We look at things that we really believe in. There’s so much random noise in the market and if you try to follow all the stocks, all the time, you just don’t have time. We are obviously going to time. We are obviously going to keep an eye on the share prices and see what happens, but we’re not going to follow all sectors fundamentally. That saves you a lot of time in research and finds better stocks in the areas you are interested in.

Q: What kinds of risks do you perceive, how do you monitor them and what do you do to mitigate them?

A: The management risk is obviously a key thing. If the management of a company we have researched start to venture into areas that are away from the core of the business and what we were led to believe in the past or make an acquisition into areas that are not core to the business then we tend to sell the stock. If we can’t get a good explanation, we also tend to sell the stock. I think management risk is something quite important to us. They have to communicate and having communicated, they have to do what they say.

Q: How do you manage portfolio risk?

A: In terms of having more concentrated portfolios, you tend to have less diversification; therefore you can run risks against the benchmark, because you don’t diversify your risk away by having a large number of diverse stocks. That diversifies away from your alpha too.

From a top-down perspective, in terms of investing in areas of the market, I would be particularly uncomfortable in having more than 30% of the portfolio in any broad category, like financial stocks or resources and I would look to diversify the portfolio at a sector level.

Although we might like an area in the market very much, we would not tend to go beyond, at the very most, 35% of the portfolio in any one broad category.