FORTUNE — The County Line barbecue joint in Austin is buzzing at lunchtime — you can smell the charred red meat half a mile away. Way in the back corner, Don Yacktman is enjoying his usual: a plate of lean brisket, peppered turkey breast, potato salad, and baked beans. He’s surrounded by a gaggle of local bankers who are pitching him on services he doesn’t need and eagerly asking him questions. How does he beat the market? What’s his secret?
This isn’t Warren Buffett holding court at Piccolo Pete’s, but it’s close. Yacktman is one of the world’s most successful mutual fund managers, yet you would never know it. He’s dressed in khakis and wearing a Timex. He speaks softly and keeps his head down. When the bankers press him for investing tips, Yacktman first cracks a corny joke — “the secret’s in the sauce,” he says, passing a cup of barbecue sauce — then tells them it’s simple: He waits to buy great companies when they’re down and rides them until they recover, which great companies almost always do. You don’t need to jump in and out of stocks, he tells them. “You just need to catch the wind enough times,” he says. “And you need to be very, very patient.”
You won’t find a more patient investor — one who’s seemingly programmed to withstand the whipsaw stock market of today, with its fiscal cliffs and earnings uncertainty — than Yacktman. The 71-year-old with a broad build and bald pate is thriving in the slumping, post-crisis world of stock mutual funds. During the past decade his flagship Yacktman Fund (YACKX) has returned 10.5% a year, almost double the S&P 500’s return, while his more concentrated Yacktman Focused Fund (YAFFX) has returned 11%. His record since the middle of the financial crisis is even more impressive. After prescient bets on beat-up stocks like Viacom and News Corp., the fund skyrocketed 99% from the end of 2008 through mid-November, scorching 98% of competitors as well as the overall market.
The spectacular returns and conservative approach have attracted new money — a lot of new money — to Yacktman’s funds. The two funds have pulled in $12.9 billion since 2008, Morningstar estimates — more than all but one other stock fund, a BlackRock dividend fund.
What’s shocking is that one of the hottest fund managers today isn’t celebrated for his market-trouncing returns the way stars like Ken Heebner and Bill Miller were a few years ago. Yacktman’s not a gunslinger, nor does he think he’ll beat the S&P 500 every year. You won’t hear his opinion about the European debt crisis. In fact, if you don’t catch his rare segments on CNBC, you might not hear him at all.
What’s also exceptional is Yacktman’s dedication to his family. Six of his seven children have followed him from Chicago, where he lived for 38 years, to Austin, where he moved in 2005. He’s been transferring control of the funds to his second-oldest son, Steve, 42. And for the past seven years he has dedicated his life to helping his adult daughter recover from a devastating stroke that left her in a locked-in state.
Meeting Yacktman is a lesson in humility — he acts more like a church bishop (which he was, incidentally, at his Mormon congregation) than a multibillion-dollar investing star. His voice rarely rises above a quiet conversational level. He answers his phone himself. He doesn’t employ anyone to handle public relations. His daughter Melissa, 35, recalls working for him during summer breaks, when lunchtime included inviting the passing homeless man to eat. “It’d be me, my dad, and a homeless guy at Wendy’s,” she says.
Yacktman’s Mormon beliefs, which he’s followed since converting to the church when he was 15 years old — seeking stability after his parents divorced and each remarried several times — lead him to eschew alcohol and gambling. He avoids promoting his own record or ideas, which is almost never the case when a fund grows as fast as Yacktman’s has. “I never want to come across as arrogant,” he says from his modest third-floor office in the west hills of Austin, where landscape reprints hang on the walls.
Each of his children can tell a story about his frugality. His son Brian, 33, remembers Don hiring him out of business school for $35,000 less than the going rate for MBAs. Another time at family dinner, the twice-a-month gathering of his children in Austin, his son Rob’s wife threw away a recycling bag filled with empty soda cans. Don marched out to the garage to save it. His explanation: “No reason to waste a good bag.”
Yacktman’s investing style is undeniably reserved too. Forget the image of trading floors or hedge funds — Yacktman isn’t trying to out-trade or outsmart other investors on a daily basis. He instead buys steady, profitable businesses when they disappoint Wall Street. His two funds are betting heavily on Rupert Murdoch’s News Corp., which accounts for nearly 10% of all assets; Procter & Gamble (PG) and PepsiCo (PEP), which each represent 8% of assets; and former tech stars Microsoft (MSFT) and Cisco (CSCO). The companies are hardly exciting. “He makes bets that you kind of look at like, hmm,” says Lipper analyst Tom Roseen.
In 2008 and 2009, when most investors could barely stay afloat, Yacktman’s investors realized how profitable the strategy was. Yacktman owned conservative names like P&G heading into the crisis. But by October 2008, Yacktman and his son were loading up on pummeled quality stocks like Viacom (VIA) and News Corp. (NWSA) that, they reasoned, could double from their lows. And many did. News Corp. ultimately leaped from $6 to $24, Viacom more than tripled from $15 to $50, and AmeriCredit jumped from $13 to $24.
“He just doesn’t get rattled in bad markets,” says Jeff Auxier, a fellow value-fund manager based in Oregon. “You see the great investors come alive when the public’s running for the hills.”
Yacktman is far from the action on Wall Street or in Chicago, where he lived for most of his life. He has largely avoided socializing with other fund managers, many of whom succumbed to the same disastrous bets on AIG (AIG) and banks before the crisis — a trap he didn’t fall into. Seven years ago Yacktman moved to Austin, but not just to get away from the groupthink. After his funds thrived in the aftermath of the dotcom bust, when Yacktman was gaining national attention, he was going through some of the darkest moments of his life. In 2004, his daughter Jenny suffered a stroke at age 30. A mother with three young children, she was initially given 24 hours to live, then the choice to end her life, then the prognosis that she would never move her body again. Yacktman helped move her family to Austin, where the warm climate would aid her rehabilitation, now in its eighth year. He then moved himself and his entire business there too.
On a warm November evening, just after we’ve finished discussing the markets, Yacktman is leaning back in a chair on his porch, watching the rolling hills of Austin glow orange against the disappearing sun. He thinks back to how close he was to losing his daughter. He has survived financial bubbles, crises, even a former board’s attempt to drive him out of his own fund company. But nothing prepared him for this. His voice trembles a bit: “You never think in today’s world that a child will predecease you.”
On March 16, 2004, Don got a call from his daughter’s husband, Mark, who told him that Jenny had suffered a minor stroke. Don wasn’t overly worried. He thought she’d receive the clot-busting drug tPA in the hospital and be released — she was only 30 years old, after all. So he flew to Atlanta that day for a meeting. Overnight it became clear the drugs weren’t working. Her blood vessels were unusually narrow, and the doctors at Community Hospital North in Indianapolis, where Jenny and her family lived, said her brain was swelling so quickly that she would eventually die. They gave her 24 hours to live. Don got the news the next morning on a call from his daughter Melissa. She heard him weep for the first time.
Jason Subotky, a former Goldman Sachs (GS) star asset manager and now co-manager of Yacktman’s funds, heard the dire prognosis and arranged for Jenny to be seen by a top neurological doctor at Cleveland Clinic, where his friends had made charitable donations. Jenny and Mark were flown there the next day, while Don and the rest of the family who had gathered in Indianapolis started the five-hour journey through a spring blizzard. “It was an ugly drive,” he recalls.
The doctor offered a mixed prognosis: Jenny would live after stabilizing, and the swelling was receding, so she didn’t have to worry about any future brain damage. But because her pons — the part of the brain near the spinal cord that controls voluntary movement — was nearly destroyed during the stroke, she was told she would never move below her eyes again. She was in a locked-in state — having full function of her brain but not being able to move — much like Jean-Dominique Bauby, whose condition became the subject of the film The Diving Bell and the Butterfly.
For the first few days, all Jenny could do was blink, and doctors thought it was unlikely she would ever do more. The doctor told Mark she had two choices: have her feeding tube removed and eventually die, or live with an uncertain future. With her family waiting in a reception area, Mark entered her room three times to ask what she wanted to do: one blink for life, two blinks for death. She blinked once each time.
“The first time I heard I wasn’t going to speak, I thought, Yeah, right,” Jenny says, sitting in her wheelchair in her expansive living room in Austin with windows looking 20 miles out on the horizon. With her straight blond hair, striped shirt, and corduroy pants, she looks like an L.L. Bean catalogue model.
Don built this house for her so she could enjoy beautiful views while confined to a bed. But today she hardly has any time to take in the views. Mark interprets her sign language as she describes a typical day spent jetting around the house in her wheelchair to hug her kids before school, write blog entries from her basement office outfitted with a 64-inch computer screen (she has movement back in her right hand), and post updates to Facebook and Pinterest.
Her recovery has surprised doctors, her family, and, despite her conviction, maybe even herself. Two months after the stroke, she returned home from the hospital. Seven months later her tubes were removed. Soon she regained some movement in her right hand, then the entire right side of her body. “I got a video in the mail a year later from Mark on her recovery,” says Dr. Michael A. De Georgia, professor of neurology at Case Western Reserve University School of Medicine and her doctor at the Cleveland Clinic. “I show that video to my residents every couple of months to emphasize that you have to be very careful about pulling the plug.”
Jenny talks with a kind of improvised American Sign Language because she is still without use of her left hand. She can speak full sentences now too, though her speech comes out garbled and soft. Talking for even two hours a day is exhausting — having to think before taking a full breath and exhaling to form words with weak mouth muscles feels like the hardest workout she could imagine, she says.
She’s moving closer to a normal life each day, but she admits she grows frustrated by her new reality. One recent blog post reads, “I HAVE CONTINUED 2 BE SUPER UPSET BY PEOPLE ‘TEMPORARILY’ PARKING IN THE HANDICAPPED AREAS.” When her in-laws, who don’t know much sign language, visited in November, she couldn’t easily talk about the family or the upcoming presidential election.
But she has plenty of support. (See a video of Jenny’s recovery.) Her husband has devoted his life to her recovery, spending just 10 hours a week working outside the house at his counseling practice. Don, his wife, and almost their entire family are nearby. Dr. De Georgia says that as impressive as her progress has been, Jenny can still recover much more. She has financial resources, a loving family, and a young body. “These cases have changed my perception of what is possible,” he says.
All the while, Don has continued to grow the business, but he has also been facing the reality of his own mortality. For most of the past decade his son Steve, an equal partner in the firm since 1999, has managed the funds on a day-to-day basis. Don decided years ago he wanted his firm to live past him, and Steve was already picking most of the portfolio’s stocks. (Also, in planning for his firm’s continuation beyond his death, this summer Don sold a controlling equity stake to Affiliated Managers Group (AMG), which owns other respected asset managers, including Tweedy Browne. AMG takes a cut of fees but doesn’t meddle in operations.)
Father and son couldn’t be more different. Don is affable and warms to interviewers, while Steve can sometimes come across as brash (he once told a University of Texas audience that he had never made an investing mistake). While Don proudly bought a new Honda Accord at Costco, Steve drives a brand-new Cadillac CTS-V, a sedan outfitted with a 560-horsepower Corvette engine. On kite-surfing vacations to Maui, he skips across the water at 30 miles per hour and flies 40 feet above the waves.
Steve slaved away as an analyst at his father’s firm for years, learning how businesses juiced earnings at the same time he learned the tenets of value investing. Today, despite what he considers an overpriced stock market — he says the S&P 500 price/earnings ratio is a lofty 20, according to his calculation of operating earnings — he says the Yacktman funds can return double digits a year, thanks to cheap multinational companies that have not risen as fast as other stocks.
For example, they recently loaded up again on Procter & Gamble, which Steve says is at the tail end of a cycle of contracting margins. Between improving margins, earnings growth, and its 3% dividend, the stock can generate double-digit returns over the next five years, Steve believes. The same goes for PepsiCo, in which Yacktman funds are the 10th-largest holder. Steve dismisses the bad press leveled at CEO Indra Nooyi and contends that PepsiCo is primed to come back with strong brands that can battle inflation.
As for the more controversial fare in his portfolio — Hewlett-Packard (HPQ), RIM (RIMM), Apollo Group (APOL) — Steve says they are just more value bets on the odds playing out in their favor. The funds are bound to have losers each year, just like the blackjack player who loses before he eventually wins. Take HP, which has seen its stock swoon 50% this year. Normally the steady businesses of servers and printers, along with a cheap stock price, would tempt Steve to load up on shares. But he sized down the position because of shoddy management, “which actually, unfortunately, fulfilled on all our wildest expectations and then exceeded them,” he says.
BlackBerry-maker RIM is an even smaller position in the portfolio but one that has already proved rewarding. The funds bought a lot of shares near $7 over the past few months. The stock has since risen to $12. “It’s moved because people actually realize the [BlackBerry 10] is finally coming.”
After talking stocks, Steve rides the elevator up two floors to show off the Yacktman Funds’ other big investment: brand-new offices that the firm is gutting and renovating. As its assets have skyrocketed, so has client demand to meet the father-and-son duo. Construction is still under way — Steve and the firm’s other partner, Jason Subotky, designed it — but it’s already obvious that this is a different place from the modest space two floors below. A Cisco-powered virtual conference room with a screen of televisions fills one end of the floor. There’s an industrial-size kitchen and a gleaming lobby entrance.
Not surprisingly, the new digs don’t sit so well with Don, who considers it a point of pride for a value investor to work out of spartan offices. But he knows that the conference room is necessary now that he doesn’t want to be doing so many trips to Europe, and he understands Steve and Jason’s desire for more modern offices — even if he can’t completely stomach it. “I told them, ‘If it runs into the seven digits, you guys can cover the overages,'” he says with a laugh. Happy clients might be willing to kick in too.
This story is from the December 24, 2012 issue of Fortune.
Follow this writer @scendrowski