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Gilchrist saw the S&L mess up close—in eighth grade: His dad was with the RTC Ray Ng

Croft and father: Their Croft Value Fund is eyeing bank stocks but hasn’t bought yet Chris Usher

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CORYDON GILCHRIST

As manager of the Marsico 21st Century Fund, Cory Gilchrist views the mortgage market collapse through the eyes of someone who saw the chaos of the savings and loan crisis up close. Of course, Gilchrist was in eighth grade at the time. His father, a former bank president, worked for the Resolution Trust Corp. assessing foreclosed properties. "How many other kids were doing due diligence on family vacations?" the 37-year-old jokes. Gilchrist's father also got him started picking stocks, giving him $10,000 in high school and telling him to invest it toward a down payment on a house.

In the mid-'90s, after graduate school, Gilchrist took a job working on the international equity team at Principal Financial Group (PFG). As the junior analyst, he traveled the most—two weeks in Asia, a country a day, say, or a European swing followed by stops in Egypt and Israel. In January, 1999, he found himself in Rio de Janeiro on the exact day that the Brazilian central bank devalued its currency, sparking a major market crisis. To help the fund determine how deep the trouble could be, Gilchrist hit the streets and the shops to see how the local economy reacted. When he started managing his own fund at Denver-based Marsico Capital Management, in the beginning of 2003, the perspective he gained from the Brazil experience helped him win big.

Not long before Gilchrist joined Marsico, Brazil elected left-leaning Luiz Inácio Lula da Silva as President, and most investors dumped Brazilian stocks. But Gilchrist saw Lula as a figure who could help the nation's economy keep growing. That insight wound up leading him to agricultural, energy, and construction equipment makers around the world. Over the past five years his fund gained an average of 19% annually, better than 99% of other large-cap growth funds, according to Morningstar. Recently he's been nosing around financial stocks. After a round of phone calls with top CEOs on Wall Street, he is confident the Federal Reserve has made the right moves.

KENT CROFT

Kent Croft also got into the fund business with the help of his dad, L. Gordon Croft, a top manager at T. Rowe Price for more than two decades. Father and son started their own money management shop in Baltimore in 1989 and the duo launched the Croft Value Fund in 1995. A second son, 34-year-old Russell, joined the firm in 1998. But until recently it was almost impossible for investors to find the fund, which wasn't listed with any brokerage firms. Too bad: It gained 17% a year over the past five, beating the S&P by over six percentage points annually. Now it's in all the popular fund supermarkets run by Fidelity, Charles Schwab, and others.

Croft, 45, got his start working at Salomon Brothers after graduating from Dartmouth College in 1985. A colleague of author Michael Lewis, Croft witnessed the crazy '80s on Wall Street just as Lewis described it in his book Liar's Poker. Croft spent part of his four years at Salomon working under legendary trader Stanley B. Shopkorn. When the market crashed in 1987, "I watched grown men cry," he recalls.

The Crofts focus on deeply undervalued stocks and are willing to wait three to five years for an investment to pay off. They aren't easily pigeonholed as classic value investors, since they're willing to buy any kind of company, even tech outfits with seemingly high price-to-earnings ratios, when they see a bargain.

One potential bargain bin they're eyeing is the financial sector. But while the carnage is intriguing, the sector is hard to analyze, Croft says. It's a more complicated situation than in 1990, when the Crofts bought shares of Citibank (C) for their private clients despite fears of a collapse. "If the government was bailing out Chrysler, they sure weren't going to let Citi fail," Croft says. Back then there were no collateralized debt obligations or structured investment vehicles, though. "There are so many moving parts these days that the analysis is tougher," Croft says. "Jamie Dimon may have gotten a bargain with Bear Stearns (BSC), but we haven't jumped in yet."