Q:  Would you provide an overview of the evolution of the company? A : Delafield Asset Management was founded in 1980 by J. Dennis Delafield. I joined him a few months later. We manage assets for U.S. corporations, foundations, endowment funds and individuals. Delafield Asset Management joined Tocqueville Asset Management LP late in the third quarter of this year. The combination added Delafield Asset Management’s separately managed accounts, limited partnerships, The Select Fund and The Delafield Fund to Tocqueville’s investment management business. The Delafield Fund, an equity mutual fund, was founded in November 1993, while The Select Fund, launched in 2008 after conversion from a non-registered limited partnership structure, is a concentrated portfolio of approximately 25 primarily small- and mid-cap value stocks. Tocqueville manages more than $7.6 billion in assets from its New York City location with a client target base of primarily wealthy families and individuals. Tocqueville Asset Management is also the advisor to the Tocqueville Trust family of funds, which now consists of six equity mutual funds including U.S. equity, international equity and gold. The firm also manages institutional accounts and hedge funds. Q:  What is your investment philosophy? A : Our primary objective is the preservation and long-term growth of clients' capital. We focus on small-to mid-cap value stocks where we believe fundamental change is underway but not obvious, where that change can enable it to prosper regardless of the economy, and at a price that we believe represents lower market risk. Q:  How do you transform your investment philosophy into an investment strategy? A : Our fund normally invests at least 65% of assets in equity securities, including common stocks, securities convertible into common stocks or rights or warrants or purchase common stocks. It may invest up to 35% of total assets in debt securities and preferred stocks which offer a significant opportunity for price appreciation. Specifically, the fund will primarily invest in equity securities which the portfolio managers believe to be undervalued or to represent special situations. Q:  Could you describe the analytical steps in your research process? A : Our investment approach is driven by bottom-up value/special situation analysis. Money is managed on the premise that internally generated proprietary research and a focus on smaller capitalization companies not generally followed by the Wall Street will produce superior returns over a market cycle. Our investment process focuses on assessing value in relation to earning power, emphasizing free cash flow, and evaluating management philosophy, capability, and commitment. While management has the ability to invest across all market caps, historically The Delafield Fund has been heavily concentrated in the small- and mid-cap cap spectrums. The fund is managed in a tax-efficient manner and is absolute returns oriented. The weighted market cap in the portfolio is between $3 billion and $4 billion. There are different methods of idea generation. Our belief is that investments in stocks tend to cycle. We could get an idea by simply looking at the stock being on the low list. It could be anything from a management change, where the company takes on a new manager or simply where we think that the valuations or stock is mispriced based on what we see as the ongoing business, as well as what the earnings and cash flow might be. We concentrate on uncovering what we believe are special situations and depressed investments. The fund seeks to determine absolute, not relative, value. Our focus is on five types of companies. First, we look for inexpensive, depressed, and well-known companies. Second, companies where third-party involvement may exert significant influence. Third, companies where we believe fundamental changes are expected to take place. Fourth, companies where management has both a stated goal of increasing shareholder value and an executable plan to help realize that. And fifth, companies that we believe are extremely strong financially yet remain overlooked. We are trying to find companies that have not been recognized by the Street and therefore, their valuations are lower. And to the extent that we could find a company that we think will have positive change and it has not been reflected in its stock price, that's a wonderful opportunity for us. Moreover, companies like that tend to be trading at lower rather than higher valuations. Once we identify a company that is interesting we will immediately do quick valuations on the company. Then, we will move forward and call the company and spend some time looking at it. We will review on a quarterly basis going back a number of years based on the profit and loss, the balance sheet, segment data and cash flows. We are not simply taking numbers from a database. Instead, we are trying to recognize changes that the companies will see to their profitability once we see a change in volume - either positive or negative. We try to understand incremental and decremental margins of a company and how they deploy their cash. We are trying to understand everything we possibly can about the company. We have a template that we use here that will give us a quick snapshot of what we think the valuation is on an EBITDA basis. We provide several years of financial projections both on the earnings, the cash flow and the balance sheet. And from that we see whether this is a good investment or something that we really don't want to pursue and if we think it's still attractive, we will visit this company. It is very much a hands-on approach. Our work is from the bottom up and the portfolio is made from individual stock selections. It is a stock-by-stock review process and we like to understand each company that we invest in. After the initial assessment of the companies is over we redo our valuation models based on the numbers that we think are appropriate and if we like the company, we will build a position normally towards 1%. We probably will go in with 0.5% to 0.75% and build our position normally over time. If the company that we are buying is going through a transition, its stock price could be under some pressure but we are very willing to average down assuming that we are confident in our ability to understand what's wrong with the company and how it will be fixed. So, as we buy, we tend to accumulate stock over a period of time. And conversely, when we think the stock has reached an appropriate valuation, we will tend to distribute it as the stock goes higher. Our holding period can be anywhere from one day, if things happen unusually positive, to many years. But we are in the business of generating long-term capital gains. The holding period really depends upon valuation and to the extent that something reaches fair value, we will begin to turn back positions. We maintain an inventory of well-researched investment ideas at all times. However, an investment idea becomes a portfolio position after a process that typically includes thorough research of publicly available information, canvassing of analysts, experts, and professional "friends" who are familiar with the company or at least its industry's dynamics, conversations with the company's customers and competitors, manufacturing facility and headquarters site visits, as well as frequent phone discussions with management, and ongoing discussions by our investment committee at our weekly, internal investment meetings. Q:  Does the macro environment affect your stock picking process? A : We are much more focused on the micro than the macro. We try to understand what's going on in the world. But we are not constructing our portfolio from the top down. One of the reasons why we are somewhat worried about valuations today is that the consumer is finally doing the right thing and they are saving. It may not come back as aggressively near-term as possibly the market is looking for. But in many cases, valuations are suggesting that we have to look after 2011 to justify certain prices. We clearly worry about the macro and are very worried about the deficit. That is why our approach has always been looking at specific companies and the characteristics of those companies in making an investment decision. Q:  What is your buy-and-sell discipline? A : We have certain holdings in the portfolio that have been with us for many years, and in cases like that, it could simply be that while the valuation has done better, the underlying performance of the company has improved at a rate equal to or better than the valuation. Moreover, if the company is doing what we think needs to be done and they are improving the business, we will continue to hold that company until it reaches a proper valuation and that could take two to three years. One criterion for buying into a position in addition to low downside risk is the possibility of doubling a client's money over a three- to five-year period. As long as such potential remains, even if the stock has already appreciated significantly, we will continue to hold the position. Our relatively low portfolio turnover (far from being a sign of inactivity) indicates the significant research we do on companies and the high comfort level that develops when we know a company well. Ultimately, we either sell when we feel a company's earnings potential has run its course, or when it has been embraced by the investment community to such an extent that the potential for favorable surprises has been eliminated. We will also sell stocks for other reasons such as if a position becomes too large. No matter how attractive a company's prospects, we are uncomfortable holding disproportionately large positions relative to a portfolio's overall holdings. We sell a stock when the following situations occur – stock appreciates to a point that we believe represents significant market risk, adverse developments refute original investment thesis, anticipated fundamental change does not take place, and significantly better opportunities elsewhere. Q:  How do you do your portfolio construction? A : Our portfolio is built stock by stock through a bottom-up process. The portfolio emphasizes best ideas in a fairly concentrated portfolio. Our portfolio focuses on absolute returns. We have a risk-averse portfolio management where we seek to preserve capital while generating attractive returns. We have a relatively concentrated portfolio of 40 to 60 stocks to maximize upside potential while maintaining diversified exposures. We focus on tax efficiency (where applicable). Although the fund is not managed exclusively for tax efficiency, the fund managers historically have been mindful of tax implications when investing. The maximum position on a sector level in our portfolio is 25%. As it relates to individual investments we may have some holdings in the 5% to 6% area but above that it is very rare. We are benchmark agnostic. We don't manage the portfolio based out of benchmark. But, since we tend not to have much of a weighting in financials, it’s difficult to really benchmark us because the financials are so important in many of the benchmarks. We think that performance is made by individual stocks not asset allocation. We tend to have very little exposure in financials and a limited exposure to healthcare. The multiples in that sector tend to be higher than we want to pay. But we tend to have somewhat greater exposure in industrials because that's where there tends to be more restructuring and corporate events. So, there is more opportunity to have special situation investments there. The prime focus is stock selection and constructing the portfolio but one stock at a time. Q:  What kind of risks do you like to review and how do you contain them? A : The best thing that we can do to contain risk is to know our companies well. Meaning that whenever we go into an investment, we try to understand what can go wrong and what our risk is. The multiples that we tend to pay for our companies tend to be on the lower rather than the upper end of investments. The other issue is that we don't feel compelled to simply put the money to work even if we can’t find good investments. So, in times like that we are willing to hold cash. And the cash isn't based on a macro view of the world or the markets. It is really based on the fact that at that point in time we can't find companies that are sufficiently attractive at certain valuations to want to increase our equity exposure. We have a very defensive orientation as far as risk is concerned. We focus on absolute returns, not relative returns and will use cash reserves to help protect value. We utilize cash reserves opportunistically to take advantage of market volatility. Finally, an integral component to our investment philosophy is our commitment to investing our personal assets along with those of our clients. We expect our senior partners - indeed, all of our employees to invest alongside our clients. We feel strongly that exposing our own capital to the same investment decisions we make on behalf of our clients helps focus the mind, making us less susceptible to outside distractions and more sensitive to risk.