How to Choose a Winning Fund Manager

Mason Hawkins, Longleaf Funds

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Don't look for market timing and high turnover in this manager's portfolio. Hawkins is strictly a long-haul investor, with positions in Level 3 (LVLT - commentary - Cramer's Take), Disney (DIS - commentary - Cramer's Take), FedEx (FDX - commentary - Cramer's Take), Yum! Brands (YUM - commentary - Cramer's Take) and AON (AOC - commentary - Cramer's Take).

Level 3 is an out-of-the-ordinary value position, with messy industry conditions, no profitability and lots of debt. What makes it interesting is that some company is going to emerge as a leader in this area; perhaps Level 3 can be that company. I passed on Disney because I'm not a big fan of Chairman and CEO Michael Eisner, but it is a reasonable position, given Disney's rich asset base.

Yum! is a fast-food operator that's popular with value managers, and the stock has already made a big move. AON is an interesting turnaround stock in the insurance brokerage area, and it's one I've been accumulating recently in The Turnaround Fund.

Bob Olstein, Olstein Financial

To the extent you play the role of chairman of the board in your investing, you want to find a money manager who thinks outside the box, who leans against the wind. That's the only antidote for mediocrity that I know of. Olstein fits the bill. My guess is that he was buying Safeway (SWY - commentary - Cramer's Take) when the grocers were getting pummeled earlier this year on concerns that Wal-Mart (WMT - commentary - Cramer's Take) was taking over the world. It would have been a good bet.

Other top positions include Chubb (CB - commentary - Cramer's Take), Tyco (TYC - commentary - Cramer's Take), McDonald's (MCD - commentary - Cramer's Take) and Merrill Lynch (MER - commentary - Cramer's Take).

Bill Nygren, Oakmark Funds

As is usually the case, I haven't a single complaint to register about Nygren's top positions: Washington Mutual (WM - commentary - Cramer's Take), H&R Block (HRB - commentary - Cramer's Take), Yum!, First Data (FDC - commentary - Cramer's Take) and Xerox (XRX - commentary - Cramer's Take). These are all solid companies, but it's a safe bet that he acquired these positions at significantly lower prices than the current quotes, so that doesn't mean these stocks are bargains today.

It's Not All About Performance

If you take this chairman-of-the-board role, performance alone should not be the overriding criterion in finding a manager to work with, because it could have been misleading in recent years. For example, if you'd reviewed five years' worth of performance data, you probably would have been steered in the wrong direction in 1999 or 2000. Because of the Nasdaq bubble, many incompetent managers had terrific performance records in those years, while many of the best managers had the worst relative records. It's more important to find managers you can trust, who work and allocate capital in a way that you would, if you had the expertise and time to commit to the effort.

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At time of publication, Alsin and/or ACM and The Turnaround Fund were long H&R Block, Safeway and AON, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.