Strategically, I try to find areas of the economy that are doing well and where it’s obvious that things will persist.

Q:  How do you decide to sell a theme-minded investment? Would you explain your sell discipline?

A: I would sell if I determined that Televisa was not monetizing the Hispanic opportunity or if I saw other Hispanic- oriented investments doing better, or if the Televisa management was in competent or engaging in acquisitions. One of the fears about that particular company is whether they will seek to acquire Univision and pay too much for it. So those are some factors that you need to see.

Q:  Would you explain your portfolio construction process? For example, do you have a specific portion devoted for turnaround situations?

A: In terms of portfolio construction, I have a core portfolio, comprised of companies with attractive value and some re-rating going on and no dramatic dynamics within the company. This helps me manage risk. A good example would be WellPoint, which is trading lower than United Healthcare even today, and attempts to realize a number of cost synergies, which can lead to improved metrics. So it’s nothing that we’re really placing a big bet on, but people are pretty familiar with the company and are coming to believe in it. Core holdings might be 50% of the portfolio.

Then about 35% to 40% of the portfolio is comprised of the catalyst-engaged turnaround situations. WellPoint was a catalyst-engaged turnaround situation, back when it was Anthem and when the big mergers had not yet occurred. There was a bit of risk because it wasn’t clear what could happen so it was trading at a more significant discount to its peers. Later on, WellPoint transitioned into a core holding in the portfolio. Hewlett- Packard is in a similar situation although the turnaround is well underway. If it continues to execute well, it could be moved into being a core holding. Motorola was an example of a catalyst-engaged turnaround maybe around 2 years ago. It really executed well initially and then we continued to hold it as a core holding.

Finally, the rest of the portfolio is in special situations, or high opportunity situations that often come but could frequently blow up. I always look at these situations and if after I do the research I believe in this opportunity, then I may initiate a position. Based on the circumstances, I could initiate it at half of my full position and wait for a few days, or I might have a strategy to trade into the name. Sometimes there’s a lot of risk in those situations and you have to be very careful when you buy them.

Another company with a great brand name is Nike. Right now Nike is selling at a good discount to its historic value and to peers. We haven’t initiated a position yet because we’re we’re doing more work on it but I love companies with a brand that people like, that attracts business and helps companies maintain a margin.

Q:  What are the milestones of your research process? How many names do you have in the portfolio and how many names do you follow?

A: Right now we have about 63 names because I like to have adequate diversification but also to have enough bet in each name. When I first started managing the portfolio, I managed it with between 80 and 100 names but I soon realized that it’s much better to be a little deeper in your best ideas without having only one best idea.

In terms of the research process, we have a set of quantitative screens that surface different companies based on valuation. We group the companies by industries or sub-industries. In some cases, the S&P groupings are not adequate so we have our own groupings to make sure that we’re truly comparing peers, particularly in the technology areas, because it doesn’t make sense to compare companies that aren’t in the same business.

This will surface ideas and if something looks interesting, we have a group of sector analysts that I seek advice and input from. I will also read the Street research not so much to gather facts but to find out what the investor sentiment is. Then I’ll do research contacting the company or other competitors to find out as much as I can. I’ll go through economic information and I like to see how the company has performed versus peers over time, when did it start underperforming, and why. I also like to look at the background of the management because I strongly believe that management is the key to the company.