A: Since we are primarily large cap investors, the majority of our holdings fall into these types of stocks. We do hold some mid-cap names, but typically large cap accounts for 75%-85% of the overall portfolio holdings.

We generally try to limit our holdings to 30-40 names. We want to own the companies where we have the highest conviction from our research team. Typically, a name in our portfolio will have between 2% to a 4% position. From time to time, we may trade around the position size. For example, if a stock falls in price, we will add to that position, as long as our funda- mental opinion has not changed. Likewise, if a stock rises faster than we had anticipated, we may trim the holding back.

We diversify within sector and industry. Currently, our biggest sector weighting is about 17%. Our weighted average cap in this portfolio is about $87 billion. This is very close to the $ 94 billion of our index, the S&P 500.

Q:  What is your buy-sell discipline?

A: We are investors who value the potential growth of a company but we are not going to overpay for that growth. Hence our buy-sell decisions are based on the valuation models that we put together for every stock we look at or own.

Our buys and sells are always research driven. We will have targeted buy price/valuation levels and we will wait for names to get to these levels.

There are three reasons why we sell. One, if valuation looks extended given our outlook, we may sell or cut back a position. Two, if the reason we bought the company in the first place is no longer valid, we get out of it. For example, if the competitive strengths of a company are deteriorating or the catalysts for owning a company are diminishing, it’s usually time to get out.

The third reason is if the management does something that we just don’t think makes sense for the company. For example, if management makes an acquisition that we do not feel is in alignment with the longer term goals for the company, it’s usually time to sell.

Q:  How do you measure and control risk?

A: Our primary measure of risk is volatility. We monitor how the portfolio performs during up and down periods versus the S&P 500 over a long time period. We monitor very closely and try to maintain a standard deviation within this portfolio that is less than the S&P 500 over a given market cycle.

Appropriately diversifying portfolio sector and industry holdings is very important in achieving the types of consistent returns we desire.

As we all know, volatility in an equity portfolio is something that cannot be totally mitigated. We know companies will miss estimates, sell side opinions will change and stocks will suffer a period of underperformance. By doing solid, fundamental research, we believe our longer-term investment horizon allows us to take advantage of opportunities presented by the markets.