As founder of SBAuer Funds LLC, Robert Auer has been senior portfolio manager for the Auer Growth Fund since its inception in January 2008. Previously, he was a vice president of investments for Morgan Stanley, overseeing accounts with total assets under management of more than $100 million. He spoke with Judith Schoolman about fear, greed and his family-owned fund.

1. What are your fund's investment criteria and have you changed them in any way to reflect the current economic climate?

Our criteria haven't changed in the 22 years we've been running money, or the two years we've been running our fund. It's like this: we look at every company that is traded in the U.S.-some 8,500 stocks every quarter. The ones we select have had a quarter that was up 25% in profits and 20% in sales from a year ago. We'll buy if they are trading at a P/E ratio below 12. In other words: fast growing and cheap. But let's say there's an Apple or a Google, which might be earning 25% but trading at 20 times earnings. We would pass. We'd like to have an Apple or a Google, but [not if it's trading too high].

We haven't changed our criteria to reflect current economic conditions. We're not immune to falls, but we come back quickly. For example, for the month ended May 31, 2009, we were up 16.4% while the S&P 500 was up 5.6%. From when the stock market was at its low this year on March 9, until June 30, our fund has risen 57%.

2. You look for capital appreciation. What specific companies are you looking at, and what are you avoiding?

We like to say that we don't pick companies, companies pick us. Right now, many of the companies picking us are in biotech and drugs. One is Cubist Pharmaceuticals (CBST), which has a patent-protected antibiotic designed for resistant staph infections. Cubicin, the drug, is genetically engineered using recombinant DNA. It should be a $1 billion drug in two years. It has about $500 million in sales now. Another one we love is Synaptics (SYNA), which has 85% of the market for touch pads for laptop computers. Something you use every day, but never think about. And Synaptics has the patent for 10 more years. In the last 52 weeks, the S&P was down about 27%, but Synaptics was up 42%. We bought it two quarters ago at $25.64 a share and plan to sell at $51.

We avoid companies that are very tied to the consumer, such as entertainment, travel, cruise lines or airlines. No retailers, either. Banks, too, even though a few are having up quarters; many are hurting. This could all change when the consumer comes back out.

3. The Auer Growth Fund is tailored for aggressive investors. Isn't aggressive investing counterintuitive these days?

Most of the bad news is already known, so if there was a time to be aggressive, this is it. Warren Buffett says be greedy when others are fearful, and fearful when others are greedy. Everyone is still fearful, so it's time to be in our aggressive fund.

4. You mention that fear, greed and human reaction are common hallmarks of the investing world, the same as recession and expansion. Can you elaborate?

Fear and greed are powerful emotions and when you mix them with money, they're extremely powerful. When you function under these emotions, you can't always make the best decisions. Here at Auer, we take advantage of inefficiencies in the market. Look at Citi. Before the fall, it was $30 a share. In 18 months it's down to $1. Because of fear, it was almost bankrupt. Then we saw it wasn't going to go bankrupt, and it recovered, popping up to $6, then $3. That's three times $1. So somebody is taking huge advantage of these moves.

5. What's it like to be in a family business?

It's wonderful to have been taught by my father. He ran a small specialty chemical company and also invested. When I became a broker at Morgan Stanley in 1986, my dad opened an account with me and required that I used his rules—or else, he said, he would pull his money. But my dad was doing better than Morgan Stanley and his "rules" became the system we follow today.