Q: Mid cap funds tend toward a small number of positions, but relative to peers, why is the number of stocks roughly half the average?

A: That is because then I can keep track of everything, so that I don't neglect any. It's a good number to keep track of.

Q: What is the average range?

A: Thirty-five is my limit, self-imposed. I know that I don't have any liquidity problems and I can go, really, quite a ways, with that. I've done it before. Even if I'm by myself, with not much research support, I can handle it pretty well. I have some help with maintenance for certain stocks that are more widely owned. But, I really do a lot of my own research. I love doing research. I started out as a research analyst over 20 years ago, so I have a very strong fundamental research background. I started out at Harris Bank in Chicago when it was a research powerhouse. I had to publish reports and write approval memos. This service was sold to other banks around the country. It was a good background.

Q: What is also interesting about the fund is that the stocks, as of the first quarter of 2003, have no demonstrable theme.

A: There is maybe a little bit of hidden theme. I have quite a bit in technology and related companies. But there is no real theme. I have media, Reader's Digest. Actually, it is one of my biggest holdings. I have to be patient with that, but one of these days, I'm going to get very well compensated.

Q: How will that happen?

A: In my opinion, it's so undervalued that sooner or later, somebody else is going to discover it, possibly another company that's in a similar type of business. I wouldn't be surprised if it would be taken over at some point in time - maybe in the next two years. I think there's a good chance of that. The stock right now is around $12 or $13. A couple years ago, it was at $42. That was in 1999. Around that time, they were talking to Bertelsmann, the big European publishing company. Then, nothing happened. Advertising didn't do very well. It issued a couple of disappointing reports and the stock crashed. I didn't own it when it was up, but I bought it somewhat too early, so I have had to be pretty patient. Tom Ryder, the CEO, came from American Express. He understands mailing lists. That's part of the assets Reader's Digest has, proprietary mailing lists. Ultimately, I think that it could be a reasonable takeover. If you look at the earnings, they can get 90 cents to a $1.10 if you look out four quarters or so. The stock being at $12, that's a very low multiple. That is why the valuation is very compelling.

Q: The annual turnover, last 12 months, of 77% suggests that you are somewhat nimble in how you trade. Some you stick with, but others you apparently take an early exit.

A: It depends. There has been so much volatility in the last two years. Basically, our buys and sells are a function of valuation. If we buy a stock and it runs up very quickly and becomes too expensive on our valuation discipline, we would trim it or sell it. Normally, when we buy a stock, we like to hold it for a number of years, two or three years. We have some stocks that were already in the fund when I joined the fund on April 1, 1999. There is maybe a hand full. But, when they went up, we may have sold them outright and then something happens and they go way down, and we can buy them back. One stock that we had in the last three years was McKesson. We bought it at 15; we sold it at 40. Most of that we held for over a year. Because we are also tax sensitive, we try whenever possible to avoid short-term capital gains. If I trim a stock, I try to minimize tax. McKesson we sold, but recently we bought it back a month or so ago. We started buying it back at around 24, just before they talked about the earnings. We had Andrew earlier in 1999. We bought it at 14. It jumped. We sold 13 or 14 months later when it was at 36. Recently, it was under 10; we stepped up and bought a lot more.

Q: Doesn't Andrew supply antennas to the wireless telecommunications market?

A: I think they do everything in the cellular and wireless infrastructure, except handsets. You're right, they do antennas. They also sell satellite dishes. They make the cables that run up and down the antenna sites. They supply some in-building antennas. They sell cables for subways. Those are their main products. About a year ago, they bought a spin off from Lucent called Celiant. They make amplifiers. Andrew already has its own amplifiers, but with this acquisition, they have the whole gamut of amplifiers. When you make a call on a cell phone, it goes to the antenna, and then it gets amplified. You need this amplifier whether you have CDMA or TDMA handsets. Some of their clients used to make their own amplifiers, but now they outsource that business to Andrew, so it is actually gaining market share in that business segment.

Q: What impresses me is that you've obviously followed some companies not just for a few quarters, but more like a few years.

A: Some of them I've followed for 10 years. Magma, that's a small position. You may not even see it. It's a supplier to the automotive industry. I've had contact with them for close to 10 years. I can pick up the phone and call the chief financial officer. In many cases, I can call the CEO of many of the stocks I own. Unisys and Andrew. They know me and they know that I'm a long-term holder. They know that I have a valuation discipline. When it gets undervalued, I add to my positions. When it gets overvalued, then I trim positions.

Q: You've also told me that the number of stocks in your searchable universe is fairly small, even by mid-cap standards. What is one of the valuation criteria that you apply?

A: Ideally, I like to buy stock in companies that make their clients more productive, that you cannot do without, or it's one of the best technologies in terms of quality. In the case of Unisys, they do outsourcing for back office technology processing for banks, insurance companies, transportation companies, and also for governments. They can run the computer system for the city of Chicago or Minneapolis cheaper than the states can do it. That permits them to gain market share. They have a good reputation, even with unions. They do what they say they're doing. The stock is very cheap compared to EDS or IBM. We have very much respect for the management in a very tough market.

Q: The mid cap area of the market and the type of companies have a tendency to attract the momentum traders. The value manager that bought low sees this run up and realizes it can't be sustained.

A: Yes, they dump it quickly sometimes; it's the combination of momentum investors dumping a good stock because they are a penny short on earnings and Wall Street dumping on it because they like to get more commission. That is an area that gives me great opportunities. That is what happened last fall when things got really cheap.

Q: Were you doing cartwheels last October?

A: In October, things were just so silly cheap. It was a tough time, the psychology. It was really a scary time. But, then you have to apply your valuation discipline. You have to talk to companies to get some background to what's happening. I mean if things are not totally caving in. It was just the stock price that caved in. And you have to step in and buy some. That's what I did. That's why the next quarter was pretty good. Sometimes you get these ridiculous levels and then you have to really do something. You can see it after September 11, 2002. The fund was down 14% that quarter. The next quarter, it was up pretty nicely, probably 24%. These have been unusual times the last two years. I've never seen anything like that in 25 years.