Robert Rodriguez doesn’t run with the pack. Indeed, having the courage of his convictions has made this independent thinker one of the most successful money managers for almost three decades.
Honored with a trio of Morningstar Manager awards (2008, 2001, 1994), Rodriguez is CEO of First Pacific Advisors, which manages about $11.5 billion in institutional and mutual fund assets.
A long-term value manager, Rodriguez, 60, is president and CIO of FPA Capital Fund and FPA New Income. The latter hasn’t had a down year in more than 32. Rodriguez favors out-of-favor industries and, in fixed-income, invests in high-quality bonds with the focus on capital preservation and total return.
Well known for forecasting the global financial meltdown, Rodriguez, starting as early as 2007, moved to a cash level nearly 12 times that of the industry’s. For his prudence, he would ultimately withstand strong shareholder criticism and redemptions.
In 1971 the Culver City, Calif., native — whose BS in business administration (magna cum laude) and MBA are both from the University of Southern California — started out at Transamerica Investment Services. He then went to Kaufman & Broad as senior portfolio manager in the chairman’s department. By 1983 he had joined FPA, the following year leading the acquisition of two Transamerica funds that turned into the high performing FPA Capital and
FPA New Income.
Appointed CEO in 2000, Rodriguez led the 2006 buy-back of the firm from its large insurance-company parent, Old Mutual. FPA is based in Lake Tahoe, Nevada — where Rodriguez now makes his office — and Los Angeles.
In January 2010, the money manager begins a one-year sabbatical; he plans to return to FPA in a supporting role.
In an illuminating, wide-ranging chat with Research this past September, Rodriguez talked about going on leave, the Obama administration and his cautious outlook for the economy and markets for next year.
How did you first become interested in finance?
I was a coin collector starting at about 6 years old. I’d go through the cash boxes of local stores and gas stations. When I was 12, I saw a movie on the New York Stock Exchange. I thought it looked like one of the biggest casinos in the world. That caught my attention.
How would you describe the status of the financial markets today?
Nothing has been learned from this last crisis. The aspect of destroying other people’s money seems to have dissipated. There’s a false sense of security. What I see isn’t the risk of loss but the risk of missing the rally.
The stock market is highly speculative; it’s discounting robust earnings growth for 2010. People will be disappointed. We’ve crossed over into a new financial era.
What do you think of President Obama’s plan to overhaul the financial system?
I don’t’ agree with it. He’s trying to put more centralized power into the Federal Reserve. None of our regulatory agencies exercised the authority they had to preclude the financial crisis. They blew it. The Fed and Treasury did not have a clue about its magnitude and breadth when it began.
People look for hides to hang in the corporate area. But I’ve seen no hides hung at the regulatory agencies for what they missed.
What about the President’s proposal to revamp health care?
It’s a very, very high-risk maneuver. Every single forecast of what the cost would be for every entitlement program that has been initiated since FDR has been off by magnitudes. So should I trust the forecasts of today regarding health care? Absolutely not. I look at the ballooning debt and potential policies that could come, and I believe they’re playing with nitroglycerin. Do you approve of Ben S. Bernanke’s second-term appointment as Federal Reserve chair?
At least 70 percent of the economists were in favor of his reinstallment. Probably at least 70 percent of economists didn’t have a clue about the financial crisis occurring either. The Fed has stabilized the economy to a degree by flooding the system with money…But at what price longer term?
How is your attitude reflected in the investments you’ve made over the last year?
The buy program we had in the equity area last year, from October 7 to December 26, and which started again in late February, was the largest in dollars in FPA’s history.
The last purchases we made were in early March. Starting in about [late July], we have been gradually reducing positions.
That means you’re cautious.
Very. One has to be highly circumspect of what is transpiring in our economic system. I do not trust Congress or the executive branch — and the regulatory agencies are not enhancing my confidence.
What are your expectations for the stock market in 2010?
The question is: What will top-line revenue growth be? With what the federal government has thrown at the economy, there was bound to be a bounce. But has this led to a sustainable economic recovery? I don’t believe so.
Growth has come as a function of cost reductions, not top-line growth.
FPA Capital had a loss last year. How is it doing now?
If you’re measuring the short term, we did take a hit. But if you’re measuring the long term, we made the right decisions. Today I’m within about 8 percent of where we were at the beginning of 2008, and the markets are still 22 percent to 29 percent away. So we went down less than the market, and we’ve come back stronger than the market.
What’s your outlook for bonds?
We’re highly aggressive in our bond management: high quality bonds with a duration of barely over one year. The growth in Treasury debt is at an unsustainably high level. If present trends continue, we will have a fiscal crisis at the federal level within five to seven years. If the health care plan is passed, I would move up that time-frame.
Do you think the recession is really at an end?