I am buying companies that have better position in terms of global franchise, more attractive valuation, and a global view. All of our analysts are encouraged to think globally, although they tend to be focused on a specific region.

Q:  Do analysts present their ideas to the portfolio manager or is there a team looking at the same idea together?

A: It is a team process. Each stock has a specific analyst responsible for covering it, but on occasion the analyst will be prompted to look at a certain stock by the portfolio manager. Sometimes he finds an idea and I receive an e-mail about it. But no one has a monopoly on an idea. We are all on the same team with the goal to provide benefit to our clients and there is a lot of idea sharing. I spend most of my day interacting with the analysts, traveling to the companies or just in the office, chatting on the phone. It is an interactive process.

Q:  Are investment themes part of your strategy?

A: Yes, there are plenty of examples of themes in the portfolio. From a geographic perspective, we have a reasonable bet on Korea. Even though Korea is not part of the benchmark, it represents about 4% of the portfolio, purely on the basis of valuation. Korean stocks trade at very significant discount to their global peers, so you keep finding cheap Korean stocks. It is driven from the bottom up, not top down.

We are also playing the energy theme consistently, trimming it down somewhat, but still keeping a significant position. I believe that in commodities, the key driver is not demand, but supply. We haven't been investing in steel and have been barely playing the metals & mining stocks, just because I have no confidence in the long-term supply side of these industries. Oil seems to be the one area where companies are generally struggling to grow production, so the supply and demand scenarios are well supported.

The one concern that I have regarding the energy theme, and the reason for cutting it back, is that only the companies that are able to maintain production growth, replenish their reserves when oil prices hike, and the oil service names will be able to benefit from the trend. We also like autos, telecom, and consumer staples because they are relatively cheap, but these are things that come up on a bottom-up basis.

Q:  How patient can you afford to be, having in mind that fund performance is reviewed and measured on a quarterly basis? For example, GE has grown its revenues and earnings more than 10 times in the past 20 years, but the stock has gone up by only 45%. Microsoft has also grown in the last 5 years, but investors haven't made a single dollar.

A: I am assessed on a rolling three year basis, so I am encouraged to have a long-term view. The key is to be very careful with your starting point. The investor who bought Microsoft 5 years ago was right about the expected growth, but didn't make money because expectations were too high. I am always sensitive of staying away from highly favored stocks. Value investors often don't get the company right, but get the stock right. Growth investors are the other way round. I don't buy companies where market expectations are too high and you cannot be confident in the upside potential. The way I measure expectations is through basic multiples, earnings or free cash flow.

Q:  Could you give us some examples?

A: I have invested in Renault, a French car company, which owns a substantial part of Nissan and Nissan owns part of Renault. The man who turned Nissan from a company almost out of business to the highest margin volume car manufacturer in the world, Carlos Ghosn, has just taken over as a CEO of Renault.

To me it is almost inevitable that these two companies will merge at some stage. Just by doing the deal, a great amount of value will be created, let alone the value created by the synergies of putting the two businesses together. Nissan has limited presence in Europe, while Renault has no presence in the US or Japan, so a merger would create a global car company.

I view the merger as inevitable and hold Renault because there is very limited downside. Yet, the consensus view is just the opposite because of things like “cultural differences” between Japan and France, so the stock price does not reflect a possible merger. It may happen in 5 years and suddenly people will be turning into buyers of Renault at 30% or higher. Renault will be considered a buy because of the synergies generated by this merger. Often people need to wait for confirmation and that is the surest way of not making money on the market. One of the keys to successful investing is being brave. You have to be brave, to be prepared to stand out, and be prepared to look stupid.