Pros fess up to their retirement-building blunders

What's more, they get to deduct the depreciation of the residential buildings on their taxes over 27½ years, according to the IRS tax rules. Then, once the depreciation runs out, they sell the properties and reinvest the proceeds in another rental property. This step allows them to postpone paying taxes on the capital gains and start the depreciation process all over again.

"You can't beat it," he says.

What he would have done differently:

"I would have listened to my employers and opened an IRA or whatever the savings vehicles were then. I think that was before 401(k)s. I did not pay attention then and, to this day, do not know what the savings vehicles were" in the late 1960s and early 1970s.

"Crazy, but this is still a problem with most young citizens," he says.

Robert Rodriguez

Manager of FPA Capital and FPA New Income funds

Biggest mistake:Overconfidence.

Rodriguez would pass anyone's definition of a cautious investor. FPA New Income, a bond mutual fund, hasn't suffered a losing 12-month period since Rodriguez began managing it in 1984. FPA Capital, a stock fund, has outperformed the Standard & Poor's 500-stock index by an average of 6.36 percentage points a year over the past 15 years.

Rodriguez, a value investor, looks for beaten-up stocks and waits for them to return to Wall Street's favor. Usually, that works. But sometimes, a fallen company is just a bad investment. In June 2000, Rodriguez had a big bet on Conseco, an insurer whose stock had fallen on hard times. After Conseco bought Green Tree Financial, which made subprime loans on mobile homes, its stock tumbled from $20 in May 2001 to $4.40 in June 2002.

Rodriguez owned about 21 million shares of the company's stock in FPA Capital and $60 million of its debt in FPA New Income.

Things only got worse for Conseco. Financing dried up, management changed a key element in underwriting loans and the company went into bankruptcy. Rodriguez wound up on Conseco's bankruptcy committee after the company filed for Chapter 11 protection in August 2002.

"Conseco is my worst and the fund's worst investment failure since I began managing (it)," Rodriguez wrote to his shareholders in September 2002. "In total, the Conseco securities subtracted 3.5% from the fund's performance."

"We were unaware of what was going on in the environment, and even the ratings companies didn't know," Rodriguez says now. "I misevaluated some of the risk in the bonds. I did my penance."

What he would have done differently:

"Always be suspicious," Rodriguez says. "Don't think you know more than you really do. We have become much more circumspect about the ratings companies and about structured finance."

It was an invaluable lesson, he says.

FPA avoided the problems of bonds backed by subprime mortgages that have plagued the credit markets this year.

As for making mistakes, "It's healthy," Rodriguez says. "It reminds you that you're human."

What's the biggest financial mistake you ever made?

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