Not many fund managers have a r?sum? like Jeffrey Auxier's. Manager of the $103 million Auxier Focus Fund (AUXFX), he's a stockbroker-turned-timber-and-nut farmer-turned-fund manager.
Auxier got hooked on finance at age 11, while mowing the lawn of Robert Pamplin Sr., the former CEO of Georgia-Pacific (GP). "[Pamplin] taught me that business should always be ethical and transparent, that the language of business is accounting, and that if you can't speak the language, you can forget about making money," Auxier says. To this day, the two men still try to meet every week.
After graduating from the University of Oregon in 1981, Auxier sought the advice of legendary value investor Warren Buffett. The Sage of Omaha told Auxier: "No. 1: Don't lose your principal. And No. 2: Never violate the first rule." It's a strategy that has served Auxier, who is based outside Portland, Ore., well.
His large-company value fund, which is A-rated by BusinessWeek, has gained an annualized 9% during the past five years through Dec. 31. Personal Business Editor Lauren Young recently spoke to Auxier. Edited excerpts of their conversation follow:
What are the parallels between farming and investing?
There's no instant gratification in farming. The harvest happens one time a year, so most of the days are not harvesting. That's similar to investing. You've got to plant, you've got to do the work.
Why do you grow nuts and Douglas firs?
This region is where 98% of the hazelnuts in the U.S. are grown, so nuts are an obvious choice. Timber, meanwhile, is a great compounding vehicle. Trees grow 12% to 18% per year. The nice thing is that one person can handle 500 acres because it is all mechanized. Once a year I bring in some people to help me with the harvest, though.
What kinds of companies look attractive right now?
My rule of thumb is to buy insurers when headlines are bad. We just had a record hurricane season, and the potential for such big losses will take capacity out of the industry. And we really like areas where capacity is constrained -- that means there is a great pricing environment for the group, including Marsh Mclennan (MMC), Berkshire Hathaway (BERK.B), and St. Paul Travelers (STA).
These companies are big enough to withstand all the turmoil, especially if we have even more events. It seems like we are in an up cycle for record hurricanes (see BW, 1/16/06, "The Worst Isn't Over " and "How Hedge Funds Are Taking On Mother Nature"). That means some smaller players could go out of business with all the losses.
How do you feel about the health-care sector?
We like some of the medical device [makers], especially the ones that have been hit hard. A couple of them -- Zimmer (ZMH) and Boston Scientific (BSX) -- were really down and out. Boston Scientific was the dominant leader in hip and knee replacements, and they've been a very low-cost provider. But they've also been hammered on fears over pricing as well as mergers.
Last year we also bought Express Scripts (ESRX) when it was down and out. It's gained a lot since then, and I think the consolidation problems are behind it.
What's the difference between a company that's cheap and one that's a bargain?
You don't need to worry much when you are buying solid, high-return businesses. Right now some of the companies in our fund may be facing some problems, but they should be temporary. The companies that are priced right usually have some problems. We don't try to time it. We just try to price it right.
Anything in particular you are eyeing right now?
There's a huge need for specialized education, so we are watching that group. There's not a lot there that's cheap enough, though. Universal Technical Institute (UTI), for example, is too expensive.