Q:  What is your investment philosophy?

A: The essence of what we are trying to do is to search for companies to invest in and not be active trader. We tr y to identify good businesses at reasonable valuations and we tend to own them for a longer period of time.

One of our core investment beliefs is not to tr y to time the market direction. We are not looking to invest in a company with an immediate catalyst.

We believe that to generate consistent above market rate of returns with a concentrated portfolio is hard to do so we diversify our investment pool and make a series of decisions on a number of companies. Our approach is low risk with low volatility and spread investments across number of stocks.

Q:  What distinguishes you from your peers?

A: Our time horizons are a lot longer than other Mid-Cap growth investors. We’re investors – not traders. We try to find companies we think have strong business models and are good businesses and trading at reasonable valuations. We tend to own them for a long time and our turnover in the portfolio is about 30% compared to 100% in mid cap fund category. One of the interesting aspects of our turnover rate is that a lot of that turnover can be from selling winners that have exceeded market cap range in the mid cap sector.

Q:  How would you describe your investment process?

A: First, it is a combination of quantitative techniques and fundamental insights of our analysts at T. Rowe Price. When you’re investing in Mid- Cap companies, you’re investing in companies that are relatively early in their life cycle so that one should expect the reasonably high failure rate. External events have a greater impact on mid cap stocks than in the larger caps.

We use quantitative measures based on fundamentals. We are looking at one company at a time. We use industry and company knowledge of our research analysts and look for companies that have consistent earnings growth and operating cash flows. We use quantitative tools to measure and control allocation risk. Our contrarian views helps us in avoiding latest investors fades and seek values in sectors or companies that are out of favor.

We have no views with respect to the direction of the market. We look at how a security has been priced through time and tr y to find those companies that are attractively valued or at least reasonably valued for the longer-term investment hypothesis that we have.

Q:  How many stocks do you generally have in the portfolio?

A: We believe in diversification so we’ll own between 275 and 325 stocks. We are making lots of individual decisions that constitute modest position in the portfolio.

We believe that we are compensated for taking a higher than normal level of risk. Generally, the largest weight in the portfolio will be about 1%. Or, to put it another way, when we have a company that does not perform as we hoped, it won’t kill the portfolio or our relative performance – the loss will be minor and manageable. We take a contrarian approach to look at sectors and companies where stocks have underperformed over the last several years.

Q:  What are the criteria you follow before you buy a company?

A: We structure the portfolio to have less volatility than the benchmark. I think having market-leading companies with solid management teams and good cash flow goes a long way in protecting portfolio when markets hit a sustained downturn. That’s not to say in bear markets we don’t fall in value or lose money. We tend to lose a lot less than others.

We tend not to invest in companies with lot of debt on balance sheet. We are looking for companies with consistent earnings growth that is generally associated with good free-cash flow and the market leading position in various niches which are anticipated to grow.

One of the interesting things we care a lot about relative to most mid-cap growth investors is we actually like dividends. One of the things that we are worried about are those companies that do seem to have an inappropriate capital structure that usually leads to bad things such as investing in projects that don’t have good returns and even worse, merger and acquisition activity.

We use the industry and company knowledge of our research analysts and look for companies that have consistent earnings growth and operating cash flows. We use quantitative tools to measure and control allocation risk. Our contrarian views helps us in avoiding latest investors fades and seek values in sectors or companies that are out of favor.

Q:  What drives your sell decisions?

A: The biggest reason to sell a stock is when the fundamentals are a disappointment relative to what we had expected. We will also sell a position when we think the valuation on a relative basis has gotten a bit beyond reasonable, but that tends to be infrequent. We will also sell for market capitalization reasons.