Morningstar Advisor - Fall 2008 - (Page 17)

Advisor Profile Oracles of Alabama By Jerry Kerns With the help of Buffett, Berkowitz, and others, Jeff Cavender and Lyle Watts heed the value investors’ call of buying securities on the cheap. Walk into the Huntsville, Ala., office of Jeff Cavender and Lyle Watts, and it’s clear where their alliances lie. On the wall are photos of the partners posing with managers Bruce Berkowitz, David Winters, John Keeley, and Dan Fuss. On a separate wall hangs a framed note from the man himself, Warren Buffett. “Value investing fits our character,” Cavender says. “In every area of our lives, we like the idea of buying bargains. Buffett said it’s like an inoculation: You either get it or you don’t.” There’s no denying Watts and Cavender get it. Though they came of age as investors during the growth-led bull markets of the 1980s and 1990s, they saw the advantages of a more measured, long-term investing approach. Twenty-percent annual returns common then didn’t impress them because those gains came with too much downside. They preferred steady returns that sometimes lagged in exchange for a low probability of a loss of capital. “First, do no harm,” Watts says. “That’s the way I view the world. If I can avoid huge losses, I’m willing to trail.” Sweet Home In 1990, after college, Cavender went to work at a wirehouse in Huntsville. Bitten by the value investing bug early on, he became frustrated because the managers he wanted to use for his clients weren’t available to him through the firm. He also tired of the frequent changes to the mutual fund lineup for reasons based more on marketing than fundamentals. Instead of focusing solely on performance, he was interested in the process. Cavender looked at Buffett’s approach at Berkshire Hathaway. “He didn’t make that money overnight. There was a process behind it, and it wasn’t a process of jumping in and out.” He concluded that if he was going to make a career out of being a financial advisor, he needed to have access to like-minded value managers and be free to pursue his strategies. Cavender made his move in 1996 and started his own firm. Meanwhile, five miles across town, at a different wirehouse, Watts was coming to the same conclusions as Cavender. Watts thinks of himself first and foremost as an investor. It’s why he got into financial planning. He had come across the writings of Buffett and Ben Graham in the early 1980s and was fascinated by the idea of being able to compound money to build wealth. “I was raised on a farm,” he says. “It was real appealing to discover that I could build wealth using my mind instead of doing manual labor.” And farm life left him prepared to be a value investor. “There are a lot of ups and downs in a farmer’s life--plenty of disappointments. To succeed, you have to be real patient and real disciplined.” One and Done Cavender had no intention of taking on a partner. He figured it would lead to too many headaches. Then he met Watts, and they had an immediate rapport. “I went into this like a marriage,” Cavender says. “In other words, if I do a partnership, I’m one and done.” The two agreed up front that every aspect of the business--ownership stakes, revenue splits, expenses, and client accounts--would be divided 50/50, a stance they’ve maintained for 12 years. They were also honest about their different, but compatible, skills. “He’s smarter; I admit it,” Cavender says. “That’s why he’s my partner.” Watts is analytical. He likes thinking about investing and researching new ideas behind the scenes. Cavender prefers the people side of the business. He likes learning about clients’ lives, and it’s his task to guide clients through the firm’s investing process. Today, Cavender & Watts serves about 200 clients, with assets under management in the Both born and raised in Alabama, Watts and Cavender were on the same page investingwise before they met each other. MorningstarAdvisor.com 17 http://www.MorningstarAdvisor.com

Table of Contents Feed for the Digital Edition of Morningstar Advisor - Fall 2008

Morningstar Advisor - Fall 2008 Contents New on MorningstarAdvisor.com Letter from the Editor Contributors Inbox Are You Preparing for Higher Taxes? State of Financials Oracles of Alabama Investment Briefs Managers’ Investment Secrets Revealed Conformity Becomes a Growing Concern at American Gimme Shelter Location, Location, Location Rooted in Buffett, Going for Growth Keeping Little Company Away from the Numbers Consumer Confidence What about Natural Gas? TIPS to Beat Back Inflation Investing in Hidden Assets Funds That Have an Edge Come Tax Time Mutual Fund Analyst Picks 50 Most Popular Equity ETFs Undervalued Stocks Most Popular Variable Annuities New at Morningstar One for You, 19 for Me

Morningstar Advisor - Fall 2008

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