Interview with FPA CEO, Robert Rodriguez:
For what I would call a generalized investment fund, I view the equity markets as marginally attractive. As I tried to explain in the speech, we have just gone through the longest decline in P/E ratios in over half a century. Many are saying the stock market is attractive, because over the last 50 to 70 years the average P/E was 15 to 16 versus 12 to 13 now; therefore we have a discount. I would argue that to compare historical P/E ratios.
Greenhaven Road Capital commentary for the third quarter ended September 30, 2022. Q3 2022 hedge fund letters, conferences and more Dear Fellow Investors, The Fund is enduring its worst drawdown since inception. We were down again in the third quarter, bringing year -to-date returns to approximately -59%. Returns vary by . . . SORRY! This Read More
over this period is inappropriate, given the fundamental structures of our system are so dramatically different in terms of leverage.
I try to remind people that at the beginning of the depression in 1929, US debt-to-GDP was 16% after 11 straight years of surplus. And at the beginning of 1942, World War II, after fighting depression for 12 years, we were at 41% debt-to-GDP, and we didn’t have any offbalance- sheet entitlement liabilities.
What we are looking at today is so far removed from any of these periods that I don’t think it is an appropriate comparison. If you have a company with slow growth expectations, peak margins and business volatility, what type of P/E is given it? Typically, it is a lower P/E.
This is analogous to what we are going through currently with slow economic growth, peak margins and a volatile business outlook. From day one of this of this recovery, I have argued that it would be substandard. The Federal Reserve’s estimates have been off by 100%.
We are holding a high cash level in FPA Capital Fund; it is up around 31% to 32%. Some could argue it should be higher. Our managers have been selling three- to four-times as much as they have been buying this year. The cash builds up. At some point in time, there is going to be a dislocation in the stock market.