In late 2013 we had the pleasure of sitting down with famed fund manager Don Yacktman for a wide-ranging conversation on his investment philosophy. The conversation is packed with wisdom and insights into value-oriented equity investing.

Don Yacktman is a legend in the investment business. He serves as partner and portfolio manager of Yacktman Asset Management. Prior to founding the firm in 1992, Don served as senior portfolio manager of Selected Financial Services. Don was named “Portfolio Manager of The Year” by Morningstar for his performance in 1991. Before Selected Financial Services, Don was a portfolio manager at Stein Roe & Farnham. He holds a BS magna cum laude in economics from The University of Utah and an MBA with distinction from Harvard University.

Watch Don talk about the “wildcard” in investing:

A few highlights from the exclusive conversation:

The wildcard in investing is the money that’s retained at the corporate level and reinvested for the investor by the management of the company. That usually is still the bulk of the cash flow.

The bottom line is that it’s dangerous to have a hurdle rate based on treasury bonds that are 3% or 3.6%.

Protecting money in our view means avoiding dumb decisions, permanently losing the capital that you have. At the same time, we also feel somebody needs to be proactive.

…it’s a matter of objectively looking at the headline of disappointment and saying, at what price are we willing to own this business — and trying to be objective about it while looking at the forward returns.

One [options] is a dangerous one, which is acquisitions, because too often the ego overrides the economics, and this is where it gets scary.

We vote against every stock option plan.

A company that has a 40% share of the market doesn’t make twice as much as somebody who has a 20% share. They’ll make four times as much. But in the process, one needs to bring down the price to benefit the consumers and expand the market.

Retailing is a tough business to begin with. It’s a very competitive business. It is very difficult to create loyalty.

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