Don’t Be Surprised!

On June 25, CFA Chicago welcomed Steve Romick, CFA at The University Club. Romick’s presentation included lessons learned after four decades of value investing, focusing on absolute rates of return. He emphasized the following concepts he employs:

  1. Accept uncertainty
  2. Have a disciplined focus on value
  3. Focus on outperforming over market cycles not calendar quarters

He has deployed this absolute value focus to his New Income Fund.  According to Steve, this fund has never had a negative quarter.  He looks at value stocks like infinite duration bonds with rising coupons. The individual security exposure in his funds is generally limited to between 1% and 3% of the portfolio value, depending on his conviction. His funds are go anywhere funds (similar to hedge funds), providing examples of companies he would not own because he cannot easily quantify how they can generate value.  He also provided an example of a company he does own because the market value of the underlying minority interest in a public company was greater than the parent company’s market value.

Interestingly enough, because their goal is to out-perform over economic cycles, he no longer puts significant resources in trying to predict the economy.  He says he wins by not doing dumb things and by always having a rational value thesis. Both he and his team always strive to take off the rose color glasses when looking at an investment, with an emphasis on what could go wrong.

Steve reminded the audience that the U.S. market is at an all-time high relative to GDP and that the current bull market is the longest, since World War II.  This may be a somewhat compelling reason to be focused on value investing.

Steve Romick, CFA is Co-Managing partner of First Pacific Advisors, LLC, a Los Angeles-based investment manager.  Romick is a value investor with a proven ability to build strategies with an absolute return focus that have generated superior risk-adjusted returns over full market cycles. Romick earned a BS in Education from Northwestern University and is a CFA Charterholder.