Roger Engemann is known as one of the area’s most successful independent asset managers. But he sold his firm, Roger Engemann & Associates, earlier this year to Hartford, Conn.-based fund management firm Phoenix, Duff & Phelps Corp., which manages $33 billion in assets.
Engemann denies that his firm was too small to be a contender. Always thinking like a long-term investor, the 57-year old Engemann said he sold out simply to ensure the stability of his company long after he retires.
Despite the recent wild gyrations in the financial markets, Engemann remains bullish on the long-term outlook. In fact, he advises investors to put all their money into stocks.
Question: How do you gauge the current volatility in the stock market?
Answer: The truth is that since the mid-1980s, the market has seen very low volatility. The reason people see it as volatile now is because the Dow Jones number is big. For most of my career the Dow was under 1,000, and a six- or 10-point move was significant. But now a 100-point move is not all that significant. If you split the Dow Jones 10 to 1, the volatility would disappear.
Q: How did you fare in the recent market downturn?
A: Our funds are probably down 5 to 10 percent from before.
Q: Are you optimistic about the general direction of the stock market?
A: I’m always optimistic. Look at the long-term charts (of the Dow Jones Averages) and you can see that it has its wiggles, but it always goes up. We’re investing to put people’s children through college and for retirement 30 years away. From that point of view, stocks are fantastic. Do I think that the market will see a significant drop in the next year? No. Inflation is cooler than it’s been in a long time, interest rates look like they will go down further and corporate profits should increase 10 percent next year. I don’t see any reason to have a bear market.
Q: How strong will the market be?
A: The days of 15 to 25 percent gains per year are over for the time being. I see growth of between 5 to 10 percent for the Dow.
Q: What would be your advice to an investor who is holding $50,000 in cash?
A: If he is investing for the long term, I think he should put all of it in stocks. That’s not common advice, but it is correct advice. If you look at things from the long-term view, why would you be in anything but stocks? It doesn’t make any sense. The only reason people put money in bonds is because they get nervous. I never get nervous. It doesn’t bother me when the market goes down. In fact I kind of enjoy it.
Q: What kinds of stocks would you recommend?
A: We invest mostly in stable-growth stocks, not cyclical. Around 90 percent of our money is in growth stocks. We invest a lot in health care and drugs, and companies like American Express and Philip Morris. The kind of companies that grow 15 to 20 percent through thick and thin. These kinds of stocks do well even when the economy slows down, and it is going to slow down. The current economic growth rate is unsustainable.
Q: Are there any Los Angeles-based companies you think are a good investment?
A: We have a lot of Walt Disney Co. We think they are a well-managed company with a very strong monopoly. There is only one Mickey Mouse. It has been growing steadily for years and we think it is going to continue.
On a smaller note is the Ninety-Nine Cents Only Stores. It’s a very well-run company and has a strong technique for putting things in their stores that they bought very cheaply on a close-out basis.
Q: How are you being affected by the downturn in Asia?
A: We have not had anything significant in Japan. We are waiting for them to get their act together and admit that they have a problem with their banking system.
We have had significant investments in Hong Kong, as well as Singapore and Malaysia. But we actually sold all of those before the downturn simply because we had two analysts that made a tour of the region and they were very bearish.
I don’t think it is going to affect the markets here too much simply because I don’t think it will affect U.S. companies that much. On the other hand, the effect could be very positive as a buying opportunity (for Asian securities).
Q: What compelled you to sell out?
A: The company is worth a lot of money. I’m getting older. My name is on the door. If something should happen to me, it would be bad for the business. So we had an opportunity to sell, lots of people were offering a huge amount of money for us. Prudence said sell now while I’m 57 years old.
Q: What is it that attracted you to fund management?
A: Every day there is something different. A large part of your job is being aware of what is going on in the world. That’s fun. As an investment manager I’m judged on what my results are. That’s easily measured. I enjoy that too. Unlike a broker who tries to convince a client to buy something, I just go ahead and buy it. It is a very clean, respectable business. It’s always been fun.
Q: Are you ever tempted to get involved in the management of the companies you invest in?
A: No. On a rare occasion we will make a suggestion to them if we feel they have missed something. The only times we will make suggestions is when we feel they are not looking after their shareholders as well as they should.
