Whether it's working his farm or running a mutual fund, he takes a cautious approach to risk.
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Jeff Auxier's second career as a successful hazelnut farmer isn't far removed from his day job.
The farm is outside Portland, Ore., near the end of the Oregon Trail, and Auxier Asset Management's small office is nearby. There, Auxier buries himself among trade journals covering sectors from banking to beverages, seven newspapers a day, and piles of 10Ks. He describes his typical day as a solitary "grind, reading as much as I can in eight to 10 hours" to find consistent businesses with solid fundamentals and little debt.
His experience farming echoes his investing criteria: "You get a huge appreciation for the risk of commodities," he says. "We run debt-free because of the respect I have for how quickly things can change."
Buffett Takes a Call
After graduating from the University of Oregon with a finance degree in 1981, Auxier was set to get an MBA and head to New York to embark on a more conventional investing career. He says that he changed his mind after a call to his hero, Warren Buffett, "who would not know who I am today, but who kindly took the call." Auxier decided to stay local and focus on finding value-priced companies that Wall Street "despised." He started his career as a retail broker, then a separate account manager at Smith Barney, before founding Auxier Asset Management in 1998. He is guided by the classic Buffett nugget: First and foremost, never lose your principal. "I sailed through '83, '87, and the tech downturn [in 2000-2002] thanks to following Buffett's advice," Auxier says.
Auxier Focus Fund
Auxier is most enthusiastic about the "dull and mundane: companies offering better values and understandable products," he says. Discount retailers Wal-Mart
That said, Auxier is not excited enough to hold stakes much larger than 2% at today's prices. "When Philip Morris was at eight times earnings, as in 1987, then it was OK to concentrate," Auxier says. "In the 1980s, food stocks were at four or five times earnings! I'm not as comfortable at 12 or 15 times earnings."
Even bargain prices won't make auto or airline stocks attractive to Auxier; too many wild cards affect such industries. After low price multiples and lots of free cash, Auxier seeks predictability. "We want to compound client money consistently, so we look for businesses with high degrees of consistency without gimmicks." He offers Paychex
Two Sides to Every Story
Auxier readily admits "the other hand" for many of the stocks in his portfolio. Top-10 holding Nike
Bruce Stoltenberg of Soundview Advisors in Olympia, Wash., appreciates Auxier's ability to see both sides. "Auxier is humble. It's an odd blend, but you want a money manager with a big enough ego to have conviction but the humility to admit mistakes."
Mark Galloway of Galloway Asset Management in Mesa, Ariz., finds Auxier's straightforwardness reassuring. "He's been on the phone with investors weekly during the crisis, and he'll say, 'I screwed up. I'm going to try this.' He is honest about the good, the bad, and the ugly."
Advisor Tom Poehling believes that Auxier's approach dovetails with his own desire to limit volatility so that skittish clients don't abandon the market at the bottom. His Web site for Poehling Capital Management, based in Madison, Wis., is a paean to the likes of Buffett and Benjamin Graham. Poehling says that Auxier does "exactly what we believe in. Jeff doesn't overpay; he wants the right company at the right price. He also avoided financials for the most part and lowered the fund's concentration at the right time."
Investments in Education
Auxier's caution doesn't preclude bucking the conventional wisdom. Some of the fund's best performers recently are education stocks that he bought several years ago when they were foundering in a strong economy, when going back to school was a less attractive option. "When Apollo
One of Auxier's most prescient picks was ITT Educational Services
Auxier does not always display such brilliant timing, but he will stand firm and buy on the way down. One example is Zimmer Holdings
Although that cushion has no doubt proved a comfort to shareholders in the current turmoil, this fund is unlikely to soar when the market eventually rebounds. Auxier says that his goal is to "beat the market on down markets, and match it on up markets." Despite its name, this fund isn't for investors looking for a stock-picker willing to stake significant bets on compelling picks; less than 20% of assets were in the fund's top 10 picks at year-end. Moreover, the 120-stock portfolio contains bits and pieces that might not have much impact on performance, but they do seem to represent a departure from the Buffett way. There's that lingering tracking position in Washington Mutual, for example, and a tiny stake in iShares MSCI Germany Index
Some advisors might also be put off by the fact that Auxier prefers to go it alone. "Even better investors gravitate toward other things when they have a large staff, and no one is really on the pulse," he asserts. "When I have had a number of analysts underneath me, the performance was not as good." Galloway likes knowing that Auxier is making the decisions on his own, rather than entrusting them to "some young MBA straight out of school."
Stoltenberg considers Auxier's lack of support "a negative, but not fatal. We like to feel that we can buy a fund and hold it for 20 years. You could buy an American Fund and hold it forever, but Jeff has been as consistent as any fund we've owned." Stoltenberg also appreciates the flexibility that has helped this fund bear up in down markets, and he considers the 1.35% expense ratio fair given an asset base of only $79 million.
The fund's biggest appeal may be that it provides as much excitement as many clients can handle right now. Poehling puts Auxier in a class with Christopher Davis and Bruce Berkowitz, but those managers have hefty stakes in their top picks. Auxier does share their enthusiasm about current investment opportunities: "It is so rare to have a chance like this. If people can get over their emotions, the next 12 to 18 months are going to be an exciting time for shopping."
It is safe to say, however, that he won't bet the farm.
Laura Lallos, a former Morningstar analyst and editor, is a frequent contributor to the magazine.