The Compound and Friends

How to Earn Stock Market Returns With Half the Risk

178 snips
Sep 26, 2025
Steve Romick, a seasoned value-oriented portfolio manager and co-portfolio manager of the FPA Crescent Fund, shares insights on navigating market risks while maximizing returns. He discusses his risk-first approach, highlighting lessons from the dot-com bubble and the importance of valuing durable businesses. Romick emphasizes the significance of adapting investment strategies, the current market landscape with opportunities in small/mid caps, and the potential impact of AI. He also critiques cryptocurrencies due to valuation challenges, providing a thorough outlook for active investors.
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INSIGHT

Security Selection Drives Portfolio Outcomes

  • Security selection drives returns more than preset allocations in flexible funds like FPA Crescent.
  • Cash becomes a residual that builds when no attractive security-level opportunities exist.
ANECDOTE

Cover Photo Before A Drawdown

  • Steve appeared on Money Magazine's cover in 1998 but then underperformed heavily during the tech run.
  • The fund lost a large portion of assets as investors redeemed after the dot-com surge passed them by.
INSIGHT

Price Can Defeat Correct Business Thesis

  • Avoiding hugely overvalued tech names mattered more than predicting the internet's importance.
  • Being "dead right" on the thesis but paying too much still destroys returns.
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