Monday, October 04, 2004

Plucking Flowers From the Wall

John Keeley, manager of the $170 million Keeley Small Cap Value Fund, likes being a value guy: "You probably make fewer mistakes than you do in the growth area," he muses. "There are fewer moving parts."

Here's how Keeley, 64, keeps it simple. First, he largely ignores technology and health care stocks. Second, he limits his buying to five kinds of companies: those coming out of bankruptcy, those looking very cheap relative to book value (excess of assets over liabilities), spunoff subsidiaries, utilities, and converted thrifts and mutual insurance companies. These days Keeley's fund, a Forbes Honor Roll member (see Sept. 20) holds 114 stocks. Not quite half fall into the spinoff category.

It has been a winning formula for Chicagoan Keeley. The University of Chicago business school graduate began his career in 1966 as a financial analyst in the pension department of Standard Oil of Indiana (now part of BP). After three more jobs in the investment business, he founded Keeley Investment Corp. in 1977. Keeley Asset Management, started five years later, now manages $1.2 billion. The Keeley Small Cap Fund has returned 14% annualized since its launch in October 1993, versus 10% for the S&P 500.

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