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Investment Lessons from Three Decades of Experience

Investment Lessons from Three Decades of Experience

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The Success Story of the FPA Contrarian Value Strategy

Steven Romick, Sub-investments Manager of the Nedgroup Investments Global Flexible Fund reflects on 10 years of managing the fund

As co-portfolio manager of the Nedgroup Investments Global Flexible Fund for 10 years and as an investor for the past 30 years I have seen many complex market cycles. The 10-year anniversary of managing the Nedgroup Investments fund is a great opportunity for reflection and I found myself exploring the biggest investment lessons I have learnt over the years. 

1. Align Investment Strategy with Personal Values:

Never underestimate the power and importance of aligning investment strategies with personal values and maintaining a disciplined process. Investors should identify an approach that resonates with their risk tolerance, long-term goals, and psychological comfort. Our focus is on protecting capital and seeking a margin of safety is a deeply-rooted investment philosophy that enables us to navigate market fluctuations with conviction.

2. Patience and Selectivity in Decision-Making:

Real investment opportunities are out there, but they are infrequent. That’s why I believe in patience and selectivity, highlighting that great investment opportunities are infrequent. Rather than succumbing to short-term market trends or rushing into investments, investors should adopt a long-term perspective and wait for attractive opportunities to arise. By exercising patience, investors can avoid hasty decisions and maximise long-term returns.

3. Contrarian Thinking and Variant Views:

Challenging prevailing market sentiment allows investors to uncover hidden opportunities and potentially capitalise on market inefficiencies. The ability to think independently and consider diverse, well-reasoned perspectives has enabled us to make successful investment decisions over the years by identifying undervalued assets and avoiding overhyped investments.

4. Continuous Learning and Adaptability:

The investment landscape is constantly changing, and successful investors must evolve with it. To stay relevant, expand your circle of competence, acquire new tools, and challenge your own thinking. 

By aligning investment strategies with personal values, exercising patience, embracing contrarian thinking, and committing to continuous learning, you can truly enhance your chances of achieving long-term success. The wisdom, gained through three decades of experience, serves as a reminder that successful investing requires discipline, adaptability, and an unwavering commitment to fundamental principles.

The FPA Contrarian Value team implement the same philosophy and process on the Nedgroup Investments Global Flexible Fund as they do on their flagship fund for the strategy, which Steve Romick has been managing for 30 years now. The long-term success of the strategy is depicted in the chart below, which shows the growth of $100 invested at inception in 1993, compared to various benchmarks. The performance indicator is a composite benchmark consisting of 60 % MSCI World, 30% JPM Global Government bond index, and 10% US cash, and is the benchmark for the Nedgroup Investments Global Flexible Fund. Over this multi-decade period, FPA’s contrarian value strategy outperformed each of these benchmarks, including the MSCI World Index by a considerable amount, but with less exposure to risk assets, and lower volatility than the MSCI World Index.

While not specifically targeting a lower volatility, their focus on avoiding a permanent loss of capital in down markets makes it a natural outcome of their process.