Meager Income

Pay Off Debt, Retire Comfortably on Meager Income, Win the Lottery, Not Necessarily in that Order

Bob Rodriguez

Posted on | June 6, 2011 | No Comments

I keep a list of people that I’d like to meet one day.  I’m adding Bob Rodriguez to that list.   I read about him on the CNNMoney and Fortune web site here.  Mr. Rodriguez has achieved tremendous success as a money manager.

Rodriguez, the CEO of $16 billion money management firm First Pacific Advisors, isn’t the type to be satisfied with being right (though he’s certainly not above that particular pleasure). He’s seemingly compelled to share the hard truth. It’s as if he has this terrible gift, and with that comes the obligation to tell the world when calamity is on the horizon.

His resistance to investing vogues has paid off richly over the long run: His stock fund, FPA Capital (FPPTX), has returned 15% annually over the past 25 years, beating every single diversified equity fund, according to Lipper. His bond fund, FPA New Income (FPNIX), has never posted an annual loss. “He’d rather lose his clients than position their money in a way that he feels is inappropriate,” says Stephanie Pomboy, head of institutional research firm MacroMavens. “It’s almost sad that you can count the number of people who are willing to do that on, probably, one finger.”

I was further impressed by his humble roots:

It is a classic American tale: the immigrant’s son who made good.

Rodriguez grew up in a working-class neighborhood in Los Angeles. His father, Joseph, was a Mexican immigrant who plated jewelry for a living (the family’s otherwise modest house had gold-plated doorknobs). Though neither the mother nor the father, now both deceased, went to college, they taught Rodriguez and his older brother, Dick, about history and ethics. Joseph used to carry a copy of the Constitution in his pocket and would quiz his sons on it.

Joseph refused to teach the boys Spanish. “He was adamant that we be Americans,” Rodriguez says. “He did not want my brother or me to grow up with an accent. It was not a good time to be of Mexican or Spanish heritage.” Rodriguez’s father proudly hung his certificate of U.S. citizenship in a “place of honor” in the family’s den.

Rodriguez was an obsessive boy, especially when it came to money. He began collecting coins at age 6. He would memorize which vintages of pennies, nickels, and dimes were most valuable, and then convince gas station managers to trade with him. (He also collected stamps and insisted that his friends use tweezers if they wanted to pick them up.) When Rodriguez received a school assignment to write a letter to an important person at age 10, he chose the chairman of the Federal Reserve. He was even a (very) small-time banker: Rodriguez slowly accumulated savings, then lent money to his high-school-age brother — at usurious rates — when Dick needed cash to go on dates.

When Rodriguez was 12, he had a major operation on his teeth that, for two years, left him with a heavy speech impediment. Classmates teased him — so he gave a speech on the topic of elocution to show that he could make fun of himself. “Most people, when they’re different, they become self-conscious,” says Dick. “Bob hasn’t been one to sacrifice his ethics or his intellect to fit in.”

Los Angeles in the 1950s could be a hostile place for an immigrant’s son. Rodriguez recalls riding his bike past NO MEXICANS signs. And when the self-described B+ student told his high school guidance counselor that he wanted to go to college, he says, the counselor said he would be a better fit for trade school. “I told him to go to hell,” he bristles.

Rodriguez worked his way through college and business school at the University of Southern California. He sold encyclopedias door-to-door and toiled nights as a file clerk at Transamerica, where he met his future wife. (“I let him walk me to my car,” she says, “and I thought to myself, ‘Is this guy ever going to shut up?'”)

After getting his MBA, he struggled to find a job in finance before eventually becoming a stock trader at Transamerica. He then worked himself up to analyst by taking over sectors, such as forest products, that colleagues dropped. Says Rodriguez’s FPA colleague, Steven Romick: “There weren’t any ‘ez’ last names at the firms.” He adds, “Bob has always had to prove himself, again and again.”

Even today, Rodriguez is one of only a handful of Hispanic mutual fund managers in the country. A fervent believer in the power of the individual, Rodriguez downplays the effect of discrimination in his own life. Still, his thinking is revealing: He says he fell in love with investing in the first place (as opposed to architecture, another early interest) because it was a field where success isn’t based on subjective opinions. “I said, ‘Gee, there’s an exam every day. And whether you’re good or bad is independent of somebody else,’ ” he says. “If they say, ‘That’s a lousy idea,’ and it works out, that’s not their judgment — the market has judged.”

Rodriguez’s formative investing experience occurred during the stock bubble of the early 1970s. Like many at the time, he says, he thought anyone who posted annual returns of less than 25% was an idiot. Then the market crashed in 1974. Rodriguez owned shares of an RV maker called Executive Industries, whose stock plunged from $22 to less than a dollar. Unsure of what to do, he ventured into the USC library, where he discovered a book that would forever change his investing outlook: Graham and Dodd’s Security Analysis. “It helped me understand what was going on with the stock,” he says. “It was selling at less than 50% of the cash on the balance sheet.” His calculation of the company’s fundamental value convinced him that Executive Industries’ share price was baseless. He held on and eventually rode it back above $22. From then on, he was a committed value investor.

In 1983 Rodriguez joined First Pacific Advisors, then a burgeoning money-management firm with $1.6 billion in assets, and launched FPA Capital, a stock fund, and FPA New Income, a bond fund. His approach has been the same ever since. In his equity fund he maintains a highly concentrated portfolio of about 30 stocks and holds them for many years, buying and selling on dips and bumps. He spends months researching before taking the plunge; when he was thinking about buying more shares of Michaels, the craft-supply chain, in the ’90s, he called dozens of store managers to find out whether the company’s turnaround strategy was feasible. (It was: He bought shares in 1996 and watched them triple.)

By the mid-’90s, Rodriguez had achieved one of his goals as a fund manager: His stock fund had finished in the top 10 of its category over the previous decade (his bond fund ranked 11th). His other objective? “I said, I have a simple goal,” he recalls, laughing. “I just want to be the best goddamn money manager in the country.”

I’d definitely enjoy meeting him someday!


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