By Avoiding Crises, Robert Rodriguez Excels

By on December 6, 2009

Charles Stein has written about Robert Rodriguez, the U. S. diversified mutual fund manager with the highest returns over the past 25 years. Rodriguez has posted average annual returns of 15 percent over that timeframe in his fund FPA Capital (closed to new investors). Stein attributes the success of Rodriguez to being non-diversified and holding large amounts of cash when he sees trouble on the horizon. Rodriguez was able to avoid the internet (year 2000) and financial (year 2007) bubbles by accurately forecasting the collapses the followed.

For the future, Rodriguez forecasts slow growth and a market that won’t make new highs for perhaps 10 years.

Source:

Bloomberg.com
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4 Comments

  1. Dividend Inc. Team

    December 6, 2009 at 6:06 pm

    Greetings,

    I love this posting and totally agree with the approach that Rodriquez applies to investing. In the article there is a comment by Charlie Munger where he "belittle(s) the importance of holding a diversified portfolio."

    Rodriquez quotes Munger as saying that “he called diversification the hobgoblin of small minds with little confidence”

    I subscribe this theory and find it astounding that few others have caught on to this point about diversification. Buffett amassed his wealth not by starting with a diversified portfolio but by investing large portions of his funds into a single investment.

    I'm glad you brought this article to my attention.

  2. Dividend Inc. Team

    December 6, 2009 at 6:30 pm

    The following is my March 25, 2009 article on the lack of importance of diversification.

    http://dividendinc.blogspot.com/2009/03/diversification-doesnt-matter.html

    I personally prefer the emphasis on quality investments instead. It has been a great experience for me since I have figured this out.

  3. stocksystm

    December 7, 2009 at 1:26 pm

    Thank you for acknowledging the posting regarding Robert Rodriquez. Although some money managers have done well by minimizing diversification, William Bernstein makes a strong case for its virtues.

    See the posting http://stockmarketadvantage.blogspot.com/2009/10/william-bernstein-figures-that.html and read the linked book excerpt.

  4. Dividend Inc. Team

    December 8, 2009 at 10:56 pm

    Greetings,

    In regards to you last posting STOCKSYSTM, it goes without saying that all novice and professionals investors are taught to diversify. In many instances this is done without explantion or adequate evidence of the alternatives. Given all that evidence that exists to the contrary, you'd think that there is a conspiracy against less diversified holds.

    The fact that Rodriguez succeeds without broad diversification and that Buffett has 85% of his wealth in 10 companies suggests that the mantra of diversification needs to be re-examined.

    After all, if the Dow Industrials can beat the Russell 2000 with only thirty companies then it might mean some examination of the alternatives might be useful.

    I really enjoy your site…Thanks again.

    -Touc

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