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Oracles of Alabama

Jeff Cavender and Lyle Watts heed the value investors' call of buying securities on the cheap.

Jerry Kerns, 10/30/2008

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Walk into the Huntsville, Ala., office of Jeff Cavender and Lyle Watts, and it's clear where their alliances lie. On the wall are photos of the partners posing with managers Bruce Berkowitz, David Winters, John Keeley, and Dan Fuss. On a separate wall hangs a framed note from the man himself, Warren Buffett.

"Value investing fits our character," Cavender says. "In every area of our lives, we like the idea of buying bargains. Buffett said it's like an inoculation: You either get it or you don't."

There's no denying Watts and Cavender get it. Though they came of age as investors during the growth-led bull markets of the 1980s and 1990s, they saw the advantages of a more measured, long-term investing approach. Twenty-percent annual returns common then didn't impress them because those gains came with too much downside. They preferred steady returns that sometimes lagged in exchange for a low probability of a loss of capital.

"First, do no harm," Watts says. "That's the way I view the world. If I can avoid huge losses, I'm willing to trail."

Sweet Home
Both born and raised in Alabama, Watts and Cavender were on the same page investing-wise before they met each other.

In 1990, after college, Cavender went to work at a wirehouse in Huntsville. Bitten by the value investing bug early on, he became frustrated because the managers he wanted to use for his clients weren't available to him through the firm. He also tired of the frequent changes to the mutual fund lineup for reasons based more on marketing than fundamentals. Instead of focusing solely on performance, he was interested in the process.

Cavender looked at Buffett's approach at Berkshire Hathaway. "He didn't make that money overnight. There was a process behind it, and it wasn't a process of jumping in and out." He concluded that if he was going to make a career out of being a financial advisor, he needed to have access to like-minded value managers and be free to pursue his strategies. Cavender made his move in 1996 and started his own firm.

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