This analysis is done internally. We have a talented team of eight experienced professionals who are all dedicated to value investing and specialize in small, mid, or large-cap stocks. They all have CFAs; the youngest member of the team has 11 years of experience; I have been in this business since 1979 and my partner since 1972, so we have all been through several market cycles.

Q:  For how long would you wait for the results? What is your average holding period?

A: It may take time for the positive catalysts to have an effect on the stock or for Wall Street to see them. Our average holding period is four years and our average turnover is 25%. We’re willing to be patient with these companies, so that they have an opportunity to react positively to the changes taking place within.

Q:  How do you approach portfolio construction?

A: We have between 80 and 140 stocks in the portfolio, with no more than 3% in a single stock. We have a minimum sector weight of one-third of the sector weight of the Russell 3000 Value index. So we will always have a position in each of the ten economic sectors. We will have a maximum sector weight of the lesser of two things: 1) three times the weight of the sector in the Russell 3000 Value index; and 2) the Russell 3000 Value sector weight plus 10%.

Q:  You mentioned that the fund has a low turnover but what would prompt you to sell a stock?

A: We’ll sell a stock if it reaches our price target or if we find another stock with better potential. There are a couple instances when we’ll take a second look with more urgency. Such instances include negative financial revelations, some misdeed, or some restatement that is not explainable in an appropriate manner.

If, after a deeper look, we decide that there may be other things going on beneath the surface, we’ll sell the stock. In such cases we’re more than willing to walk away and come back at a later time.

Q:  To clarify your understanding of value, I would use the example of Bausch & Lomb, which went through a severe correction recently. Would such a stock fall into your value definition?

A: No. A severe price decline may get us interested, especially if the stock is now statistically cheap. However statistical cheapness is only one part of the story. The other part of the process is the earnings power and what if anything could interrupt it. Bausch & Lomb had to remove a product from the market because of contamination issues. Its earnings power will be reduced. So it may not show up well in our analysis. At some point Bausch & Lomb may be a very interesting idea. Management needs to address the lost earnings power as well as the potential liability with regards to the product recall.