Q:  What’s your investment philosophy?

A: We look at four areas where the internet is having the most impact on the evolution of certain industries - media, commerce, infrastructure and communications. Within each of those areas we try to identify the best investment opportunities that should benefit from the internet, either acting as a catalyst, or as an additional avenue for these industries to develop.

Q:  What differentiates you from your peers?

A: We focus primarily on the internet-related advances in technology but the biggest differentiator between us and our peers is the way we structure our portfolio. We have roughly a 50/50 mix between growth and value stocks and for each of those investments we have different criteria we look at.

Most technology-oriented managers are strictly growth-focused. There are a lot of good growth opportunities within our sector but they tend to be high risk. There are interesting opportunities in the value side that may not be as linear as the kinds of returns you can hope for in the growth side but they are still opportunities for returns. From a portfolio standpoint, it gives us added downside protection and diversification, to help our returns over the long term.

Q:  What are the criteria you look at on both the growth side and the value side?

A: On the growth side, we look at more qualitative factors. We look at companies that are addressing large markets, companies that have the opportunity to gain market share within those markets, companies that can achieve a barrier to entry in their business. And then companies that have good management teams with experience in the area they are operating in. Finally, we are looking for companies that are trading at reasonable valuations relative to their growth.

On the value side, we are looking at quantitative factors. We look at companies that have a high amount of cash on their balance sheet, relative to their market capitalization; companies that trade at low Price to Sales ratios and companies that have a unique technology or service. If we find a quality company that is going through a difficult period for some reason such as restructuring or reorganization, if the company’s product or service is unique and does have intrinsic value, then they are either going to be able to right size that business, be able to achieve better margins, and therefore earnings, or they won’t be able to be successful in their reorganization. Then, at that point, they will probably be a candidate for an acquisition.

Q:  How is your research process organized?

A: We do both primary and secondary research. We do our own evaluations, we attend industry conferences, we meet companies and we also rely on Wall Street research and other third party research services. Then, we evaluate every company as they report results. We constantly set internal price targets and then adjust our positions accordingly.

Q:  How do you generate your ideas?

A: Ideas can come from different places. It could be evaluating a current holding and hearing more about a new company, or it could be at an industry conference. Nine out of ten ideas may not be that interesting, and then one out of ten may be something that we’ll do some more research on.

Then, if we like the company, it depends on whether or not it’s a growth or a value situation. The bar for us to invest in a value situation is much lower, because most of the expectations are out of the stock. These are companies that are trading at very low valuations, where we have limited downsides. So if things don’t work out, our downside is relatively limited.

Q:  Could you give one or two examples?

A: One name we added on the value side is InfoSpace. They have two interesting businesses - a mobile platform business, which is going through tough times right now, and a small search and directory business that is a good cash generator. On the mobile side, last summer they lost a big contract with Verizon. The stock plummeted 30% and InfoSpace got to a point where it was trading at a market cap of $600 million, but it had about $400 million in cash in their balance sheet and no debt. They had to make some changes in the mobile business, but the search and directory business was fine, so we made it one of our top positions, and the stock recovered.

Most investors in our sector tend to be short-term oriented. Luckily, we knew it was an overreaction and our downside was very limited. In the meantime, the company has done a decent job trying to cut some costs and they just announced a big special dividend of $6 a share.

On the growth side, things tend to be more linear as long as the company is doing well and their fundamentals are strong. The value holdings tend to be a little more unpredictable, but in a market decline those value holdings tend to hold up better.

Q:  How do you protect yourself from the industry changes that might occur?

A: We tend to be price focused, so, when we do our internal price targets, if a company is close to what we think is fair value, we’ll cut back the position considerably. And if we feel a company has been oversold, that will determine the position size.

Valuation tends to dictate that more than anything else. That’s why our top holdings change. We are in a volatile sector, so, these stocks can go from undervalued to overvalued to undervalued, all within a quarter. We also look at barriers to entry.