On March 3, The Wall Street Transcript interviewed Jonathan S. Raclin, a Principal of Barrington Research Associates, Inc., and of an affiliated company, Barrington Asset Management, Inc. Key excerpts follow:
TWST: Given the upheaval in the financial services area, why did you decide to buy First Financial Fund (NYSE:FF)?
Mr. Raclin: First Financial came to me from a good friend and exceptional investor, Preston Athey of T. Rowe Price. We were visiting regarding opportunities amid the chaos and he suggested I take a look. The Fund has been managed for many years by a very successful investor, Nick Adams. This area, particularly now, requires the steady hand of an experienced investor, someone who sees opportunity where others see disaster. I might add, his record would suggest that he is sophisticated enough so that he can see potential problems when times are good, prices are high, when others may see little but sunny skies. He has had a long history of avoiding problems.
FF is a broadly diversified fund, presently around $10, down from a high of $15. Last year they paid $1.80 in a dividend. It is obviously hard to know what they are going to be able to do this year. I started buying it at the $12 level, down from $15 — early as usual, I am afraid. The key, if there is one, to my approach, is to emphasize diversification so as not to become "trapped" because you are in just a few names, to use a professional who spends all their time on a particular area and is thus far better informed than I could be. And I emphasize distributions, dividends and capital gains. When you go through difficulties in an area as complicated and opaque as financial services, it's important to be broadly diversified, essentially hiring an expert who knows how to evaluate opportunities.
It's been my experience that it is critical to "hire" experts in these extremely complicated and volatile markets. Health care, energy, financial services are complicated industries full of traps for the unwary, the casual investor.
As I said earlier, amateurs often see difficulties as a problem, where professionals tend to look for opportunity. The reverse is true as well; when things are going extremely well, the amateur, in these highly specialized areas, tends to think everything is going well, and the professional tends to become increasingly wary. That is why investors often both buy and sell at exactly the wrong time. I have identified what I consider to be some of the best managers, experts focused on a specialized area of the marketplace. They deal with these specific investments while I monitor their performance and periodically reallocate the overall portfolios.