We asked FPA Crescent's Steven Romick to answer our 10 Questions.
You were a finalist for Morningstar Manager of the Decade. When you look back at the past 10 years, what comes to mind?
Consistency and continuity. We're not lights-out in the great years, and we're not blowing people up in the bad years.
Looking at the coming decade, what do you see?
The story will be more foreign than domestic and protecting against portfolio erosion. We think we're going to end up with higher interest rates with or without inflation because we have to seduce foreign investors to buy our Treasury debt. Higher interest rates mean lower P/Es, all things being equal, unless you're offset by strong earnings. We don't think that that's a high-probability outcome.
Are you looking forward to investing in that type of environment?
It's an exciting time, but challenging. The economy is heavily medicated. It's like when one of your kids has the flu and you take her fever down with Motrin. You won't know if the fever is gone until the Motrin wears off. We'll find out as the stimuli get pulled back from the system what really is going to happen.
You're a go-anywhere manager in search of equitylike returns with less risk. Are advisors and investors better off doing their own asset allocation or leaving it to you?
It depends on how facile one is at deciding whether equities are cheaper than bonds or whether you want investment-grade, high-yield cushion bonds, or distressed debt. We're on the front lines. We're seeing it. We're doing it. We get the pulse better than the average individual or registered investment advisor will.
FPA Crescent has a sizable cash stake. Why is that?
Cash is a byproduct of what we do. If we don't see something that meets our risk/reward profile, assets end up in cash in the portfolio. We're big believers in periods of stress that having the cash flow to put to work is tremendous.
What role does shorting play in the fund?
Shorting helps to damp volatility. Shorting in and of itself keeps you honest as long investor. It teaches you to look for certain problems that are out there in companies and the games that they play. It hones our skills.
What would you be if you weren't investing?
Coaching soccer for one of my four girls.
What was your first investment?
Pan Am, which my grandfather bought for me.
What are your worst investing mistakes, and what did you learn from them?
I have two. I invested half of my student loan in a restaurant in LA. The dividends were free drinks for my friends. I lost it all. But I learned about what it takes to run a business. My second lesson was a company called Semi-Tech Global. It was trading below book value, below net networking capital value, and below its actual cash value. I still managed to lose money. It taught me the importance of having a good management team--people who have business integrity and ethics and are intelligent users of capital. These guys failed at all counts. And I failed for not having recognized it.
What's a good book that you've read recently?
Team of Rivals, by Doris Kearns Goodwin. What Abraham Lincoln did in bringing together people with different points of view to build a consensus was unbelievable.