How one farmer fund manager ekes out gains

Jeffrey Auxier has a good personal reason to strive for a solid performance for the small mutual fund he manages in Portland, Ore.: He launched it in 1999 by investing much of his own money in it.

So far he's not sorry he did that.

Years ago, fresh out of college, Mr. Auxier called famed investor Warren Buffett for advice on investing. He was told: "No. 1, don't lose your principal, and No. 2, never violate the first rule."

By following that advice, Auxier has managed to keep the shareholders of his Auxier Focus Fund relatively unharmed. With $22 million invested today, they largely escaped the three-year bear market that followed the 1990s stock-market bubble. As a result, his fund has won five stars - the top score - from Morningstar, a Chicago firm that rates and analyzes mutual funds and other investments.

"The fund is off to a great start, but we'd like to see more of a track record," cautions a Morningstar analyst.

Auxier also has managed for a longer period some $200 million in high-net-worth accounts.

This year, the fund shares are down approximately 3.8 percent, about a percentage point more than the Standard & Poor's 500 stock-market index. "It's a little frustrating for me," he says.

Over the past three years, the fund has had an average return of 0.3 percent a year.

That may not seem like much. A bank certificate of deposit would have done better.

But compared with a decline of 16.2 percent a year for the S&P 500 and the performance of most mutual funds in the same period, managing to emerge whole is as glorious as seeing the arrival of spring.

Auxier explains that good performance by citing his investment motto: "price, value, and margin of safety."

That means he spends about seven hours a day scanning annual reports and other corporate financial documents, working with a researcher.

"There's no substitute for grinding it out yourself," he says. "You need to understand the underlying business." He disapproves of "formula-type" investment practices.

These days he's looking for companies with sound cash flows, firms not likely to be hit hard by inadequate funding of their employee pension plan or a high debt level. These companies, Auxier says, "can control their destinies."

If the stock of such a firm does not rise, at least the downside risk is not substantial. Other stock choices will be winners, and compensate.

He also takes seriously the advice of a mentor and friend of 32 years, Robert Pamplin Sr., a former longtime CEO of Georgia Pacific. As an 11-year-old, Auxier mowed Mr. Pamplin's lawn. Pamplin taught him that business should be ethical and transparent. Pamplin never drew an excessive salary or abused stock options, Auxier notes. They still meet for lunch every week.

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