Robert Rodriguez likes to buy stocks at their lows. When there are not enough stocks hitting new lows, he closes his fund and piles up cash. This is what he has been doing lately. His moves deserve attention for good reasons, his $1.7 billion FPA Capital Fund has averaged an annual total return of more than 17% over the last 20 years, net of sales charge, handily beating all the benchmarks by wide margins.
As Robert Rodriguez finds slim pickings in the stock market, his goal has changed to capital preservation. The cash position in his fund has been in steady increase. On March 31, 2005 , it is at 34%. As a reference, between 1984 and 1997, his cash level was rarely above 5% and most of the time it was less than 2%. Now he is sitting on this big trunk of cash, awaiting opportunities. "You never know the value of liquidity until you need it and don't have it." He said, "This is one of those times when it takes a great deal of patience, discipline, and conviction to maintain such a contrarian position, because of the potential business and investment risk that it entails."
Robert Rodriguez' contrarian position in investment goes beyond adjusting the level of cash. He also reduces his fund's weighting in the sectors or industries that he thinks are overpriced. He has done this before. The years of 1979 ?1981 was the time of the second oil crisis, oil and gas prices were soaring. Many "experts" were forecasting oil prices of $100 per barrel within ten years. Energy stocks were being valued as growth stocks and represented nearly 31% of the S&P 500's market capitalization. Robert Rodriguez went to the contrary; he liquidated all his energy stocks and bought bonds. The oil mania resulted in large-scale capital destruction with virtually every bank in the state of Texas going bankrupt by 1987.
Robert Rodriguez's contrarian investment style was tested again during the peak of the tech bubble. In March 2000, he analyzed the operating and stock market performances of Microsoft and Cisco Systems, made growth assumptions for them and the U.S. economy. He biased down the expected growth and valuation assumptions for each of these companies. The result was that Microsoft's market valuation would increase to 36% of nominal GDP. Cisco's expected market valuation would rise to 48% of nominal GDP. The combination of these two estimates would equal 84% of GDP by 2010. Apparently (now) the odds of this happening were not great. In light of these trends, he reduced his Fund's exposure to technology stocks. We all know how that bubble ended.
So what sectors does he like or dislike right now? He has energy stocks at 19.3% of the Fund, it is between three and four times the weighting of the various indexes. This is the highest energy allocation that he has had since 1979, when he began selling this sector. Financial service stocks total 2.1%; the lowest allocation he has had in 35 years. His reason: financial sector is at or near-record representation in all the major indexes. Financial service companies represent nearly 21% of the S&P 500's market capitalization -- a 33-year high. They are among the largest components in other stock indexes as well. In terms of operating profits, they comprise almost 28% of the S&P 500.
In summarizing his contrarian investment style, Robert Rodriguez listed these key attributes:
Focus on market leadership or niche companies that are in industries that are perceived to be out of favor and unloved - a bottom-up strategy. Select companies that have strong balance sheets - typically with total debt to total capital of less than 40%.
They must be at a significant valuation discount to the market and its historical valuation parameters.
Acquire them at modest premiums to book value and at less than 1x revenues. They should be on or close to being on the new low list. Have a long-term investment time frame - typically three to five years.
Dr. Charlie Tian, Director of Research of http://gurufocus.com, the website that tracks the stock picks of Warren Buffett, George Soros and other guru investors like Bill Nygren, Mason Hawkins, Ken Fisher, David Dreman, Martin Whitman, James Gipson, Robert Rodriguez, Ronald Muhlenkamp, Wallace Weitz, William, Ruane, Edward Lampert, Edward Owens, Richard Aster, Jr, Robert Olstein, John Keeley, Brian Rogers and Tweedy, Browne.
Wood Dale Chicago prom limo .. Lockport Chicago limo O’Hare"Buy and hold" is one of the most heralded investment... Read More
Caught in a whirlpool and being sucked under. No life... Read More
There are formulas for just about everything, but it has... Read More
If you have been dealing with mutual funds for any... Read More
No, this is not a symbol for some Latin number.... Read More
Sometime around 1980, can't remember exactly, there was a flight... Read More
Two weeks ago I wrote about what the Securities and... Read More
Most people think the stock market is a zero sum... Read More
Mutual funds by definition are a mixed bag of stocks,... Read More
Carefully thinking through your goal as a trader is of... Read More
The following are a list of nine things you want... Read More
Let's discuss commodities; with the latest Enron situation, it is... Read More
∙ Make every investment in the stock market a long-term... Read More
Before you buy another car you walk around the lot,... Read More
Recently I was invited to appear on a live CNNfn... Read More
Economists know more about how the fragments of society work... Read More
You remember (they show it on TV every year) the... Read More
I am taking the time to help others learn the... Read More
A 'stock option' is a contract between two parties giving... Read More
The broker told me not to sell because the mutual... Read More
The recent criminal fiasco in the mutual fund industry is... Read More
There are many good penny stock investments available, which could... Read More
Do you own any mutual funds? In an IRA or... Read More
I use the P/E ratio as a secondary indicator for... Read More
As an investor you will want to check out any... Read More
Antigo wedding limo ..Dollar cost averaging is one of the most popular ideas... Read More
I continually hear from economists, talking heads, other market letter... Read More
I'll bet with almost anyone that has stocks or mutual... Read More
"There is nothing more frightful than ignorance in action!" Johann... Read More
Many people would like to diversify their portfolios to expand... Read More
Very few people, even professionals, have heard of the Dalbar... Read More
In 1960 an engineer working for a watch company in... Read More
If you're a normal human being, your need to feel... Read More
To begin, you might look at playing the stock market... Read More
The demand for world oil is increasing while world reserves... Read More
This is the continuing story of our two imaginary traders,... Read More
One of the big advertising kicks today from mutual funds... Read More
Because you don't feel too sure about which stock or... Read More
Most advisors will tell you they can beat the market.... Read More
When will the stock market stop going down and start... Read More
Do you have a financial planner? Does one of your... Read More
The Law of Chaos is the theory of random unpredictable... Read More
It depends on your level of understanding of the market... Read More
A colleague of mine just returned from a scuba diving... Read More
Money: the most charged word in the planet. It means... Read More
During the day I watch CNBC-TV, the stock market channel.... Read More
On November 17 I bought 7 different mutual funds and... Read More
This article describes the model of a natural relationship between... Read More
Since I can remember, and that's a long time ago,... Read More
Among the largest forces that affect stock prices are inflation,... Read More
Stocks & Mutual Fund |