Last October, Brian Rogers completed
an extraordinary 30-year tenure
managing the Equity Income Fund,
though he continues serving on
the fund’s Investment Advisory
Committee and as T. Rowe Price’s
chairman and chief investment officer.
Over a three-decade period leading
to October 31, 2015, Mr. Rogers
managed the fund through many
challenging market cycles.
Reflecting on that long career,
Mr. Rogers offers several investing insights. Some may be basic common
sense but are often difficult to achieve
in practice.
First, when confronted with
market setbacks, investors should
try to keep a long-term perspective
and take advantage of short-term
volatility, he urges.
“When you look at a lot of these
market declines on a long-term price
chart, you realize how unimportant
they seem,” he says. “The 1987 crash,
for example, seemed like a huge
incident at the time, but now it looks
like a little blip on the chart. Many
fund investors tend not to do as well
as the market because they buy high
and sell low.
In fact, Mr. Rogers says investors
should try to take advantage of
market declines by investing more in
higher-quality companies selling at
attractive prices.
“You have to be a counter-puncher,
a contrarian,” he adds. “The long-term
trend of economic growth is positive,
and the long-term trend of markets is
upward, but in any short-term period
you can be down sharply. In the past, it has almost
always made
sense to ride
through it.”
As a value
investor, he
says investors
should focus
on the quality
of a company
and its stock
price rather
than macro
concerns.
“The price you pay often determines
investment success,” he says. “Over
time, price and value will converge.
“We have always tried to capitalize
on controversy, buying stocks that are
out of favor often with lower price/
earnings ratios and higher dividend
yields than average,” he adds. “If the
company’s earnings and dividends
grow over time, the value of the
enterprise should rise, notwithstanding
short-term fluctuations.”
To judge corporate quality, focus
on its balance sheet and whether the
company has the financial strength
to withstand adversity, he says: “My
worst investments were companies where the degree of financial leverage
and illiquidity on the balance sheet
got me into trouble. If you buy a good
company and it doesn’t work out, the
worst outcome may be little or no
return rather than significant losses.”
“Simplicity is a virtue when it comes
to investing,” he says. “Complexity is a
friend of Wall Street and the enemy of
Main Street.”
*** [8/8/16 - T. Rowe Price Report, Winter 2011]
Looking back over the last 25
years, Mr. Rogers notes several key
lessons he has gleaned—first and
foremost that, despite many challenging
periods, “the world is a very
resilient place.”
He cites four such periods in particular
that shook market foundations
and really rattled investors’ nerves:
• The market crash of 1987. “It was
over so quickly that it hardly mattered
in the long run, but that was
as scary a couple of days as I have
ever seen.”
• The credit crisis of the early
1990s. “That was really, really
difficult, exacerbated by Saddam
Hussein invading Kuwait, causing
oil prices to spike dramatically,”
Mr. Rogers says.
• The 2000–2002 bear market. “To
me,” he says, “that wasn’t quite
as frightening because it wasn’t as
systemically challenging. It was
more the result of several overvalued
market sectors coming back to
reality.”
• The crash of 2008. “This was
a terrifying time because of the
household name institutions that
collapsed due to imprudent use
of leverage and poor management
decisions.”
After each of these crises, however,
equilibrium returned to global
markets and the financial world
moved forward. “So we’ve seen a lot
of things over 25 years, but what you
realize over time is how resilient the
system is,” Mr. Rogers says. “I sometimes
think we forget that in periods
of market dislocations.”
The second lesson, harkening back
to the technology stock bubble of the
late 1990s, “is that trees don’t grow to
the sky,” he says. “And so if it seems
too good to be true, it may be. Very
few companies grow at 20% to 25% on a sustainable basis, and you have
to be sensitive to what you what pay
for an investment. And at times, when
valuations become extended, you have
to be willing to walk away and sell
something when it looks too richly
valued.
“I think that’s something that’s very
hard for investors to do, because in
periods of high valuation everything
looks good.”
Accordingly, Mr. Rogers says, “The
third lesson—and this is really hard—
is that you have to force yourself
to be a bit of a contrarian and avoid
investing in something simply because
it has recently done well.
