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What
They’re
Saying
Now
robert
rodriguez
By Dyan Machan
With stocks Crawling Back from
last winter’s abyss, and a reforming White House trying to restore some order to the Wild West of
the markets with new regulation, we’re starting to regain confidence in our investments. But when
it comes to our feelings about big-name investors—well, it’s going to take a lot of wooing to teach
us how to love again. After a crash in which almost every mutual fund manager suffered big losses,
investors are finding it hard to believe that any wise man or woman really deserves our trust.
But there may be an antidote to this kind of skepticism: experience. Managers who have witnessed good markets and bad, over careers spanning decades, are more proficient than their peers
at adapting to trouble. Indeed, during the bungee-cord drop and rebound of the past 12 months,
U.S. stock funds that have had the same manager for 10 years or longer lost slightly less money
than their peers, according to data from Morningstar. And they’ve also been more likely to show
positive returns so far in 2009. That’s why we’ve focused this year’s installment of our “World’s
Greatest Investors” series on a truly battle-tested group of thinkers. These four managers invest in
such diverse fields as small-cap tech, corporate bonds and the foreign mergers-and-acquisitions
market, but what’s more important is what they have in common: They minimized investors’ pain
during the downturn, and they’re rebounding better than average in the current recovery.
If some of these names sound familiar, they’ve earned the exposure. Bill Gross has become
the country’s foremost bond investor in his 22 years at Pimco, Joel Tillinghast has logged 20 years
managing one of the top funds in the massive Fidelity family, and Bob Rodriguez has averaged
double-digit returns for two decades at FPA Capital. Our one newbie, Anne Gudefin, may be relatively young at 43, but she’s shined for almost a decade as an analyst and manager at the innovative
Mutual Series fund family—and in last year’s crisis, she made calls worthy of a grizzled veteran.
Of course, even the grizzled can get eaten by a bear: Warren Buffett is having the worst year
of his career (see “Buffett: Waiting for the Bounce” on page 52). But overall, our group proves that
a long-term view of the market and the experience to back it up are the keys to success.
August 2009
Photographs (from top) by Gabriela Hasbun; Evan Kafka; Jude Edginton; Evan Kafka
Wor ld’s G r eate st I nve stor s n Wor ld’s G r eate st I nve stor s n Wor ld’s G r eate st I nve stor s n Wor ld’s G r eate st I nve stor s
SmartMoney
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joel
tillinghast
anne
gudefin
bill
gross
n Wor ld’s G r eate st I nve stor s n
Robert
Rodriguez
CEO, First Pacific Advisors
not compromise our investment guidelines!”
Had his client “compromised,” he most likely
would have spared himself a lot of pain. Rodriguez
foresaw not only the real estate bubble but also the
credit crisis and its aftermath. He says his insistence
on moving into cash cost him $1.2
What he’s Buying
billion in client withdrawals—a
significant hit for First Pacific Adn Ensco International
visors, a $10 billion firm. But today
(ESV, $42) A “contract driller”
that digs wells for big oil firms.
Rodriguez might as well be wearing a neon sign that reads vindican BJ Services (BJS, $15)
This company’s horizontal
tion. In 2008 his FPA New Income
drilling technology reaches
bond fund returned 4.3 percent,
hard-to-find oil; Rodriguez
while his average competitor lost
thinks it could double.
almost 5 percent, according to
n Rowan Companies
Morningstar; in a quarter-century
(RDC, $22) A deep-water
that fund has never had a losing
driller, another variation on
year. Rodriguez’s equity fund, FPA
Rodriguez’s favorite theme.
Capital, didn’t fare as well due to
a concentration in energy stocks that tanked when oil
prices fell. But it finished ahead of the market, and even
after last year’s losses, its annualized returns from 1987
through today are a stunning 13.8 percent.
Rodriguez, now 60, grew up in poverty two miles
44 smartmoney
from First Pacific’s office tower. “I remember signs
that said no dogs, jews or mexicans,” he says. A
high school adviser tried to steer him to trade school.
But after magna cum laude honors, an MBA and three
decades of investment success, Rodriguez is getting the
last laugh. His vindication will be followed by vacation: In 2010 he’s taking a one-year sabbatical, after
which he’ll be playing a supporting role at the firm.
Rodriguez’s confidence doesn’t extend to the
economy. Today’s rally is a mere head fake, he says,
and the regulatory reforms proposed by the Obama
administration will only “paper over” larger problems,
like the nation’s soaring levels of spending and debt.
He sees the U.S. entering a “repression”—more severe
than a recession, but a step short of a depression—with
a prolonged period of slow growth and high interest
rates. To weather those trends, he’s buying high-quality
bonds with one- to two-year durations. Most of his
new purchases are in energy: He sees oil reaching $100
to $150 a barrel in three to five years, another ill omen
for an early recovery. It’s partially because of the crisis
ahead that Rodriguez is shrinking his management
role. “This will be a long battle,” he says, and “I won’t
be the optimum age to be the general of the army.”
August 2009
Photograph by Gabriela Hasbun for SmartMoney
Irrepressible on a spring morning in his Los Angeles office,
Rodriguez takes a luxurious sip from his favorite green coffee cup. Then he mimics an uptight pension fund client who
fired him in 2008 for moving his portfolio into cash: “We will
In economic
growth, as in auto
racing, “it’s not the
speed that kills; it’s
the sudden stop.”
It’s too soon to
call a bottom, but
“prospective returns
are better now than
two years ago.”
n Wor ld’s G r eate st I nve stor s n
Joel
Tillinghast
Portfolio Manager, Fidelity Low-Priced Stock
Photograph by Evan Kafka for SmartMoney
Joel Tillinghast owns around 800 smallish, often oddball
companies in his $22 billion Fidelity Low-Priced Stock fund—
more than five times the number in a typical portfolio that
size. How does he get his ideas, let alone keep track of them?
To answer, Tillinghast dives into the oversize blue recycling bin next to his desk. Papers fly. He grabs a fistful
of stock listings put out by his research team and adds
them to the inch of reports and newspapers spread out
over his desk. “I have huge support,” he says.
The plug for the analysts sounds like modesty—
and might be shyness. Tillinghast, at 51, has run
Low-Priced Stock since its inception in 1989. Over
the past 10 years, he’s delivered an annualized 8.9
percent return, almost 11 points better than the S&P
500. That record makes him one of Fidelity’s all-time
stars, but he lacks the outsize personality of, say, a
Peter Lynch. If anything, Tillinghast’s sprawling fund
of obscure stocks reflects his personal traits: a Pentiumchip brain that keeps track of the balance sheets of an
extraordinary number of companies, with an affinity
for numbers over people. “He’s like the genius professor who doesn’t quite connect to the real world,” says
Jim Lowell, of research firm Adviser Investments.
Genius didn’t spare Tillinghast from last year’s
meltdown. He relies less than other managers on
macroeconomics, and his fund did only slightly better than the broader market during the plunge. But in
2009 he’s shot back ahead, beating the S&P 500 by 11
August 2009
percent year to date. He attributes the success in part to
the under-the-radar stocks in his portfolio: “Small-tomedium companies often find ways to compete” when
the economy is dismal, he says. And his knowledge of
those companies is truly thorough. When we quiz him
about two random picks from his
What he’s Buying
holdings—YuYu Pharma, a Korean
drug company, and the temp firm
n Fossil (FOSL, $24)
TrueBlue—he quotes their sales
Watch and accessory maker
could capitalize on retro
and market-capitalization numbers
trends in U.S.
off the top of his head.
n TrueBlue (TBI, $10)
One potential upside of the
Temporary staffing agencies
crash, for curious investors: Lowlike TrueBlue often soar at
Priced Stock reopened last year
the beginning of a recovery.
after being closed since 2003. Tilln Unit Corp. (UNT, $35)
inghast has new cash to play with,
Oklahoma oil and gas
and with exceptions like Oracle
company should thrive when
and Safeway, he’s continuing to
energy prices rebound.
zero in on lesser-known companies.
He’s also reluctant to call a rebound. In his mind, a few
things have to take place first—a Chinese recovery and
U.S. health care reform—but ultimately, he just shrugs
about the timing. One thing he can say: “Your prospective returns are better now than two years ago.”
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n Wor ld’s G r eate st I nve stor s n
Anne
Gudefin
Manager, Mutual Global Discovery
to the copy of stock-picking bible The Intelligent Investor on his desk. “Okay, fine,” she said crisply in Frenchaccented English. “But how many of them spent their
summer in China reading that book?”
Greenwald moved Gudefin to the head of the line.
Thirteen years later she’s first in a
What She’s Buying
different class: In four years running
the $13 billion Mutual Global Disn British American
covery fund, she’s outperformed 95
Tobacco (BTI, $54)
Cigarette maker has pricing
percent of global stock managers.
power and high dividends.
Foreseeing trouble in banking in
n Eutelsat (ETL, $25) This
2007, she sold off financial stocks,
French satellite company
shorted European and U.S. stocks,
has a huge moat against
and had 58 percent of her fund
competition.
parked in cash by the time the marn Group Danone (DANOY,
kets hit their worst stretch. While
$10) Holdings in bottled
Discovery took losses last year, it
water and infant nutrition
beat the MSCI EAFE world stock
look recessionproof.
index by 17 percentage points.
Daughter of an American banker and French real
estate investor, Gudefin grew up in Switzerland and
France. Her post-MBA efforts to get into money management were thwarted at first—one company placed
her in client services, stereotypical women’s work at
48 smartmoney
old-boy firms. But she broke into the business at a
hedge fund before joining New Jersey–based Mutual
Series in 2000 as an analyst covering European stocks.
That meant working closely with David Winters, a
2008 World’s Greatest Investor. More crucially, it
meant an apprenticeship in Mutual Series’ ethos of
investing widely outside traditional stocks and bonds.
David Petso, a Boise, Idaho, financial adviser with $25
million of clients’ money invested in the Discovery
fund, says he’s been impressed with Gudefin since she
took over from Winters: “She’s very bold.”
Gudefin certainly can’t be accused of running with
the crowd. Hosting us on a gloomy day in her London
office, she isn’t yet warming to the idea of a market recovery. Though she’s shrunk her cash position to under
40 percent, she’s staying conservative, buying ultrasafe
utility bonds and high-dividend stocks while using
covered-call options to hedge against a volatile market.
She won’t call a market bottom until she sees large-cap
stocks make a stronger move than they have so far. If
investors would rather hear something more upbeat,
well, tough luck. “I know I cannot be the popular girl
at dinner parties,” she says with a nonchalant toss of
her head that sends her earrings flying.
August 2009
Photograph by Jude Edginton/Redux for SmartMoney
Columbia University finance professor Bruce Greenwald recalls the day MBA student Anne Gudefin talked her way into
his value-investing class. When Greenwald protested that he
had hundreds of students on his waiting list, Gudefin pointed
Bearish about
stocks and real
estate, Gudefin
admits “I
cannot be the
popular girl at
dinner parties.”
“Give up the
notion that the
Dow is going to
14000,” Gross
says, “or that
the economy is
going to soar to
new peaks.”
n Wor ld’s G r eate st I nve stor s n
Bill
Gross
Co–Chief Investment Officer, Pimco
Photograph by Evan Kafka for SmartMoney
For Bill Gross, all the world’s a gloomy metaphor. Last year’s
downturn? “Like living in a Three Stooges episode,” he says, comparing the string of bad news to Moe repeatedly slapping Larry in the face. The threat of deflation? Think Darth Vader.
“Luke Skywalker is winning the battle at the moment,”
says Gross, “but it doesn’t guarantee the end result.”
Then again, even the Dark Side of the economy’s
Force can’t seem to stop Gross these days. Last year
he navigated the $150 billion Pimco Total Return, the
world’s largest mutual fund, to a 4.3 percent return,
nine points better than the average among his peers. The
fund ranks in the top 4 percent among all bond funds
for the past 10 years, according to Morningstar. “It’s
quite possible that Bill Gross has made more money for
investors than any other manager on the planet,” says
Don Phillips, Morningstar’s managing director.
We meet Gross in a Chicago hotel room prior to his
giving a speech. The billionaire has just finished ironing
his own shirt; he fears the suite’s lack of a minibar might
represent “the new normal” in a world where consumers and investors will have to make do with less. Gross
has been deeply involved in the government’s efforts
to revive the economy. But while he acknowledges the
need for the new financial regulations the White House
recently proposed, snail-like growth will be the price
of that safety net. “The next four to 12 years will not
be investor-friendly,” he says. The new cosmic order
involves 8 percent unemployment, anemic single-digit
August 2009
annual stock market increases, and ultimately, once the
short-term economic crisis is over, higher inflation.
Granted, the master of bonds can seem excessively
gloomy about stocks. After the tech bubble collapsed,
Gross predicted the Dow would sink to 5000. “I’m
still waiting for that,” says Daniel
What He’s Buying
Moisand, former president of the
Financial Planning Association. But
n Short-term bonds of
Gross sees a major role for stocks in
Dow Chemical and AT&T
To boost his portfolio’s
a slower economy. Investors should
income, Gross is focusing
seek stable income from stocks that
on high-quality corporate
pay good dividends like Cocabonds with interest rates of
Cola and Procter & Gamble. He
7 to 8 percent.
also recommends a bond portfolio
n Treasury Inflationfocusing on high-rated companies
Protected Securities
like Dow Chemical or AT&T.
(TIPS) With the government
After that, it’s time to hunker
facing deficits for the
down. “Give up the notion that
foreseeable future, investors
the Dow is going to 14000,” says
will need an inflation hedge.
Gross, or “that the house is going to
catch up in value to what you paid for it.” The world
has changed, he says, because we consumed too much
and saved too little. To return to the Stooges metaphor,
we’ll all need a couple of nyuks in the years ahead. e
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