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Against The Grain Investing


David J. Winters could have started a hedge fund, with its fatter fees and light regulation. But after the 43-year-old left his job as chief investment officer of Franklin Mutual Advisers funds in May, he started a mutual fund shop, Wintergreen Advisers. The firm's first retail offering, Wintergreen Fund, opened on Oct. 14 and has thus far gained 1.2%. The firm would not disclose the fund's size.

A 20-year veteran of the industry, Winters felt comfortable sticking with mutual funds. And individual investors are the ones who most need innovative investments, he says. In any case, mutual funds can use many of the same strategies as hedge funds; it's just that many managers would rather ply those skills in a format where they can charge higher fees and take a cut of the profits.

The suspenders-wearing, bespectacled Winters, who quotes Robert Frost as eloquently as he does Warren E. Buffett, has always gone against the grain. At Mutual Series, where he honed his skills under famed value investor Michael Price, he built an impressive record buying stocks and bonds that other investors wouldn't touch. A $10,000 investment in Mutual Discovery () -- which invests abroad as well as in the U.S. -- when Winters took over in February, 2000, would have been worth $16,111 when he stepped down, vs. $9,658 for the typical world stock fund.

In many ways, Wintergreen is more like a hedge fund than a mutual fund. Many mutual fund managers are closet indexers or stick to a narrow piece of the market. But Winters, who has been known to read annual reports while relaxing in a canoe, can invest in just about anything. He can also short stocks and participate in private equity deals. ``If you love investing, you want to have a palate with as many colors as possible,'' he says.

In fact, the only common characteristic of his purchases is likely to be their bargain-basement prices. Winters seeks out the most unloved areas of the market, finding value even in bankruptcies. Sitting in his sparse Mountain Lakes (N.J.) office, he talks gleefully about the potential from blowups like the recent ones in automobiles and airlines. Although he won't say what he's buying, Winters says he's avoiding telecoms: ``The traditional telephone business is under siege, and most companies don't acknowledge it.''

A ONE-MAN SHOW

Like Price, Winters also hopes to be an activist investor. In 2001 he urged Meredith Corp. () to diversify the board, boost margins, and split up the magazine and broadcasting groups. It started to really listen when he bought 5% of the shares. Although the firm didn't take all of his advice, it changed its ways -- pushing the stock from $30 to $50.

Wintergreen's strategy is research-intensive, yet so far it's a one-man show. Winters says he may hire several researchers over the next year. Annual expenses are 1.95% of assets -- high for a typical equity mutual fund but not for hedge fund-like mutual funds. There's no sales charge, either.

Winters' love of trains first brought him to Mutual Series. After graduating from Cornell University, he traveled the Canadian railroads and later discovered the little-traded Richmond, Fredericksburg & Potomac Railroad. To buy five shares, he called one of the stock's market makers, Hans Jacobson, who later offered him a job. Jacobson, it happened, worked in the same room as Price. ``Price hired ambitious kids and preferred to train you to think,'' say Winters. ``His mantra was, 'Do the work.''' It's a key lesson as he ventures out on his own.

By Adrienne Carter


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