admits the selection was limited to a single, four-foot-long shelf space.
Upon graduation from high school, Nygren attended the University of Minnesota, where he obtained an accounting degree in 1980. He was then faced with a tough decision: where to go for graduate school. Though Stanford University's business school had a trendy, glossy catalog and the pull of a warmer California climate, Nygren had other ideas.
"At Madison, the students were allowed to run portfolios of real money," Nygren says. "The day I graduated, I moved down there."
Real money has been attracting young investment professionals to Madison since 1970, when the business school kicked off one of the first programs in the nation that allowed students to manage real portfolios. Begun with $150,000 from the Brittingham Foundation, the program allows students to oversee about $12 million in stocks, bonds, and real estate investment trusts, including about $10 million belonging to the board of regents.
Each spring semester, about fifteen to twenty students, both undergraduates and graduates, are hand-picked to act as interim portfolio managers of the accounts. The students make all the decisions — what to buy and when, what to sell and why - and take on all of the risks. Only three times in the program's thirty-year history has the faculty overruled a student investment decision.
The hard work can pay big dividends. ASAP's roughly four hundred alumni have gone directly from State Street to Wall Street as pension and mutual fund managers for some of the largest and most successful financial firms in the world.
Each spring semester, about fifteen to twenty students, both undergraduates and graduates, are hand-picked to act as interim portfolio managers of the accounts. The students make all the decisions — what to buy and when, what to sell and why - and take on all of the risks. Only three times in the program's thirty-year history has the faculty overruled a student investment decision.
The hard work can pay big dividends. ASAP's roughly four hundred alumni have gone directly from State Street to Wall Street as pension and mutual fund managers for some of the largest and most successful financial firms in the world.
But before their turn with fame and fortune, ASAP students are expected to dedicate at least thirty hours a week to the program — and that's on top of their regularly scheduled class load, part-time jobs, and family obligations. It's a hefty task, as is the responsibility of managing someone else's money, says ASAP founder Stephen L. Hawk '63, MBA'64, PhD'69.
"The idea is to get students together each year and start a new investment firm with new rules, new employees, and a new investment philosophy," he says. "It's a full-time job."
And he should know. While leading the ASAP program, Hawk helped start Northern Capital Management LLC, the Madison finance firm where he now serves as chair and chief executive officer. He oversaw ASAP from 1970 to 1982.
Hawk's background as a teacher and a real-world investor is what drew Nygren to Wisconsin, though after talking to both, it's unclear who's more impressed with whom.
"There wasn't an issue of whether he would be selected for the program. He had all of the qualifications you'd want," Hawk says.
"The idea is to get students together each year and start a new investment firm with new rules, new employees, and a new investment philosophy," he says. "It's a full-time job."
And he should know. While leading the ASAP program, Hawk helped start Northern Capital Management LLC, the Madison finance firm where he now serves as chair and chief executive officer. He oversaw ASAP from 1970 to 1982.
Hawk's background as a teacher and a real-world investor is what drew Nygren to Wisconsin, though after talking to both, it's unclear who's more impressed with whom.
"There wasn't an issue of whether he would be selected for the program. He had all of the qualifications you'd want," Hawk says.
Upon arriving in Madison, Nygren quickly became a balancing force within the ASAP group, breathing some much-needed perspective into other students with rather wild ideas about where to invest, Hawk recalls. Though the school encourages students to develop an investment style that best matches their personalities, sometimes there's a big learning curve.
"Nygren was a calming influence on the animal spirits of the group," Hawk says. "It was a very vibrant and very dynamic group that year."
It was also very close. Given their daily stress, ASAP students often form relationships that you wouldn't find in a normal classroom.
"The people I know from Madison are still my closest friends," Nygren says. He has returned to the school often since his ASAP graduation to be a guest speaker and to hear presentations by current students about the performance of their investments.
Tom Sontag '81, MBA'82, a former classmate and bond fund manager for Strong Financial Corporation in Milwaukee, remembers Nygren's contrarian stance well. Nygren once came upon a complex financial model that, when entered with certain figures and statistics, would spit out a list of companies likely to file for bankruptcy. But instead of letting the model do its job, Nygren started tinkering.
"Nygren was a calming influence on the animal spirits of the group," Hawk says. "It was a very vibrant and very dynamic group that year."
It was also very close. Given their daily stress, ASAP students often form relationships that you wouldn't find in a normal classroom.
"The people I know from Madison are still my closest friends," Nygren says. He has returned to the school often since his ASAP graduation to be a guest speaker and to hear presentations by current students about the performance of their investments.
Tom Sontag '81, MBA'82, a former classmate and bond fund manager for Strong Financial Corporation in Milwaukee, remembers Nygren's contrarian stance well. Nygren once came upon a complex financial model that, when entered with certain figures and statistics, would spit out a list of companies likely to file for bankruptcy. But instead of letting the model do its job, Nygren started tinkering.
"He was thinking, 'What about the companies that will survive?' " Sontag says. In the end, Nygren created an entirely new model that helped find companies that would come close to financial ruin, but survive — those were the stocks that Nygren wanted to buy.
The ASAP students' investments posted a 13.1 percent gain in 1981, according to the annual report published that year, though Nygren says he doesn't really remember the performance statistics. That's a typically modest Nygren response, says Mark Shank MBA'81, a vice president at Loomis Sayles & Company in Milwaukee. The two, in the ASAP program at the same time, worked together for more than a year at Northwestern Mutual Life Insurance Company in Milwaukee upon graduation.
"He hasn't let his success go to his head — it hasn't changed him a bit," Shank says. "There are certain competitive people who will step all over you in their quest to get ahead — Bill's not one of those guys."
The ASAP students' investments posted a 13.1 percent gain in 1981, according to the annual report published that year, though Nygren says he doesn't really remember the performance statistics. That's a typically modest Nygren response, says Mark Shank MBA'81, a vice president at Loomis Sayles & Company in Milwaukee. The two, in the ASAP program at the same time, worked together for more than a year at Northwestern Mutual Life Insurance Company in Milwaukee upon graduation.
"He hasn't let his success go to his head — it hasn't changed him a bit," Shank says. "There are certain competitive people who will step all over you in their quest to get ahead — Bill's not one of those guys."
That's an important lesson for the young portfolio managers-to-be, says ASAP's current adviser, Professor Mark Fedenia '77, MS'79, PhD'87. Students see Nygren on television long before they actually get the chance to meet him. And when they do, they're usually impressed with his extreme discipline and restraint, Fedenia says.
"He reinforces a lot of the things we hope to emphasize here," he says. "It's good to see some homegrown talent out there — it's what these people should be striving for."
"He reinforces a lot of the things we hope to emphasize here," he says. "It's good to see some homegrown talent out there — it's what these people should be striving for."
