Thyra Zerhusen was browsing the magazine rack at a cafe in San Francisco this year when she picked up a German-language magazine. The cover profiled the world's most influential Germans, naming politicians, athletes and celebrities -- even the pope. Only mildly interested after examining the cover, Zerhusen replaced the magazine on the shelf. At more than $9, "I don't need it," she thought.
Only later did she find out what was inside. Listed among the top 100 profiled Germans, and one of the first in the business category, was her picture and short biography. The headline read, "Thyra Zerhusen, Die Geldmacherin."
German-born but a Chicagoan since 1970, Zerhusen is a stock picker extraordinaire. She manages the Aston/Fairpointe Mid Cap Fund, the biggest money-management client of the new firm she started late last year, Fairpointe Capital. She plies her trade not in large-company stocks, like Apple Inc. and Exxon Mobil Corp., and not in the wildly volatile small-company stocks. She buys middle-size companies, called mid-caps in the trade.
It's an unsexy area of investment relatively ignored on Wall Street, but it's the focus of Zerhusen's firm on North Franklin Street in Chicago.
Zerhusen garnered her growing fame the old-fashioned way: She earned it over a long period. Morningstar gives her fund four stars for its performance over five and 10 years, and that includes a wickedly bad 2008, when the fund lost 43 percent. Over the past decade she has outperformed 93 percent of her peers.
SmartMoney magazine for two years in a row has placed Zerhusen among "The World's Greatest Investors." Last year, she was on the cover, along with Warren Buffett.
"I don't know whether I'm going up or down, being next to Buffett and then next to the pope," she said with a laugh of her magazine appearances. Zerhusen speaks English well, but there's no mistaking where she's from.
"She has a wonderful German accent," said her former boss, John Kirscher. "It lends a certain charm and appeal, I think."
The secret recipe for Zerhusen's investing prowess? A huge helping of discipline and a sprinkling of intuition. It may seem an oil-and-water mix.
"She has always been willing to go against the crowd, and that's often a feature of good fund managers," said David Kathman, a Morningstar mutual fund analyst who has followed Zerhusen's fund for eight years. "She's not right all the time; no fund manager is. But she's often willing to do things that are not very popular, and it's worked out very well for her.
"I've been singing her praises ever since I've been covering the fund."
Zerhusen, whose first name is pronounced "Tura," is noticeably uncomfortable talking about herself during an interview. She refuses to reveal her age. But bring up the topic of picking stocks, and it's showtime. Her body language sparks with energy, and out come the charts and graphs and free-flowing explanations of how she and her team evaluate companies.
That's not to say she doesn't have interests beyond stock picking, said Stuart Bilton, chief executive of Aston Asset Management, Zerhusen's biggest client.
"She's a very interesting person, almost a Renaissance woman," he said. "She knows a lot about a lot of things. She has strong opinions, and she's incredibly smart.
"She's just Thyra."
Born in the mountainous town of Goslar in northern Germany, Zerhusen as a child enjoyed the outdoors, often skiing or hiking. Today, her hobbies also involve the outdoors, whether biking, skiing, sailing, playing tennis or skating. She used to get to work on in-line skates but has since stopped after feeling it was too crowded and dangerous. She occasionally bicycles to work, though.
That makes Bilton nervous for the safety of his star money manager.
"I say, 'Thyra,' I worry about you,'" he said. "And she always says, 'I ride my bike like I run money -- I'm careful. Stu, there's risk and return in everything.'"
Zerhusen's parents operated a language school for students pursuing careers as interpreters and translators. From a young age, Zerhusen heard English spoken. Today, she is fluent in it, along with German and French. In fact, one of the mutual funds she manages is for France's largest bank, BNP Paribas.
Her parents sold the language school when Zerhusen was 13. They sent her and her brother to boarding schools while they traveled.
"We didn't really have a stable home situation," she said. "In a way, I don't have very good roots. I'm still sort of looking for my roots."
After boarding school, she studied in Zurich at a top engineering school, the Swiss Federal Institute of Technology, the alma mater of Albert Einstein. She remembers being impressed that several of her professors had been awarded Nobel Prizes.
But another subject she liked was economics. When she married and then followed her husband, Chicagoan Bob Gustafson, to the United States, she toyed with a few vocations before earning a master's degree in economics from the University of Illinois at Chicago.
She was hired at Harris Bank by Kirscher as a stock analyst, covering such industry sectors as printing and publishing, business services and technology and telecommunications. During her time at Harris Bank, her son, Alex, was born. Today, he's a computer programmer in Zurich.
Zerhusen later worked as a money manager for the Sears Roebuck pension plan, then in 1993 became a partner in a mid-cap money management firm, the Burridge Group.
She was once fired from a job as a stock analyst. "Sometimes I speak out," she said. "I'm not afraid to give people a piece of my mind sometimes."
Though Zerhusen was let go during a downsizing, her pink slip cited "insubordination." Her theory is that she once criticized a colleague who later became her boss, and the firing was revenge.
Being outspoken is not a hallmark of her personality, she says. "I try to be diplomatic whenever possible. ... I don't want to offend anybody."
Zerhusen's big break came in 1999, when she was hired to turn around the struggling Alleghany/Chicago Trust Talon Fund, which after several name changes became the fund she runs today. She took a salary cut to do it. She wanted to be in charge of a fund -- and her own destiny.
"I wanted to have my own product, with a published record every day," she said. "That really was very exciting to me."
The fund went from about $20 million in assets and in danger of being shuttered to its current $3 billion.
Clout and the corner office
Today, Zerhusen has major clout with top executives, especially at companies in which her fund has a large stake. During the recent stock market turmoil, she hasn't been shy about telling companies to buy back their own shares of stock, a sign to investors that company management thinks the stock is a good deal.
During an interview in her 33rd-floor corner office overlooking Chicago's Loop, the phone rings. It's an executive at one of the companies she's invested in. Apparently, the company will not buy back its shares, as she suggested.
"Tell your CEO to buy some personally," she said. "I'm sure he can scoop some money up to buy some shares himself. Several CEOs have done it, and I think it gives a signal that the stock appears to be undervalued."
She hangs up.
If she's going to buy and hold a stock, she wants company execs to have some skin in the game, she explains.
Zerhusen takes pride in her good years with the fund, but she especially likes to show the bounce back from her bad ones. In 2008, her fund lost 43 percent. She contends she owned good companies, but their stock prices got caught in a panic-selling downdraft.
Of course, many of her investors were not happy. She recalls getting grilled during a meeting in New York with executives of a foundation whose money she manages.
"I felt like I was really beaten up after that meeting," she said. "I was solidly at a low point."
But she didn't waver, convinced that her strategy, which saw her through the major sell-off after 9/11 and many smaller ones since, was the right one.
"In an environment like now, when things are down, the worst thing, in my opinion, is to panic and to sell," she said. "You have to stick it out."
After the 2008 rout, she was vindicated the next year, when the foundation's investments made back all the losses and more. The chairman of the foundation's investment committee said his only regret then was that she was not managing his personal money, she said. Her mutual fund soared, too, rising 66 percent in 2009.
During down times, Zerhusen goes hunting, looking for out-of-favor stocks likely to rebound, she said.
"Usually after not-a-good year, we come back stronger," she said. "I would do the same thing now."
She might have to.
Her fund has not fared well in the recent volatility that began with the downgrade of the U.S. debt rating by Standard & Poor's and the growing financial crisis in Europe. The fund is down about 20 percent this year.
"That's the risk of any fund that goes against the flow," said Kathman of Morningstar. "For a year or so, you're not going to look good. That's the nature of that type of investing."
Hunches and common sense
Zerhusen won't be clawing her way back alone.
The "we" she often mentions is a team including Fairpointe Capital's President Robert Burnstine and asset managers Mary Pierson and Marie Lorden, who co-manage the mutual fund with her. Zerhusen is the majority shareholder of Fairpointe.
It's unusual to have so many female money managers with the same fund, she acknowledges, but Zerhusen doesn't make much of it. They are simply colleagues who have worked for her for a long time.
Like any financial pro, Zerhusen dives deep into the numbers when evaluating companies. But she doesn't discount her own intuition about a company's managers: "I think I have a sense for who to trust and not trust," she said.
A former boss noticed this ability and came to rely on it, she said.
"Sometimes, we had people coming through, and I said, 'I don't trust them,' and he said, 'OK, that's the end of it.'" On her word the firm would not buy the company's stock.
Kirscher, who gave Zerhusen her first job in finance at Harris Bank, agrees she has that "something."
"Thyra has an intuitive sense of valuation that is difficult for most people to achieve," he said. "It's hard to quantify. You either have got a nose for value and opportunity or you don't."
Whatever role intuition plays, fundamentals still matter -- a lot, Zerhusen said.
In general, she favors companies that make their clients more efficient and sell must-have products. Candidates must also have healthy balance sheets, so they can weather bad times. Of course, they must also be middle-size companies, which she defines as between $1 billion and $12 billion in market capitalization, or value of a company's outstanding shares. Companies with those characteristics often make good takeover targets, usually a good thing for investors.
Zerhusen has a relatively long-term time horizon of three to five year for owning stocks. Valuation is also important in her strategy. She has identified many companies she likes but whose share price is too high by her estimation, she said. So, she waits, hoping to buy on a dip in price.
Burnstine said he often gets emails at 3 a.m. from her, not because she wants him to do something but because she just read something interesting about a company and wanted to share it.
"She's constantly thinking about stocks," he said.
Zerhusen also has the advantage of meeting with company executives to size them up in person.
"We know the management of every company we own," she said. That means one-on-one meetings with CEOs and CFOs, many of whom stop by her Chicago office.
Overall, you would have to say that Zerhusen is "one of the great money managers of her generation," Bilton said. That's why he has retained her as manager of his fund, even as she moved from firm to firm over the past dozen years. Investors have grown to trust her.
"People who invest with Thyra want Thyra," he said. "They don't want somebody else."
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Personal splurge: "I try to buy high-quality clothes, but I like to buy them when they priced, like stocks."
Music taste: Classical
Dislikes about America: Root beer
Likes about America: Brownies
Mantra: "Focus and keep going."
What she did right: Earn a science degree, even though she ended up in finance.
Advice to young people: "Travel. See how others do things differently. Get out of your cocoon."
Why not New York? She prefers Chicago to Manhattan because it's "an easier place to live," and she likes her short commute from her home near Belmont Harbor to her office in the Loop. "I can jump in a cab and be home in 10 to 12 minutes."
Firm name: Because of her love of sailing, her new firm, Fairpointe Capital, is a combination of the nautical terms "fairway" and "waypoint," with an "e" added so she could buy the Internet domain names she wanted.