Q: What is your investment philosophy?

A: We employ a long-term approach to investing. We believe that the investment process is more predictable over a longer period of time than over shorter periods of time, so we focus on longer-term trends and longer-term activities.

Another principle that we would adhere to is diversification. We believe very much in the quality of the investments that we make. We are much more interested in the tried and true than in the new and exciting. We try to combine those things when we make investments and we try to avoid losses as much as we can.

Q: When you look at the tried and true versus the new and exciting, how do you categorize them?

A: What we consider tried and true are companies that have a long history of relatively stable earnings and sales growth. We think that such companies are more predictable as they have followed the same approach to their business for longer periods of time. They are not usually companies that have refocused their business several times. We are looking for companies that have been consistent in how they have managed their balance sheet and their debt.

Q: How exactly do you look at the predictability of earnings?

A: We have no proprietary formula. We look at what the company’s long trend history has been. We would typically look at a 10-year earnings pattern and see what it has been in an absolute sense, relative to the economy as a whole, and relative to the industry and sector. We see how the company has performed in its particular environment.

Another thing we look for is how the company has grown its top line revenues over time. Are they doing it through internal growth or through acquisitions or price adjustments? We think that if you understand that, you’ll have a better chance of knowing what the future will be.

Q: Where do you get ideas from and How is your research process organized?

A: We don’t have any one source for getting ideas. We constantly review the stocks in our investible universe. On the domestic side, most of the companies that we have are in the S&P 500 index.

We run computer screens to check for growth in earnings, in dividends and in sales. We read various journals and get ideas just from being part of the financial world.

We are not locked into any particular Wall Street investment style, so we are not looking just for growth or just for value but we invest across the spectrum. We don’t have to worry about a classification of growth or value because we are not trying to fit into any style box. We certainly have investments that would be characterized as both growth and value.

Q: How many stocks do you have in the fund?

A: Generally speaking, we have between 50 and 60 stocks in the fund. We feel that this number gives us enough diversification for safety, and yet we are not so diversified that if we make good selections they get completely averaged out. We believe that with diversification across sectors and industries and internationally, 50 to 60 stocks are enough for the downside protection that diversification provides.

Q: What’s your average historical turnover?

A: Our average turnover for the last five to seven years has been in the range of 15% because we are looking for trends to play out over a longer timeframe, and we do not look for shortterm gains.

Q: How do you go about portfolio construction? Could you explain your buy discipline?

A: If we like a particular company and if we are deciding to invest, we have to identify the sector which the company is in and what is our exposure is to that sector. We certainly look at what our concentration is relative to the S&P 500 although we do not limit ourselves to the S&P 500 weights. We are willing to have relatively significant differences between the S&P and our concentrations, but we don’t abandon major sectors even if we think that they are overpriced. We have never been completely out of a major sector.

For example, we have been concerned about the financial stocks for a long time and have been light on them relative to most of the large cap indexes for some time, but we didn’t completely avoid the sector because that’s not our approach. When we change our portfolios, we migrate from sector to sector rather than jumping from sector to sector. We use that approach to keep the balance. Sometimes this desire for sector balance leads us to a sell decision. If we think a sector is fully represented and we want to add a stock in that sector, then, obviously, we have to prune another stock from the same sector.

Q: Could you give us a couple of examples to illustrate your sell discipline?