J. Jeffrey Auxier Auxier Focus
Age: 49
Credentials: BS in finance, University of Oregon
Experience: Broker/portfolio manager, Forster Marshall-American Express (Smith Barney) (1982-1998); president/ CEO, Auxier Asset Management (1998-present); portfolio manager, Auxier Focus fund (1999-present)
Ticker: AUXFXInception of fund: July 1999Style: Moderate allocation
AUM: $85 millionThree- and five-year performance as of Jan. 7, 2009: -5.79% and 0.64%
Expense ratio: 1.35%
Front load: None
Minimum investment: $5,000
Alpha: -1.66 vs. Dow Jones Moderate Portfolio

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In 1982, at the tender age of 23, Jeff Auxier was casting about for career direction. He knew he liked investing, but he didn't know much about the profession itself. A friend suggested he call a pretty successful value investor named Warren Buffett. He knew it was a long shot, but Auxier got the number for Buffett's company, Berkshire Hathaway, from directory assistance and called anyway.

It was a Saturday afternoon and the Oracle of Omaha was plugging away in his office. Buffett answered the phone himself and took a few minutes to talk to Auxier. "He always liked college students, I've been told," says Auxier, who had graduated from the University of Oregon the year before.

Buffett pooh-poohed Auxier's plan to attend business school and emphasized the importance of accounting—the language of investing-which Auxier had studied in college. He recommended several books by noteworthy investors for Auxier to read. Among the tidbits he relayed: "never use borrowed money."

No Deleveraging Needed

Auxier followed that advice. He has made a point of steering clear of stocks of firms that get in over their heads with debt. He also stays away from businesses and industries that attract hot money.

"Massive waves of capital are what kill you as an investor," he says. "Too much money coming in is the biggest threat to an industry." His caution has served his portfolio, the $85 million Auxier Focus Fund, well in a market in which balance sheet strength can make all the difference between a company's weathering the storm and going belly up.

In 2008, Portland, Ore.-based Auxier Focus was down 24.5%—hardly a stellar showing, but one that handily beat the 28% decline suffered by the others in the moderate allocation category, according to Morningstar. That performance landed the Auxier Focus in the top 21% of the group in 2008. Over the past three years, Auxier Focus is down 5.79%, beating 72% of rivals.

Everyday Buys

After the recent carnage, a value investor may look at piles of cheap stocks today and get giddy. While Auxier likes a bargain as much as any value hound, he's more cautious. He thinks there is more pain ahead since the process of unwinding massive amounts of borrowing isn't finished. "A stock won't move much if its balance sheet is deteriorating as it's coming off a massive delevering," he says.

In such an environment, Auxier is sticking with bare essentials, emphasizing consumer staple stocks like food and personal hygiene items. They may be boring, but they're not likely to attract speculators, either. "The stuff you buy every day, over time those [companies] are going to be the winners," he says.

Wal-Mart continues to be Auxier's top holding, as it has been throughout the bear market. In a recession, Wal-Mart is drawing in new customers among people who are trading down.

Auxier isn't alone in this fondness. In 2008, Wal-Mart's stock was up 20%. In fact, the Bentonville, Ark., retailer was among just a few companies that eked out higher profits in 2008, though it recently cut its earnings forecast for the fourth quarter. "If Wal-Mart was at $40, we'd buy it now," Auxier says. But at $50.96—and with a forward P/E ratio of 15—it's not much of a bargain, he says.

Eye on Valuations

Other stocks along this theme get a bit more enthusiasm from Auxier due to their slimmer valuations. Among them is Kroger, the nation's largest supermarket chain. Feeling the heat from Wal-Mart's grocery business, Kroger undertook a price-slashing program, which has helped the Cincinnati grocer gain market share. A shaky economy means more home cooking. Kroger's revenues for its fiscal third quarter 2008 ended Nov. 8 were up 9% from a year prior.

But the stock barely budged in over a year. It ended 2008 at roughly the same level it started the year and sports a forward P/E of 12. "Its balance sheet isn't as strong as I'd like to see it," Auxier says of the firm's $7.6 billion in debt. "But it's got the cash flow to cover the debt."