NEW YORK (CNNfn) - Fund manager Robert Rodriguez's philosophy about investing is a little like his approach to auto racing.
In racing, Rodriguez weighs how fast he can take each curve without sending his red Porsche cartwheeling across the track in flames. And in investing, he says it's not so much winning as it is "winning by not losing."
"There is a real balance between risk and return in racing," Rodriguez said. "Inside the cockpit, when everything is very quiet, very smooth, you get your fastest time. In investing, if you are easily distracted and let your emotions get the best of you, you end up making decisions that are sub-optimal."
Rodriguez, manager of the FPA New Income Fund and the FPA Capital Fund, is a cross between racing legend Mario Andretti and investing legend Warren Buffett. He's delivered top returns in both stocks and bonds over a career spanning nearly 30 years.
The FPA New Income Fund, with $550 million in assets, is the only stock or bond fund that has earned a profit every year for the past 24 years, Rodriguez said. The fund is up 3.8 percent year to date as of Tuesday, and has a coveted five out of five stars for risk-adjusted returns at fund-tracker Morningstar.
The Capital Fund, with $525 million in assets, has a 10-year annualized return of 17.56 percent, putting it within the top two percent of the category in that time, Morningstar said. The fund is up 7.2 percent year to date as of Tuesday.
Throughout his career, Rodriguez hasn't been afraid to express unpopular views, whether it's taking a bearish stance on inflation or refusing to dabble in risky Internet stocks.
"The common theme for the Capital Fund and the New Income Fund is very much a contrarian investment philosophy," he said. "We like to buy (stocks and bonds) when people hate them. We like to sell when people love them."
Coming of age in a bear market
Rodriguez, 50, traces his passion for investing back to his childhood in Los Angeles. He had a grammar-school assignment to write a letter to somebody outside of his family. He chose then-Federal Reserve Chairman William M. Martin. Rodriguez was 10 years old at the time.
"I've been following stocks since the early 1960s," he said.
His grandmother came to the United States in the early 20th century after his family lost its property to revolutionaries in Mexico. His father, an electroplater, never taught him Spanish.
"My father did not want us to have an accent," Rodriguez said. "It was a different era than it is today, where having a second language is a competitive advantage."
Rodriguez graduated from University of Southern California in 1971 and decided to go to business school just as the worst bear market since the Great Depression was sinking its teeth into the investment world. He worked full-time to pay his way through school, even selling encyclopedias door to door.
"It taught me what it means to be bullish and bearish," Rodriguez said of those times.
He spent about 12 years working in research, money management and trading before coming to First Pacific Advisors in 1983. He began managing the two funds the following year and is now principal and chief investment officer of the company.
A self-deprecating man who doesn't seem to have the oversized ego of some Wall Street managers, Rodriguez took the first vacation of his life, to Australia, when he was 37.
He started auto racing about eight years ago, and now competes about 20 times a year in amateur events. He drives and races Porsches, and teaches a class about auto racing.
"You're out there in your race suit and your jeans and nobody knows who you are," Rodriguez said. But once, a spectator recognized him from an appearance on "The Kiplinger Report."
"It's a great stress reliever," he said. "I call it my religion."
A bond bear
But most of the time, Rodriguez has his attention focused on both sides of Wall Street.
Rodriguez's bond fund is ranked fifth out of 551 intermediate-term bond funds for year-to-date returns as of Aug. 31, and is one of only 28 that isn't losing money, according to Morningstar.
Part of his success is that he has refused to be swayed by low yields to invest in longer-term bonds that are more interest-rate sensitive, most recently in 1998.
While the "bond bulls" last year were convinced that inflation was gone for good, Rodriguez remained defensive, shortening the term on his bonds and raising his cash position. He also started investing in inflation-indexed bonds, which represent about 37 percent of the portfolio. The value of inflation-indexed bonds get adjusted upward to account for inflation.
Rodriguez said the index bonds have been "mediocre performers," but he considers them a hedge against risk. "I still think the markets are looking at inflation levels with rose-colored glasses."
His unwillingness to add risk to the bond fund sank his 1998 returns to 3.9 percent, putting him down to the 97th percentile for returns. But in 1999, the fund has soared back to the top percentile.
"We will not risk our clients' capital," Rodriguez said flatly.
A value investor
For that reason, Rodriguez last year took the stock fund to its highest cash levels in 15 years, about 33 percent. He said valuations were so high he couldn't find anything worth buying.
"You're talking to a small- to medium-cap value manager, and that manager is becoming a dinosaur," Rodriguez said. "What we do in our Capital Fund or the New Income Fund is a function of our discipline."
He closed the fund in 1995, just as investor interest was intensifying, because he worried that ballooning assets would hurt returns. And Internet stocks? Forget about it. He's not the least interested.
"It's cost me and my firm a lot of money," Rodriguez said of his decision to close the stock fund. "But rapid growth leads to poor decision making."
Rodriguez lately has been finding good bargains in financial services stocks such as Conseco (CNC), as well as manufacturing and housing industry companies that are hitting new lows. (He declined to name any specific stocks because he's still buying).
"I like things that are getting trashed, hated," Rodriguez said without a trace of humor in his voice.
The top holding in the fund is Kemet (KMET), a maker of specialized products for PCs and other equipment. The stock represents about 8 percent of the portfolio -- and his investment has tripled in value.
What analysts think
Sarah Bush, an analyst at Morningstar, said it's pretty unusual to find a someone who manages both stock and bond funds.
"With most shops, and certainly with the bigger ones, the stocks and bonds people are pretty much separate," Bush said.
Rodriguez is also unique for his willingness to hold a lot of cash and nose around in unpopular parts of the markets, Bush said.
"He really is a value investor, and that comes through in both portfolios," Bush said.
Mark Groesbeck, a certified financial planner with Stanford Group Co. in Houston, said he is impressed that the bond fund hasn't had a losing year.
"He has a really good long-term track record over five or ten years," Groesbeck said. "If you look at the long-term, investors have been compensated."
But at the same time, Groesbeck is concerned that Rodriguez's returns fall to the bottom of the charts when his strategies are out of favor.
"I'd rather see consistent returns year in and year out," Groesbeck said.
Lessons of experience
Rodriguez pointed out that neither of his funds suffered mass redemptions during off years. In fact, some shareholders are so loyal that they have expressed a little nervousness that he likes to race cars. He tells them it's safer than skiing.
He said he has a lot of respect for someone like Mario Andretti -- or any athlete who gets to the top of his or her sport. But Rodriguez's true heroes are investing icons such as John Neff, Warren Buffett, and John Templeton, who have generated top returns over many years.
"These people have done it over four or five decades," Rodriguez said. "It means they've had to deal with many challenges."
Anybody at Rodriguez's firm won't touch a client's money for at least eight years. The biggest problem with young managers is that they think they are smarter than they really are, he said.
"There's nothing like having lost money -- you need to go through adversity to be tested and you need to face it on several occasions to find out who you truly are," Rodriguez said. "At our firm, we'd rather have people make their mistakes somewhere else."
Sort of like being on the race track.
-- Every month, CNNfn.com profiles a noteworthy fund manager.