Hardesty Capital Management taps old ties for fast start


November 04, 1996|By Bill Atkinson

JAMES D. HARDESTY knew he loved the money management business the day he started working in the mailroom at Alex. Brown Inc. as a 17-year-old high school student.

His appetite was whetted as he delivered mail and overheard talk among brokers. He devoured the research reports he mimeographed, and he was gripped by the loud, frantic traders who sent him out for coffee.

"I was fascinated from the beginning," he recalls.

Today, the 50-year-old Hardesty is still as charmed by stocks, bonds and money. Eleven months ago, he formed Hardesty Capital Management Inc., a Baltimore-based money management firm. Since the doors opened, the firm's assets under management have soared to more than $204 million with about 60 clients.

It's due in large part to connections Hardesty and his partner, V. Randolph McMenamin, made while they were at Mercantile Bankshares Corp., where the two worked for a combined 47 years.

Hardesty was Mercantile's chief investment officer and oversaw its personal and institutional trust divisions, which had about $10 billion in assets under management. And McMenamin ran a multibillion equity portfolio for pension and endowment clients of the bank.

Hardesty left because he wanted to manage money instead of handling administrative duties. "I was on the sunny side of 50, and it was now or never. I decided to take a chance." he explained.

When Hardesty left, McMenamin followed, and so did some of Mercantile's clients, Hardesty said.

But Hardesty isn't relying solely on his name to bring in clients. Although reputation and referrals are an important ingredient of the investment business, Hardesty Capital hired in April its own marketing representative, George R. "Jorde" French Jr.

A Baltimore native, French used to sell insurance products to wealthy individuals. Now, he visits doctors, lawyers and business executives explaining Hardesty Capital's investment philosophy.

"His job is to get our foot in the door," Hardesty said.

French has already brought in at least eight new accounts, and the pipeline is filling up.

"The pond is well stocked," Hardesty said.

Hardesty Capital takes clients who have a minimum of $250,000 to invest. It charges them on a sliding scale, ranging from $8,000 annually for the first million invested, $6,000 for the second million and $2,500 for the balance.

Hardesty Capital's investment style isn't a complicated one. He and McMenamin search for quality companies that are out of favor with the market and have low price-to-earnings multiples.

The strategy, known as "value investing," was made popular by Benjamin Graham, a former finance professor at Columbia University's Graduate School of Business and author of "The Intelligent Investor."

One of his most famous disciples is Warren Buffett, who has used value investing to become one of the world's wealthiest men.

Hardesty's portfolio includes Chrysler Corp., VF Corp., Merck & Co. and Hewlett-Packard Co.

The duo began buying shares of Chrysler as soon they opened their doors because the launch of a new minivan was depressing earnings and the stock fell to the mid-$20s.

Hardesty thought it was a good buy because about two-thirds of Chrysler's vehicle sales are trucks, jeeps and minivans -- a market where the Japanese aren't as formidable. Chrysler's stock has since jumped to the $33 range.

The company's also been keen on V. F. Corp., the maker of Lee and Wrangler jeans. Earnings sagged in the third quarter of 1995, and the stock fell into the $50-a-share range. But Hardesty liked its management, and when retail sales perked last summer, the stock rose. It's now trading around $65 a share.

Lately, Hardesty Capital has been buying technology stocks such as Intel Corp. and International Business Machines Corp. and some other technology companies Hardesty wouldn't reveal.

"We see an awful lot of inexpensive technology stocks," Hardesty said. "We are only now tiptoeing into that group."

The company's portfolio is evenly split with 48 percent invested in equities, 46 percent in bonds and the rest in cash. The heavy weighting in bonds is influenced by one customer that has about $100 million invested with the firm.

The portfolio is posting returns that are about even with the Standard & Poor's 500 stock index, which has returned 11.2 percent for the first nine months of the year, Hardesty said.

So who manages Hardesty's money? "It's managed right in the firm," he said. "I'm in with the rest of them. We all sink or swim together."

Pub Date: 11/04/96

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