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What Parameters Does FPA Crescent Fund's Steven Romick Look at for Market Valuations?

December 17, 2011 | About:

During his latest shareholder conference call, Steven Romick of FPA Crescent Fund shared what matrices he uses to measure the valuations of stocks and bonds. Not surprisingly, as a long term investor, Steven Romick looks at long term market valuation parameter Shiller P/E for market valuations. This is a screenshot of his Schiller P/E page:


This is clearly similar to what GuruFocus Shiller P/E page looks like. Shiller P/E ratio is updated daily. Today it sits at 20.1, which is 22.6% higher than the historical mean of 16.4, implying a future market return of 3.8% a year.

But Steven Romick is seeing opportunities in large cap high quality companies. He thinks that those companies have higher return on capital, and with relatively low valuations.

With bonds, Steven Romick looks the spread between Merrill Lynch High Yield Index vs. average of 5 & 10 year US Treasury yields. His slide is below:


Currently he is not yet excited with bonds, as he generally looks for better yield.

These are the links to the complete set of his slides and the audio record of the conference call:

By the way, in the conference call, Steven Romick mentioned that a few years ago he was a one-man shop. Today he has a team of 10 analysts. A disclosure here, when he was a one-man shop, Steven Romick was a Premium Member of GuruFocus.

As always, if you are not a Premium Member, we invited you for a 7-day Free Trial.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.6/5 (18 votes)


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