Legendary Investor Saddles Up Again

Morningstar has given him the mutual fund industry’s equivalent of an Oscar: a lifetime achievement award.

He was named Fund Manager of the Year in 2001.

And if you had invested your money with him along the way, you’d be rich indeed. According to the New York Society of Security Analysts:

The annualized net return of Eveillard€™s flagship vehicle, the First Eagle Global Fund, was 15.5% as of December 31, 2004€”that is, a $100,000 investment made at fund inception on January 1, 1979, would have been worth over $4.2 million on December 31, 2004.

You probably have never heard of him but you should have. Jean-Marie Eveillard is a legendary value investor, ranking up there with Warren Buffett. His style of investing is a mixture of the great value investors:

Eveillard€™s style of value investing, which Kehoe described as a mix of Benjamin Graham€™s €œcheap-stock€ approach and Warren Buffet€™s practice of buying franchise business at reasonable prices. Eveillard likened value investing to a large tent that accommodates many different people: At one end there are the value followers of Benjamin Graham, in the middle are the €œnew value€ followers of Warren Buffet, and at the far end are the €œnew new€ value investors. Over the course of his career Eveillard has floated between the Graham and the Buffet approaches. Running the First Eagle Global Fund between 1979 and 1986, he found the Graham approach to be less time-consuming. Even today First Eagle owns quite a few Graham stocks, particularly in Japan where these stocks became available after a 13-year bear market. In these instances, net cash was in excess of market cap, and First Eagle paid very little for the businesses. The risk associated with this type of investing is that cash may disappear over time if the company experiences a string of losses.

€œBecause we€™re on the value side we pay little attention to sell-side research€”not only in the U.S. but also throughout the world€”because it doesn€™t have the same time horizon as we do,€ remarked Eveillard. €œI€™ve always looked at our in-house analytical style as the hub of our operation. We€™ve moved more toward the Buffet approach, though not without trepidation, because we€™re not as smart as Buffet.€ The Buffet approach is potentially more rewarding than the Graham approach, but also carries more risk in that it is based on qualitative judgments that can be flawed. €œYou get to the point where the margin of safety may no longer be there because you€™re expecting to make some or most of your money not on the narrowing of the discount, not on the price of the stock being much lower than the intrinsic value, but on the idea that the odds seem to be very good that the business will continue to create value in the future.€

Eveillard retired two years ago to, presumably, sip pina coladas with Alan Greenspan on a beach in the South of France.

Alas, as with Chairman Greenspan, things seem a tad too busy to sit around and get a tan.

Eveillard’s hand picked successor at the First Eagle Funds, 45 year old Charles de Vaulx, abrupty resigned with no explanation. He was unavailable for comment. Vaulx had been a protege of Eveillard for years and followed the same value investing strategy as his mentor. The funds had been performing well under Vaulx. From CBSMarketwatch:

First Eagle Global Fund is the top performer among world allocation funds in the past decade, according to Morningstar. But it slipped last year after de Vaulx let cash build.

The fund still did pretty well, finishing well in the top half of its category in 2006,” said Gregg Wolper, a Morningstar analyst. “But the fund would’ve done better if it had been invested more in stocks.”

Wolper says he’s surprised that de Vaulx quit. “The biggest fund, First Eagle Global, has continued to outperform its peers, both in the short-term and long-term,” he said.

So now Eveillard has been pushed out of retirement by management. He has returned out of a sense of loyalty and also because he doesn’t want to see his legacy go to shambles just because his former protege decided to high-tail it out of there. From CBSMarketwatch:

I came back because [Arnhold and S. Bleichroeder Chairman] John Arnhold asked me for help,” Eveillard said in a telephone interview from his New York headquarters. “I was in Europe and got a call out of the blue. I was very content and happy in retirement.”

He added: “This is my baby, so to speak. I had been running the old fund that goes by the name of First Eagle Global for 26 years. So I felt responsible since there appears to be a need for me to help.”

What happened to Vaulx? CBSMarketwatch hypothesizes that maybe there was a hedge fund offer too juicy to pass up. But who resigns from a job, any job, with no notice to your employer- and especially an employer who you worked for since 1987? Also, does Vaulx have no compassion for all of the investors- who so graciously gave their money to him even after Eveillard left?

I guess not. Perhaps more will be revealed in the coming days.

But for now, there are worse things than having a legendary investor running your money. He says there are few “values” to invest in currently, given the bullish stock market climate. But I’d take my chances with Eveillard running my money.

Welcome back, sir.