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Investing tips: Steve Romick’s tips to become a great contrarian


Eminent portfolio manager Steve Romick says short-term market price movement shouldn’t be considered an indicator of long-term value of a stock.

“Stocks go up…Stocks go down…Sectors do well, sectors do poorly. It’s entertainment! Ultimately, I don’t find it very valuable. It’s no more than tabloid reporting,” he said in a speech at a value-investor conference in London.

Romick is the founding partner of First Pacific Advisors, a Los Angeles-based institutional investment firm. He serves as portfolio manager of the FPA Contrarian Value Strategy. Prior to joining FPA, he started his own firm, Crescent Management, in 1990.

Why argument against active investment management is uncalled for

According to Romick, active investment management is often criticised due to high fees and lackluster performance.

Although he doesn’t refute this claim, he underscores the belief that passive investment is always going to look great during a long-lasting bull market.

He says critics of active management focus too heavily on performance each year, ignoring market performance over full-market cycles, which he calls, “short-termism.”

“This is a breeding ground for all sorts of cognitive dissonance to which smart people fall prey when trying to adapt and join the crowd,” he says.

According to Romick, the argument against active investing is fundamentally flawed because it assumes that only the best performing stocks will drive returns.

“The argument doesn’t consider the other side. If you avoid the worst-performing stocks, you can still put up good numbers,” he says.

Contrarian approach

According to Romick, many investors follow a contrarian approach to investing which is to buy stocks and get more than what investors paid for those stocks either because good businesses are facing a cyclical challenge or because investors do not fully recognise the quality of that business

He says, in either case, assets that are mispriced in this way resulting in a rate of return that is better than the market’s.

“The goal is to generate long-term equity-like returns, take less risk than the market and avoid permanent impairment of capital,” he says.

According to him, investors need to focus on finding out-of-favour, low-risk/high-return investments in various parts of the capital market.

“In my early years, I ended up too much in the weeds. I had to know everything about a company and its industry. I’ve since learned that knowing less is okay as long as you have identified the one to three things that will drive the company. We believe exactness offers little so we prefer to establish a potential range of outcomes instead. We’d rather be directionally right rather than precisely wrong.” he says.

Key components of successful investing

Romick says patience and avoiding fads are key components of successful investing.

“Frankly in this age of Instagram and Snapchat when immediate gratification seems to rule our lives, few portfolio managers have the…


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