Their product achieved success and the company not only started to provide the interior mirrors, but also added telematics mirrors with temperature gauge, this increasing the dollar content involved with that mirror. Then they developed outside mirrors so their market was expanding. We’ve let the position grow along with the company and we use price fluctuations to increase or reduce the position size.

Q: What was the factor that initially attracted you to the stock? Why did you believe in that expected growth rate, especially in the difficult auto market?

A: It really has only one significant competitor, and based on our research, we felt that Gentex had the superior product. They are certainly impacted by the OEM manufacturers squeezing their suppliers, but since Gentex was basically the only game in town, they did have some protection against being squeezed. And we’re not talking about a commodity type of product but about a product that required manufacturing

Q: What kind of risks do you perceive and how do you mitigate them?

A: We’re always going to be exposed to market risk. From a portfolio perspective, one of the main tools that I use is the cash cushion. With a relatively optimistic outlook, we will be running with fairly low levels of cash. If our outlook on the overall market is less rosy, I will not hesitate to raise cash to significantly higher levels. Currently we’re running above normal cash levels, around 10% of the portfolio. I would certainly relish the opportunity to find stocks that would allow me to reduce that position but our overall market outlook is not the rosiest.

The other risk control measures are part of our investment process. We have regularly scheduled meetings of all of the managers / analysts involved with the portfolios. Every stock is reviewed on a regular basis and we’re very aware of what stocks are doing well, what the issues are in the portfolio at present, and we review those very diligently.

Q: Since you are always looking at future growth, which can be quite uncertain, how do you arrive at the reasonable understanding of growth?

A: That’s a very good question. One of the ways is to go back and look at the actual sources of company growth and the actual growth of the market they are serving. We look at whether their consumers are likely to utilize more of the product, if the product can exceed the growth of the overall market. Also, there can be growth in the price but my preference is for unit growth as opposed to pricing growth.

Gentex would be a good example of that growth. The overall motor vehicle market grows really slowly, but Gentex has a product that’s unique, innovative, and providing significant safety benefits. And because the start from a low base, they’ve got penetration of the overall market. They’ve now sold their products to most, if not all, major auto manufacturers and they are on a large number of vehicle platforms. Their product used to be an option but now it’s becoming standard equipment in many models. As they expand and put more features on their product, there’s higher value content. By expanding to the outside mirrors, now they’ve got three mirrors per car instead of one mirror per car.

Those are some of the growth dynamics that we like to see. But it’s relatively easy to see that with a one-product company, while it’s much more difficult with the companies that have an entire stable of product lines.