Mark Millsap
Mark Millsap is a co-owner of Foundation Resource Management of Little Rock.
Millsap earned a bachelor’s degree in corporate finance and investment management from the University of Alabama. He has spent the past 33 years as a value investment manager, first with AmSouth Bank of Birmingham, Alabama, and with Meridian Management Co. of Little Rock from 1989-2001. Foundation Resource Management’s team of six investment professionals and five administrative employees manage approximately $2.1 billion. Millsap is a chartered financial analyst with expertise in managing stock, bond and balanced portfolios.
Foundation Resource Management is the third-largest registered investment adviser based in Arkansas.
Ten years ago, you and your colleague Greg Hartz wrote commentary for Arkansas Business in which you called for breaking up Fannie Mae and Freddie Mac, and you ended up looking pretty smart. What are your primary concerns in the financial markets today? Are you hearing the same concerns from your clients?
We wrote that article prior to the peak of the brewing real estate bubble because we believed, while real estate is not our firm’s business focus, it was important for us to warn people of the dangerous behavior being exercised at the time.
Currently in the financial markets, we are seeing clear signs of excessive complacency in stock and bond prices. However, it feels different from other market tops because investors are not yet displaying euphoria. Rather, they are being forced to invest in stocks and bonds more aggressively due to irresponsible Federal Reserve policy. Investors generally are taking more risk buying stocks and bonds today in an effort to manufacture investment income and return. We are amazed that the Fed still feels compelled to manipulate interest rates down to zero. We believe this artificial control of interest rates is creating malinvestment rather than letting the markets operate freely, where capital can gravitate to the best investment opportunities. We believe the Fed is part of the problem at this time, rather than the answer to our problems.
Valuations in security prices generally are very high, and there is a clear historical correlation that high valuations lead to low future returns. Our objective is not to invest in the overall market, but to find those areas of undervalued opportunity, and there are some distinct areas of opportunity today.
What lessons did you and Foundation Resource Management learn from the meltdown? Are you doing anything differently than you did before 2008?
As cautious as we were prior to the financial crisis in 2008 and 2009, we were still amazed by the degree to which hedge funds, banks and brokerage firms were taking excessive investment risk. We have always placed an emphasis on balance-sheet quality, but we learned how quickly liquidity can dry up when companies require financing. We were confirmed in our belief that cash, which is always viewed negatively in a speculative market, has tremendous value when the market swings too far in the other direction and becomes heavily discounted.
If you could, miraculously, get Congress and the president to do one thing, what would it be and why?
Simplify the tax code by eliminating loopholes and reducing corporate tax rates. This is our country’s major financial competitive disadvantage.
What is the best piece of advice you could give Arkansas Business readers looking to create financial security?
Patience is the rarest and most valuable ingredient to investing. If a person can live below his or her means, save regularly and invest for the long term, it is absolutely amazing what compounding returns over a very long period can accomplish for an investor’s financial security.
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