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Spend a few minutes talking with GoodHaven managers Larry Pitkowsky and Keith Trauner, and it's quickly apparent that these two have been working together closely for a while. "It's a bit like a marriage," says Trauner. "After 10 years, your partner raises an eyebrow and you know exactly what they mean."

The duo launched their $382 million GoodHaven fund (ticker: GOODX) nearly two years ago, and so far with good results: Over the past year, the fund is up 17.7%, better than 90% of its mid-cap value peers. While this is Pitkowsky and Trauner's debut as lead managers, it's hardly their first act. They initially teamed up in 1999 at Fairholme Capital Management, where they worked alongside Bruce Berkowitz on the $7.7 billion Fairholme fund (FAIRX). During their nine-year tenure there, the fund posted a total return of 118%, while the Standard & Poor's 500 fell 28% in the same period. They each stepped down from their active roles at different points in 2008.

Longtime investing partners Keith Trauner, left, and Larry Pitkowsky love a good catch. Brian Smith for Barron's

Questions about their former employer have become trite for the GoodHaven managers, who are quick to point out that Fairholme was just one chapter in their careers. Still, one can't help comparing the two funds. Both adhere to a deep-value contrarian style, and both are extremely concentrated. (Even the names are similar: Fair versus Good, Holme versus Haven.) GoodHaven aims to hold 15 to 25 stocks and with half of its assets in the top 10 holdings. "We want more money in the things we like the most," says Trauner, "but we're never going to be imprudent in our concentrations." What goes unsaid: They would never have more than 50% of the fund's assets in one or two risky bets like AIG and Bank of America, as Fairholme did as of late last year, contributing to its 32% fall in 2011.

Dane Czaplicki, director of research at Philadelphia-based West Capital Management, was an early investor in GoodHaven, whose managers, he says, have a knack for allocating capital. "Even though they have about 20 names, they're arguably one of the more diversified funds we own," by industry, market cap, and opportunity, he says. The fund has a broad mandate to buy virtually any kind of equity, debt, or other security.

Working from their offices in New Jersey and Florida, respectively, Pitkowsky and Trauner are in contact dozens of times a day, with most discussions revolving around investment decisions. "We're 'bottoms-down' managers," quips Trauner. "We start at the bottom and just keep digging." They'll go to extreme lengths to understand the companies on their short list, whether that means sizing up shelf space for Rayovac batteries or interviewing Madison Avenue executives about their ad-buy decisions. These extremes, they say, are a prerequisite for buying discounted stock. "We like stress, but it's very hard to behave the way you want to behave unless you have significant knowledge," says Trauner, adding that they tend to avoid companies whose businesses are difficult to grasp, and they generally don't bother trying to make macroeconomic predictions.

There are generally three scenarios under which they buy into a company—it's ignored by Wall Street, is misunderstood by investors, or has suffered from panic selling. "Every once in a while, a company misses earnings by a couple of cents or has a short-term setback, and we dust off the file and go in," says Pitkowsky. They tend to keep a good deal of cash on hand for those moments; recently 20% of the portfolio was in cash.

Top holding $2.8 billion Spectrum Brands (SPB) was in the ignored category when they bought it in early 2011. The company had been in bankruptcy because "its private-equity owner had overleveraged it, not because there was anything horribly wrong with the business," says Trauner. The company had put in talented managers, and its strategy and product lineup—which includes Rayovac, Stanley, and George Foreman Cooking—"resonate in this postfinancial crisis when everyone is trying to get a bargain," says Trauner. GoodHaven bought Spectrum in the mid-$20s, when it was selling at four times free cash flow. The company has since paid down debt and made some strategic acquisitions, such as FURminator pet-grooming tools and Black Flag insecticide. Investors have taken notice, and the stock was recently selling at $56, but Pitkowsky and Trauner believe it could exceed $75 a share in two to three years.

GoodHaven Fund (GOODX) Total Returns*1-YrSince InceptionGoodHaven (GOODX) 17.7%33.1%S&P 500 TR13.222.9% ofTop-10 HoldingsTickerPortfolio**Spectrum BrandsSPB11.70%Hewlett-PackardHPQ8.30Walter Investment MgtWAC7.30Jefferies Group***JEF5.80MicrosoftMSFT5.50GoogleGOOG3.90Berkshire HathawayBRK.B3.50Sprint NextelS3.20Barrick GoldABX2.70Federated InvestorsFII2.60Total:54.50%*All returns are as of 03/27/13 .** As of 11/30/12. ***Merged with Leucadia National 3/1/13. Sources: Morningstar; GoodHaven 17.7%33.1%13.222.9SPB11.70%HPQ8.30WAC7.30JEF5.80MSFT5.50GOOG3.90BRK.B3.50S3.20ABX2.70FII2.60*All returns are as of 03/27/13 .** As of 11/30/12. ***Merged with Leucadia National 3/1/13. Sources: Morningstar; GoodHaven

In the category of misunderstood companies was Jefferies Group, which merged with Leucadia National (LUK) in March. The GoodHaven team bought Jefferies in August 2011 when its stock fell on the MF Global news. "A pundit said that Jefferies would be the next to fail," says Trauner. "We looked at each other and said, 'This doesn't sound like the Jefferies we know.' " They agreed that the company still had very clean and understandable balance sheets, and they started buying Jefferies when the stock was trading as low as $10 a share; it was trading at more than $21 prior to the merger.

Trauner and Pitkowsky started detecting "that wonderful smell of panic-selling" when $46 billion of Hewlett-Packard (HPQ) shares, after years of trouble, dipped into the teens last year. The GoodHaven guys concluded that HP was still relevant to its largest customers. "Most investors don't understand the enterprise stickiness at companies," says Trauner. "When you have IT setups where changes affect thousands of devices, you don't make changes quickly." Plus, the company was generating huge amounts of cash, which it has recently used to raise dividends, buy back shares, and invest in research and development. The stock was trading back near $23 a share. Based on current business, the stock is worth more than $30 a share, says Pitkowsky, "and if it can begin growing again, it's worth much more."

The GoodHaven managers are value managers to the core. Case in point: They hosted their company holiday party in February. But that doesn't prevent them from buying growth stocks when the price is right. "We like good companies run by talented managers," says Pitkowsky. "We just don't want to pay up for them." They picked up Google (GOOG) in the high $400s and Berkshire Hathaway (BRK.B) for about $66—both are up more than 50%. "It doesn't happen that often," says Pitkowsky, but thanks to their concentrated approach, it doesn't have to.

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