Who Is Rich Eisinger And How Did He Post 8.36% a Year Since '00?

Rich Eisinger was into Warren Buffett back when Buffett wasn't cool.

In this week's 10 Questions, the co-manager of the (GTSGX)Mosaic Mid-Cap fund is a firm believer in notions like sustainable competitive advantage, predictable free cash flow growth and strong management teams. We know what you're thinking: Everybody likes this stuff now. But Eisinger has a long-term record to back him up.

The no-load fund, co-helmed by Jay Sekelsky, has returned a positive 8.36% on average the past three years, ranking it among the top 5% of all mid-cap blend funds. Over five years, a 4.85% average annual gain places it among the top 15% of its peers. (Longer-term results aren't as hot, but they aren't germane: Mosaic parent Madison Investment Advisors acquired the fund in late 1996 and, as Eisinger says, "it didn't really have our ideas until January 1998.") The unsung fund is starting to develop a following: Its assets under management surged from $11 million to $26.2 million during 2002.

Because his bottom-up approach to stock-picking has nothing to do with "geopolitical risk" and other bugbears, Eisinger's outlook is refreshingly upbeat. It helps that he backs up his opinions with airtight analyses of top picks such as Waste Management, Costco and Laboratory Corporation of America. The strict Buffett Way adherent even found a tech stock to love: CheckPoint Software. Read on for his most compelling insights.

1. Mosaic Mid-Cap might not be familiar to all of our readers. Would you mind relating the fund's investment style?

We're strictly bottom-up, fundamental analysts. Madison Investment Advisors, which manages the Mosaic Funds, is a GARP, or "growth at a reasonable price," shop. We sometimes refer to it as growth at a reasonable risk. We like consistent, sustainable cash flow growth. We are fairly concentrated compared to most investment managers -- we own 25 to 35 stocks in the fund.

Personally, I'm a longtime student of Warren Buffett. A few years ago, you didn't hear that too much. But now every manager you read about claims to be a Buffett student. I've been a fan of Buffett for a good 20 years.

Does your macroeconomic outlook have any affect on your stock-picking?

Rich Eisinger Mosaic Mid-Cap Fund

Tenure: Co-Manager Since July 1997

Assets: $26.2 million

3-Year Avg. Annual Performance: 8.36% (Top 5% of peers)

Expense Ratio: 1.25% (Cat. Avg: 1.34%)

Top Three Holdings: Markel, White Mountains Insurance, Odyssey Reinsurance

Information: [phone] or Web site

Source: Mosaic

We try to be 100% bottom-up stock pickers. We currently have about a 33% weighting in the consumer area. From a top-down approach, you might be concerned about the consumer at this point, and that might lead some to take a different sector weighting. But we're willing to be patient and we don't think we're any good at forecasting the economy. (Laughs.)

Having said that, I'm probably a little cautious now. When you forecast earnings, do discounted cash flow models and project a company's future, maybe subconsciously my economic beliefs come into the forecast.

2. How does the Buffett Way apply to your stock-picking approach -- do you subscribe to the "five years to forever" holding period?

We typically say three to five years, but when you're long term you're long term.

We look for a three main things: First, companies with sustainable competitive advantages. In Buffett terms, that's having a wide moat around the business. What gives you that wide moat? We look for market leaders in the industry with very high barriers to entry. We want companies with pricing power, and with very strong brand names or franchises.

Second, we want companies with predictable and dependable cash flow growth. To some extent, that's dictated by sustainable competitive advantage. So, we want a high degree of certainty in future cash-flow generation. We dissect the growth of a company -- how much is internal? How much is top-line growth? How much is through acquisitions? What is their ability to expand margins.