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Reply to @MaxBialystock: Not so different in terms in AUM than DODBX, OAKBX, PRWCX and other usual suspects. Not contesting the fact that its bloated mind you, just noting the fact that its AUM compares to a few other obvious choices.
Romick is on top of the issue (he says). These fund managers are rarely able to control themselves in terms of garnering assets. I thought Bruce Berkowitz learned his lesson after FAIRX drew in boatloads of hot money. Not so much, it appears.
Stipp: I want to talk to you about the strategy of the fund and the fund operations itself. Your fund has seen pretty tremendous growth [in assets] over the last five years. Has that changed at all the way that you execute your strategy or the strategy itself?
Romick: There's no question that managing more money doesn't allow you to invest in small-cap stocks the way you may have once done, or even once did. But that train left the station a long time ago. Whether you're $7 billion, $10 billion, $15 billion, it doesn't make that much of a difference. You're not $1 billion anymore.
But at the same time, mid-cap stocks tend to correlate quite closely with small-cap stocks, and so that opportunity still exists, and we still are able to take advantage of that. Then there's also the opportunity to do things we weren't able to do before--certain types of loans that we're able to make that are less liquid, and other illiquid types of investments that we have made. It can't be a large part of the portfolio, but it's enough to move the needle.
In addition to that, we have the ability, given our additional growth, to get a seat at the table that we wouldn't otherwise get with certain investments, and that might include being invited to have discussions with boards of directors because we carry more weight than we used to.
Stipp: So some doors close, some other doors open for you.
Romick: We were instrumental earlier this year in having a chairman removed from a Fortune 500 company.
The answer isn't much different from Bruce Berkowitz's answer when FAIRX hit $10B in assets then $15B and on to $20B.
Despite what Romick says - it's still a bit of a concern that the fund is too large to leverage good Smallcap opportunities in the future. You also can't compare FPACX to MALOX - MALOX is a diversified global asset allocation fund and this includes decent chunks of emerging market stocks & bonds too - FPACX is not in the same category! FPACX will pick opportune times to load up on stocks and on occasion load up on things like high-yield bonds when super attractive like what he found in 2009. He is a deeply contrarian value investor. Do not compare FPACX to MALOX.
My only concern is whether investors can stay in for the long haul as Romick can be very very contrarian --- and he can hold out longer than most investors who can end up dumping his fund fearing he's lost his touch. It has happened before whereby investors left in droves for greener pastures - and it will happen again.
Reply to @VintageFreak: It is NOT common for FPACX to have high cash position when the stocks/bonds don't meet his criteria. Often the fund lags during the bull market, but it tends to hold up well in downturns (i.e. 2008 and 2000-2002). Over the entire market cycle the fund has done consistently well. portfolios.morningstar.com/fund/summary?t=FPACX®ion=USA&culture=en-US 29% cash 52% stock (42% US, 10% foreign market) 14% bond 4% others
Even though FPACX has wide investment mandates, it should not compare to global equity funds since they hold little or no bond, and higher allocation to foreign equity. FPACX also has the flexibility to short certain positions, but this appears to be relatively small though.
Reply to @Kenster1_GlobalValue: The risk profile of Steve Romick's fund is the opposite compared to Bruce Berkowitz's FAIRX. Many investors (I believe these are hot money) left FAIRX during 2008 bull market after FAIRX lost 30% and another 33% lost in 2011; and fund went from >$20B to less than $7B. For sure those who can stick with FAIRX in the long term has done well, but certainly it requires lots of patience.
Doubters of Romick and his colleagues should ponder Tillinghast over his many decades (oh no, too big, how can he thrive and continue to find smaller and midsized companies, etc.?)
"As a proxy for shares of that ilk, we turn to the most heavily shorted companies at the start of 2013. The top 100 most-heavily shorted stocks in the Russell 3000 returned 44.6% for the nine months ended September 30, dwarfing the index’s return of 19.52%.4,5"
"The risk profile of Steve Romick's fund is the opposite compared to Bruce Berkowitz's FAIRX. Many investors (I believe these are hot money) left FAIRX during 2008 bull market after FAIRX lost 30% and another 33% lost in 2011; and fund went from >$20B to less than $7B. For sure those who can stick with FAIRX in the long term has done well, but certainly it requires lots of patience."
- Yes although the risk profiles are different --- you can still run into long periods where patience is required with FPACX. You cited FAIRX going from $20B to $7B but you didn't mention that Romick's has lost a higher % of his FPACX assets than what FAIRX experienced as FPACX investors in the past have flooded for the exits. I'm saying you also will have periods your patience will be really tested as well.
The difference in risk profile is irrelevant from the perspective that assets are still flooding in now to FPACX while the cash stake continues to grow and is even higher than what FAIRX had and Bruce was criticized for continuing to let the money roll in.
Doubters of Romick and his colleagues should ponder Tillinghast over his many decades (oh no, too big, how can he thrive and continue to find smaller and midsized companies, etc.?)
- David, I wouldn't say doubting his ability but questioning the very high-cash stake and continuing to take money in even though assets have ballooned. Nevertheless, I really like Romick as an investor.
You can't use Tillinghast (Fidelity Low Priced Stock) as an example of a star manager who did well with a super large asset base --- then why couldn't other managers do it?
Secondly, Tillinghast's fund hovered around 900 - 1,000 stocks! That's the big reason why he could still invest in smallcap stocks with such a large asset base. Should Romick break away from his tradition and start investing in 500, 700, 1,000 stocks to support a super-sized asset base?
Btw, Tillinghast's fund is so large that he's done just as well as the Midcap indexes YTD and over 3 years, 5 years and 10 years.
Reply to @Kenster1_GlobalValue: Not sure (meaning cannot tell) what point you are making. I was trying to compliment the expensive Romick and tease all those (chiefly M*, but others too) who have whined about FLPSX size since forever. I can't follow your other points --- para 3, e.g.; I was not advising Romick to emulate anyone; huh??? --- except your index comparison is not true. Easy to check, as the saying goes. Tillinghast has beat IWR (e.g.) over all the periods you mention (sometimes by only a little, yes, sir) and with less risk and less downside. So go pick a fight somewhere else, and please don't dive into FLPSX if you don't want to. And no, no one would glibly say, or ask, Why can't other managers be like Tillinghast? That's the whole point about excellence, bell curves, etc. etc.
Remember the first manager for Oakmark fund, Robert Sanborn? A very good manager. That must be in the early 80. He doubled the money in few years. As a value fund manager, at one point he could not find anything to buy. The market kept going up, and he lost/quit his job to become as a hedge fund manager. Market again went up few more years and then collapsed in 87 black Monday. Over priced stocks can go up if one has the nerves to go through it. It can be scary when it happens.
Reply to @davidrmoran: David let's stop right there for a moment. All I'm saying is that you can tout how great FLPSX has been but please don't use that one example of FLPSX success to extrapolate into why FPACX can balloon massively.
You never mentioned that FLPSX can and has held 900+ stocks to spread the huge asset base and so I've pointed out that that is not Romick's style. He's forced to move into bigger companies and won't be able to go back to smaller companies where he once enjoyed success with 10-12 years ago.
Yes I will dive into FLPSX some more if you want to. I have owned FLPSX as well as well in my 401k. So I'm not saying FLPSX is a bad fund at all. Hello?!?!?! But I'm saying that FLSPX was still able to invest in many smaller companies because it was able to spread the assets across 900 stocks. And yes they did it well. But I just don't see Romick going this route!
Reply to @Kenster1_GlobalValue: Got it. I guess I was assuming, maybe incorrectly, that Romick was so canny that he would be able to handle such growth. Do you think he should close FPACX?
Comments
Romick is on top of the issue (he says). These fund managers are rarely able to control themselves in terms of garnering assets. I thought Bruce Berkowitz learned his lesson after FAIRX drew in boatloads of hot money. Not so much, it appears.
Stipp: I want to talk to you about the strategy of the fund and the fund operations itself. Your fund has seen pretty tremendous growth [in assets] over the last five years. Has that changed at all the way that you execute your strategy or the strategy itself?
Romick: There's no question that managing more money doesn't allow you to invest in small-cap stocks the way you may have once done, or even once did. But that train left the station a long time ago. Whether you're $7 billion, $10 billion, $15 billion, it doesn't make that much of a difference. You're not $1 billion anymore.
But at the same time, mid-cap stocks tend to correlate quite closely with small-cap stocks, and so that opportunity still exists, and we still are able to take advantage of that. Then there's also the opportunity to do things we weren't able to do before--certain types of loans that we're able to make that are less liquid, and other illiquid types of investments that we have made. It can't be a large part of the portfolio, but it's enough to move the needle.
In addition to that, we have the ability, given our additional growth, to get a seat at the table that we wouldn't otherwise get with certain investments, and that might include being invited to have discussions with boards of directors because we carry more weight than we used to.
Stipp: So some doors close, some other doors open for you.
Romick: We were instrumental earlier this year in having a chairman removed from a Fortune 500 company.
http://www.morningstar.com/cover/videocenter.aspx?id=614631
===
The answer isn't much different from Bruce Berkowitz's answer when FAIRX hit $10B in assets then $15B and on to $20B.
Despite what Romick says - it's still a bit of a concern that the fund is too large to leverage good Smallcap opportunities in the future. You also can't compare FPACX to MALOX - MALOX is a diversified global asset allocation fund and this includes decent chunks of emerging market stocks & bonds too - FPACX is not in the same category! FPACX will pick opportune times to load up on stocks and on occasion load up on things like high-yield bonds when super attractive like what he found in 2009. He is a deeply contrarian value investor. Do not compare FPACX to MALOX.
My only concern is whether investors can stay in for the long haul as Romick can be very very contrarian --- and he can hold out longer than most investors who can end up dumping his fund fearing he's lost his touch. It has happened before whereby investors left in droves for greener pastures - and it will happen again.
portfolios.morningstar.com/fund/summary?t=FPACX®ion=USA&culture=en-US
29% cash
52% stock (42% US, 10% foreign market)
14% bond
4% others
Even though FPACX has wide investment mandates, it should not compare to global equity funds since they hold little or no bond, and higher allocation to foreign equity. FPACX also has the flexibility to short certain positions, but this appears to be relatively small though.
Thanks to Shadow's posting twoco-managers have been added to Romick's team in 2013; hence expand their research capability.
mutualfundobserver.com/discuss/index.php?p=/discussion/6692/portfolio-managers-landecker-selmo-and-romick-of-fpa-crescent-fund/p1
http://news.morningstar.com/all/ViewNews.aspx?article=/BW/BWIPREM20131008006835_univ.xml
http://www.fpafunds.com/docs/funf-holdings/cresce
nt-13-094A11286BCB9B.pdf?sfvrsn=2
http://www.fpafunds.com/docs/quarterly-commentaries-crescent-fund/2013-09-crescent-commentary52A0CAAAB07E.pdf?sfvrsn=2
most heavily shorted companies at the start of 2013. The top 100 most-heavily shorted stocks in the Russell
3000 returned 44.6% for the nine months ended September 30, dwarfing the index’s return of 19.52%.4,5"
Interesting.
Another good letter from Romick.
The difference in risk profile is irrelevant from the perspective that assets are still flooding in now to FPACX while the cash stake continues to grow and is even higher than what FAIRX had and Bruce was criticized for continuing to let the money roll in.
You can't use Tillinghast (Fidelity Low Priced Stock) as an example of a star manager who did well with a super large asset base --- then why couldn't other managers do it?
Secondly, Tillinghast's fund hovered around 900 - 1,000 stocks! That's the big reason why he could still invest in smallcap stocks with such a large asset base. Should Romick break away from his tradition and start investing in 500, 700, 1,000 stocks to support a super-sized asset base?
Btw, Tillinghast's fund is so large that he's done just as well as the Midcap indexes YTD and over 3 years, 5 years and 10 years.
Not sure (meaning cannot tell) what point you are making. I was trying to compliment the expensive Romick and tease all those (chiefly M*, but others too) who have whined about FLPSX size since forever. I can't follow your other points --- para 3, e.g.; I was not advising Romick to emulate anyone; huh??? --- except your index comparison is not true. Easy to check, as the saying goes. Tillinghast has beat IWR (e.g.) over all the periods you mention (sometimes by only a little, yes, sir) and with less risk and less downside. So go pick a fight somewhere else, and please don't dive into FLPSX if you don't want to. And no, no one would glibly say, or ask, Why can't other managers be like Tillinghast? That's the whole point about excellence, bell curves, etc. etc.
You never mentioned that FLPSX can and has held 900+ stocks to spread the huge asset base and so I've pointed out that that is not Romick's style. He's forced to move into bigger companies and won't be able to go back to smaller companies where he once enjoyed success with 10-12 years ago.
Yes I will dive into FLPSX some more if you want to. I have owned FLPSX as well as well in my 401k. So I'm not saying FLPSX is a bad fund at all. Hello?!?!?! But I'm saying that FLSPX was still able to invest in many smaller companies because it was able to spread the assets across 900 stocks. And yes they did it well. But I just don't see Romick going this route!