Gary A. Barohn, CFA
Trained as an aeronautical engineer, Gary A. Barohn, CFA joined Wells Fargo Advisors in 2005 and has nearly three decades of financial industry experience. We spoke with him earlier this month.
What's your current role at Wells Fargo?
At Wells Fargo Advisors I'm a Senior Vice President & Senior Equity Portfolio Manager. I am involved with a handful of products for our retail and institutional clientele. I oversee an all-equity portfolio. It is primarily large cap, all domestic, kind of a mix of Value/GARP, fully invested more or less. I also oversee the large-cap domestic equity sleeve of six of our large asset allocation products. So I'm a co-portfolio manager on those six and lead portfolio manager on the all-equity product.
You made the move from engineering to finance shortly before the October 1987 crash. What impact did that have on you?
I had a pretty good baptism! I remember that day vividly - 'what have I got myself into here?' But you know what? The market recovered. That's where I think maturity in this business really helps. You go through these market downdrafts - kind of like what we've been through this year - and the market over time works its way back. It's amazing how resilient the market can be. I think you only appreciate that after you've been through several up and down market cycles.
Have you always been equity-only?
No, I've done fixed income too. Equity has always been the bulk of my work but I ran money in trust companies where there had to be a fixed income component, so I oversaw the fixed income sleeve too. I never got too fancy though - you know, plain vanilla bonds, laddered portfolios, the duration was never too far from the benchmark. The alpha generally came from the equity side.
Would you like to share your investing approach?
I spend a lot of my time looking at individual companies and figuring out if I want to buy the stock. I always try and find companies that have proven themselves to be good financial operators. In that sense, I am a student of history and believe it carries a lot of weight. Things I look for specifically: consistent free cash flow, and companies that have a history of returning capital back to shareholders because they can do it. Also, companies that have proven, at least within their niche, that they're leaders and are major players. There's a lot of companies we can invest in as equity money managers, but when you whittle through criteria like that, it's surprising how short the list can then get.
On the valuation side, I'm looking to buy companies that are attractively priced and offer a reasonable margin of safety, because I think that's the best risk control an equity money manager can have - buying things when there's that sufficient margin of safety. Quite often I will not buy something that looks pretty good otherwise, because the stock just isn't giving you enough of that valuation protection. Sometimes you've got to be patient, but then be ready to jump when the market gives you that clear opportunity.
You have to be laser-focused on the companies that you own or the ones you're looking at and that's got to be the central part of your research. All the other macro stuff is certainly important but you can't control any of that. You can, however, control what type of companies that you want to invest in and that ultimately make their way into your portfolio.
Where do you tend to park your money while you're waiting for those good companies to get cheap?
I'm not worried about parking it in cash. What I tend to find out if I'm having a hard time finding companies to invest in, that's usually a good sign the market is getting up there. So building cash is OK. If you've got be fully invested, you can invest in various ETFs which will keep you in the market, but outside of that, there's nothing wrong with running cash up if you can't find anything. The worst thing to do is compromise on what you expect out of a company or a stock for the sake of using cash.
Are you finding those bargains these days?
It's looking a lot more attractive to me now than, say, the first quarter of this year. I think there are more things to look at now from a stock-pickers standpoint. Hopefully, we're entering a period here where stock-pickers like myself are going to be rewarded. It's been tough, but hopefully that'll change going forward.
Do you see any impact of the Fed's next interest rate move on the equities that you're concerned about?
Obviously, you could see the knee-jerk market drop when it actually does happen. That's usually what takes place, even though the market's had plenty of time to agonize over this rate rise - more than normal. But historically, when the Fed starts raising rates, the equity market has historically done fairly well for awhile. The market starts discounting in better growth and then assumes that will filter down to company revenue and earnings. So stocks, historically, tend to lift once the rate increase starts going. Now, that might subside further down the road, but we're nowhere near that point.
Do you see the knee-jerk drop as a buying opportunity then?
I do - as well as the knee-jerk drop from concerns about China. China's an important factor world-wide, they supply a lot of growth for the rest of the world, but I think there's also been an over-reaction by the market for a lot of domestic equities as it relates to China. So yeah, I think a drop could create an opportunity to buy good, high quality companies at attractive valuation levels.
What changes have you seen in the industry since you got into it?
Two things really come to mind.
One is the increased speed of information to investors - both fundamental information and non-fundamental information. Obviously that's due to the internet. Things get absorbed by the market so quickly now, it makes for a much more powerful case to be a long term investor or to think longer term. Near term, you think you can outsmart the market, but it's very, very tough because information travels so quickly. But that doesn't mean the market cannot act irrational when you look out over the longer term.
And the second change is the global impact markets have on each other. What's happening in Europe and Japan and China and elsewhere is so connected to what's going on here. Twenty years ago I don't remember the central banks acting in unison like they seem to want to do now. I think markets are just connected so much more globally now than they were back when I started in this business.
What do you see as being the benefits of being a CFA Charterholder?
I'd say there are a number of benefits. I got my charter back in 1989 so I've had it a long time. I took each level sequentially and was lucky to pass each one the first time. I'm probably a little unique in that I was a professional engineer when I took Level I. I was able to get company sponsored and that allowed me to take it. I started on the CFA program before I even got in this business.
I'm glad I got it. I think it's benefited me immeasurably: my stature in the industry, the respect I get from employers and colleagues, etc. I think getting the charter kind of sets you at a bit higher level versus other people in the industry that maybe don't have it. I think people in the business understand the amount of work that it takes to get the charter and the amount of study you have to put in just to pass the exams. I think it was respected back when I entered the program and it's probably even more respected now. I think it has definitely helped me in this industry and I have no regrets about putting in the time many years ago to see it all the way through.