Missoula-based mutual fund earns top national honors from The Wall Street Journal
By Martin Kidston/Missoula Current
A mutual fund hand-crafted in Missoula received The Wall Street Journal's top honors this week, named a “Category King” among the best performing funds in the country.
While the accolades down at Front Street Capital Management, Inc., in downtown Missoula have been well received, those behind the Tarkio Fund have taken a different philosophy on investing, one that's many miles away from Wall Street and its “manic” style.
“We tend to buy stocks of companies that we think are high quality and will perform well over the long term,” said Jeremy Brown, an investor at Front Street Capital Management. “We hold them for a long time, and we buy them when we think the value of the stock is a good value.”
But there's more to the team's approach than buying low and selling high. Sifting through financial literature produced by American companies, the team searches for certain trends and takes a long-term approach to its investments.
Tarkio Fund also has identified certain performance trends that are true of many successful companies, regardless of size. A business that treats its employees well often performs better over time, the investors believe.
“They tend to treat their employees in a way that empowers them to produce the maximum results,” Brown said. “When they do that over a long period of time, we think those companies outperform their competitors. They take pride in their work and produce better products. They want to please their customers.”
Russ Piazza, the fund's portfolio manager, credited W. Edward Deming for inventing the philosophy employed by Tarkio Fund. Deming is best known for his work in Japan from the early 1950s, and for his contributions in creating a new post-war Japanese economy.
According to The Deming Institute, Deming's role as the architect of Japan’s post-war industrial transformation is still regarded by many Western business schools and economists as one of the most significant achievements of the 20th century.
Piazza described it as the Toyota business model.
“If you're looking at things 20 to 25 years down the road, you start looking at things differently,” said Piazza. “To be successful, you have to look at the investment process through a differing prism than everyone else, because you're not going to wake up one morning and suddenly be smarter than they are.”
Piazza started work as an investor back in 1977, moving to Missoula in 1979 when he joined Piper Jaffray. He graduated from the University of Montana and has employed the Deming model since 1988, the year he believes it was truly defined.
Boil it down, Piazza said, and the model runs contrary to human nature. Where most are competitive, it pays to be cooperative. And while it may be human nature to take the short cut, including a chase toward fast financial gain, patience and time can be rewarding.
“We think all these criteria are very unique, and there aren't a lot of people who have the discipline to cut across natural human behavior,” Piazza said. “We think they are rare companies to be able to do these things. We look for companies we can identify that have these unique characteristics.”
Tarkio Fund was rated a “Category King” by The Wall Street Journal, claiming the top one-year-total return out of more than 400 mutual funds in the U.S. According to Yahoo Finance, it's also the seventh time Tarkio Fund has been named a “Category King” in the five years since its inception.
Both Piazza and Brown – a self-proclaimed “recovering” lawyer – believe that operating out of Missoula has played a role in the fund's performance. While Wall Street reacts to presidential elections, oil prices and what the Fed may or may not do next, the Missoula team takes the slow and steady approach by staying true to its values.
“We're immune from all the craziness that makes the market fluctuate,” Brown said. “All of that creates a frenzy in the market. We're kind of immune from that, partly because of our philosophy, but two, because we live in Missoula.”
Tarkio Fund's success has made waves in Montana and received praise from the business community.
“I think it's a great example of the entrepreneurial story in Missoula and Montana, showing that you can be very successful with almost any kind of business in Montana,” said Paul Gladen, director of Blackstone LaunchPad at the University of Montana.
Contact reporter Martin Kidston at firstname.lastname@example.org