Eliminating fear as a factor

In his 38 years in the business, I. Craig Hester has never seen clients as scared as they were during the market downturn. “Many times, I thought I had witnessed the emotion of fear — in 1987 and again on 9/11. It turns out, relatively speaking, those were just concerns,” said Mr. Hester, president of Hester Capital Management LLC. “I faced fear eyeball-to-eyeball in February and March of 2009, and I have never witnessed anything like it.” Last spring, he and his team of 15 were holding clients' hands. “There was a 90-day period where we became consulting psychologists more than money managers,” he said. But while Hester Capital was hit, the managed-account specialist's portfolios are running 400 basis points ahead of the market this year. Mr. Hester attributes the firm's rebound to its disciplined investment approach. “We are bottom-up in our approach,” Mr. Hester said. “We are not benchmark huggers.”
The firm's portfolio managers make sure to stick to guidelines that prevent it from getting overweighed in any sector. They also use a screening process to find companies that are inexpensive because they're at the bottom of a cycle and beginning to turn up, and are inexpensive. The niche clients of the Austin, Texas, firm, which manages $1.05 billion in discretionary assets, are foundations and endowments, but it also has private clients and small businesses. The average client has $3 million to $5 million in investible assets. “Everyone is unique, and every client has its own investment policy statement,” Mr. Hester said.