Lessons From the Man Who Sells to Buffett

In Shaw Industries, he saw a "colored concrete" maker whose shares were out of step with the technology-focused 1990s, despite the fact that it dominated its market and had great cash flow. "Price paid, value received," he says.

In Garan, he saw a toy maker that sold 80% of its merchandise to Wal-Mart Stores(WMT Quote), yet managed to maintain decent margins.

Recent Buys

So what's he buying now? He's tight-lipped, declining to name names except to say he's paid a buck or two above the current price, on average, for his 7.4% stake in Computer Associates -- the much-reviled software giant that has been the subject of two corporate board fights and a series of Securities and Exchange Commission investigations. After all the company has gone through, he believes it has a model board of directors; it has done a lot to make its once-opaque financial statements more transparent; and he considers new Chief Executive Sanjay Kumar an excellent manager, who has a large equity stake in the company's success.

Meanwhile, Sherman's partner, Gregg Powers, a former engineer, believes the company's products will have adequate longevity. "We have been through all the issues and we are comfortable that it is well-managed and inexpensive," he said before echoing a familiar refrain: "Price paid, quality received."

Before you dismiss this attitude as the conflicted comments of a big shareholder, consider that he compares this situation with the biggest coup of his, or just about any other value investor's, career: He was a longtime supporter of Qualcomm(QCOM Quote) in the mid-1990s, when any number of experts in the media called Chief Executive Irwin Jacobs a snake-oil salesman and forecast that its CDMA wireless technology was going nowhere. Sherman named a large boat parked off Naples "SeaDMA" to prove the skeptics wrong. He kept holding the stock through most of its 2,000% rise in 1999. Though he sold most of his stake by mid-2000, he still owns 1%, or about 7.7 million shares, of the company.