First Pacific Advisors explores how long term investment success often comes more from avoiding catastrophic losses than chasing market leaders. Steven Romick argues that sidestepping weak businesses, speculative bubbles, and permanent capital impairment can outperform owning the market’s hottest stocks, particularly across full market cycles.
Two Decades of Winning by Not Losing
FPA
Steven Romick
Research
20 Pages
Key Takeaways
Avoiding Big Losers: The worst 10% of S&P 500 stocks reduced annual index returns by 3.3% on average since 1995, roughly 35% of the index’s yearly return.
Downside Protection Edge: FPA Crescent outperformed in 100% of declining five year market periods and posted positive returns in every rolling five year stretch since 1993.
Cash As Optionality: When CAPE ratios exceeded 25x, cash outperformed the S&P 500 in 77% of subsequent rolling five year periods; the ratio stood at 29x.
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