Better Know a Stock Picker

Welcome, Fools, to part 17 of our several-thousand-part series, "Better Know a Stock Picker," which is loosely, but not too loosely, based on Stephen Colbert's "Better Know a District" from The Colbert Report.

Like Stephen and his thorough investigations into America's congressional districts, each week I take a look at a fund you may want to own. What's on tap this week?

Longleaf Partners International (LLINX)

Expense Ratio

1.61%

Fund Size

$3 billion in assets

1-Year return

15.34%

5-Year return

7.80%

10-Year return

N/A

Source: Southeastern Asset Management

Top 10 holdings

Company

% of Assets

NipponKoa Insurance

8.2%

Dell (Nasdaq: DELL  )

7.9%

Shaw Communications (NYSE: SJR  )

6.4%

Philips Electronics (NYSE: PHG  )

6.3%

Renault

5.7%

Olympus

5.7%

Millea (Nasdaq: MLEA  )

5.2%

Cheung Kong

4.9%

Cemex (NYSE: CX  )

4.9%

Vivendi

4.9%

Source: Southeastern Asset Management

Meet Staley Cates, Mason Hawkins, and Andrew McDermott
The fightin' team at Longleaf Partners International is led by Mason Hawkins, Staley Cates, and Andrew McDermott, who joined the firm in 1998 as a foreign equities analyst after a stint in investment banking with JPMorgan Chase (NYSE: JPM  ) .

But it's Hawkins who is the most prominent member of this triumvirate. He and three other partners contributed $5,000 each to create Southeastern Asset Management in September of 1975, in the wake of one of the worst bear markets of the 20th century.

A dozen years later, Hawkins would open the Longleaf PartnersFund (LLPFX), named after the durable longleaf pine tree that his parents raised for the family's lumber business. It would prove to be both an ironic and an appropriate moniker; Hawkins opened Longleaf for business just six months before the stock market's collapse in October of 1987. Nearly two decades later, the fund has earned a reputation for dependably crushing the market. For example, since 1996, the Longleaf Partners Fund has returned 12.6% annually vs. just 8.3% for the S&P 500. Eat that, Wall Street.

International, which opened for business in 1998, has also done well. Since inception, it has returned 14.7% annually vs. just 6.6% for the comparable MSCI EAFE Index, thanks to Staley Cates, who joined Southeastern the year before the Partners fund was christened. He's now president of the firm, the yin to Hawkins' yang, and a superior investor in his own right.

And now, Cates, Hawkins, and McDermott are eyeing several attractive new opportunities overseas. That's why, after two years of being closed to new money, Longleaf International is once again taking deposits. For existing investors, however, it's been a painful past 12 months. Since July of 2006, International's trailing 12-month return was 11.4%, which shadows 95% of its category peers. Weak-kneed growth huggers must be gloating. Well, don't expect the bad times to last, Fool.

How they invest
Why? Cheapskates always win in the battles of attrition that define the stock market, and International's managers are as cheap as they come.

According to an August 1998 profile of the firm in Money, the Southeastern offices are modestly furnished and graced with a well-worn copy of Benjamin Graham's The Intelligent Investor, given to Hawkins by his father when his son was a senior in high school. The value-investing lessons within still serve as a guiding hand.

"Only if you've done rigorous analytical work that has a high probability of being right can you control your emotions and act against the collective mindset of the moment," Hawkins told reporter Jason Zweig in their '98 interview.

No less an investor than the great Warren Buffett shares that view. And like Buffett and Berkshire Hathaway (NYSE: BRK-A  ) partner Charlie Munger, Hawkins, Cates, and McDermott eschew diversification in order to concentrate on their best ideas. That takes guts, Fool, especially when one of your top investments is falling through the floor, as Dell has over the past 12 months.

Frankly, I disagree with Longleaf's terrific three on their choice of Dell (find out why), but I love the way they're willing to stick it to the Street's stockinistas in search of greater returns. Great investors, especially great value investors, always do.

Is this fund for you?
So, is the team of Cates, Hawkins, and McDermott the next Peter Lynch? Their track record is admirable, to be sure. So is the firm's top-to-bottom commitment to investing alongside fund shareholders. But its 1.61% expense ratio far exceeds category peers, and its $10,000 initial investment isn't going to be within reach of every Joe and Jane Oddlot.

I won't blame you if you're looking for a more accessible choice in an international fund. Fortunately, there are many in the Motley Fool Champion Funds portfolio, including one run by a legendary stock-picking team whose fund sports a $2,500 minimum investment and which has bested its benchmark by more than 58% since joining the portfolio in May of 2004. (It's also one of many winners for advisor Shannon Zimmerman. Try the service free for 30 days to learn more.)

And that's this week's profile. See you back here next Thursday, fund nation.

For more Foolish Funds, browse through the other articles in this weekly series:

Think you can't beat the market with funds? Think again! The selections in Shannon Zimmerman'sMotley Fool Champion Fundsportfolio are up an average of 19% vs. just 11% for their comparable benchmarks. Ask us for an all-access pass to get an unfettered look at all of Shannon's picks, manager interviews, and model portfolios. Go ahead. It's free for 30 days, and there's no obligation to buy.

Fool contributor Tim Beyers is a regular viewer of The Colbert Report. (Stay the course.) Tim owns shares of Berkshire Hathaway. Get the skinny on all of the stocks in Tim's portfolio by checking his Fool profile. Dell is recommendation of both the Motley Fool Inside Value and Motley Fool Stock Advisor services. The Motley Fool's disclosure policy is always championship caliber.


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