Q:  Would you describe your buy and sell discipline?

A: As the stock goes up and the valuation becomes less compelling, we trim on the strength. If a company is priced for perfection, we don’t want to own it even if we’re happy with the company. Likewise, if there is a change in the fundamentals that isn’t reflected in the valuation, we would probably take advantage of that change.

Sometimes in the course of our research process we’ll find another company with very compelling valuation, and we’ll sell something to include it in the portfolio. So the portfolio changes reflect our updated view of the best companies in terms of the trade off between valuation, near-term dynamics, and long-term growth.

Q:  How does risk management differ for a portfolio with more names?

A: We tr y to mitigate the risk by finding companies with attractive valuations, strong free cash flow, strong balance sheets and expectations that are short of perfection – this provides support in down markets or should individual company problems arise. We also limit the exposure to company risk by limiting individual security weights. Our largest weights in the large cap Fund would not be nearly as large as the weights in the concentrated product.

The other risk control is diversification and being fully invested. We tr y to diversify away all the risks on the portfolio level – market cap, sector, etc. and concentrate on the making sure that each individual company represents an appropriate risk/reward and provides ample downside protection.