Below is a link to a letter from Bob Rodriguez, the chairman of FPA – First Pacific Advisors. Bob has a long and distinguished career as a Margin of Safety Investor. The letter can be summarized by simply stating that current Federal Reserve policy is untested and the outcome is unknowable. Bob believes there are good reasons to believe that it will not be successful, and may end up being very harmful as it induces speculative misallocation of capital. Bob cautions FPA clients that patience and discipline will be tested if the Fed’s actions create a speculative burst of price appreciation, since FPA’s short term performance will not keep pace:
“It is my view that investment managers do not appear particularly concerned…………It is all about not underperforming the market or a benchmark, so don’t fight the Fed. Unfortunately, a strategy of following the Fed’s urging to take on greater risk will likely end in heartbreak. Should the stock market continue its upward march, both our clients and FPA’s portfolio managers will be tested. This is a time for discipline. Given that economic growth is languid at best and is likely slowing, the divergence between the stock market and economic reality cannot be sustained. One or the other has to adjust.”
Of course, Global View clients are invested in FPA strategies. Our portfolio is also likely to underperform during continued market appreciation. We will remain diligently focused on protecting our client’s capital and growing when opportunities are compelling. Nevertheless, the near term investment horizon may challenge client’s discipline and patience.
Download Bob Rodriquez's Commentary Here.
Sincerely,
