Warren piece.

• Author: Gray, Tim
• Position: Oak Value Capital Management - Company Profile

There's nothing novel about the way it picks stocks, but lately Oak Value has beaten Buffett at his own game.

As 16-year-olds in the late '70s, at an age when most boys are thinking about cars and sports, George Brumley and Dave Carr were mulling whether Berkshire Hathaway Inc. was a bargain at $400 a share. "We weren't very good at sports," Brumley says.

They attended different Durham high schools - Brumley a public one, Carr a private academy - but met through Brumley's girlfriend. They discovered they shared an interest in investing. Brumley had been introduced to the stock market by his uncle; Carr by his grandfather. It was Brumley's uncle, Salisbury investor Fred Stanback, who led them to Berkshire, the holding company of billionaire investor Warren Buffett.

Buffett was little known then, but Stanback had been his classmate at Columbia University in the '50s - he even brought him home to Salisbury one weekend. And he was one of the earliest investors in a Buffett investment partnership. When his nephew started asking about the market, Stanback mailed him Berkshire's annual report.

That established a routine that persists to this day. He would enclose a clipping of an article or an annual report, often with little explanation beyond a note saying, "George, FYI. Fred." Occasionally, he might underline a sentence or a passage. Brumley and Carr would puzzle over it, trying to discern what Stanback meant. Through the years, one theme has been constant: Pay attention to Buffett.

The lesson stuck. In 1986, four months out of graduate school, Brumley and Carr started their own Durham-based money-management firm, now called Oak Value Capital Management. They modeled their stock-picking style on Buffett's. Today, the two stock nerds have made good, managing $671 million in late August. They've gotten raves from Barron's, and their no-load stock mutual fund is one of only three in North Carolina to earn five stars in Morningstar Inc.'s influential rating. Since its launch in 1993, the fund has returned 19.1% a year, compared with 17.3% for the S&P 500.

One thing hasn't changed: their near-worship of Buffett. Their largest holding, at 7.8%, is Berkshire, which in late August was trading at $43,000 a share. If Buffett is the high priest of what's called value investing (see page 31), Brumley and Carr are among his most devoted acolytes. They frequently quote him and even write a semiannual letter to their shareholders a la Buffett's missives in Berkshire's annual reports.

Their adherence to the gospel according to Warren raises a question: Are they just parroting his picks? Of their 20 holdings in mid-August, five were among Berkshire's top 10, and a sixth was Berkshire. Nine others were insurance and media stocks, which have long been Buffett favorites. Says a North Carolina businessman who knows them, "They're not managing that money - Warren Buffett is."

They're sensitive to the criticism. Brumley addresses the question before it's asked. If you apply the master's methods, even as you make them your own, he says, you'll often reach the same conclusions. "It's about asking, what is it that makes Coke great? What is that makes Gillette great? It's how you use the information."

They don't agree with every Buffett call, Carr says. Take McDonald's. Buffett owns a big stake; they're not interested. "McDonald's has to sell three burgers to make as much as it does on one Coke. And our view is, people aren't going to eat at McDonald's every day, but they may drink a Coke every day."...