Q:  What is your investment philosophy? A : We believe you make the most money buying reasonably valued companies that are growing earnings and revenue in industries that are expanding. We look for big secular growth themes where the earnings and revenue are growing over a period of time and not necessarily every quarter. This differentiation is what allows us to invest in industries that are sometimes more cyclical in nature, but we only invest in areas that are cyclical when they are undergoing a secular change in the business. It may not be a change lasting 40 years, but it might be a change lasting five to ten years. For example, energy is a traditionally cyclical area. We believe is has become secular and it is in a secular uptrend where the companies that can grow production are growth companies because it is very difficult in the overall environment to grow production. Companies that supply the equipment and the services for finding oil and gas are also growth businesses. Even though there will be down cycles, the overall business is going to go to higher levels. The Materials/Mining sector is another area that falls into that group. Our overriding philosophy is looking for the secular investment themes. We believe if you can find the best industry groups that have earnings growth and add to positions when the stocks are down and the market is discounting the end of their cycle, you can buy them at low valuations with the anticipation of earnings growth and that is eventually reflected in higher stock valuation. Q:  What factors or conditions in the market generally give you a good signal of an upcoming secular change both up and downsides? A : Some of the things we look for are new products, new discoveries, changes in governmental policy, new capacity getting used up, new changes in demand patterns that may adjust supply, and new concepts. Those things trigger a sudden change in the demand for the product. In some situations like in energy and materials, there is an inability to supply the product. It creates avenues for people who can supply the product to become growth stocks. Valuation does matter to us and we will not pay exceedingly high multiples for stocks, regardless of their growth rate. There are situations where you could say, “given this growth rate and the overall market environment, they certainly ought to trade at higher multiples relative to where they are”. For example we believe that the energy companies ought to be trading at higher multiples than they are because of the earnings visibility that they have and the scarcity of the assets that they are selling, and the duration of their cycle. Q:  So there is a potential for earnings growth and there is a potential for multiple expansion? A : Therefore, you have double leverage there. Where you make the most money as a growth stock investor is in buying cheap stocks that have earnings growth because they can go from cheap to expensive. If you buy an expensive stock with earnings growth, and there is any hiccup in the earnings growth, they go from expensive to cheap. Nevertheless, it is very hard to buy an expensive stock and make a lot of money hoping that it gets more expensive. I believe there are always plenty of stocks that have reasonable valuations and good growth rates that you can buy. The problem is, at times, the market is carried away with the companies that are hot and trade at high multiples. Those games do not usually last very long. The problem sometimes is they last longer than you expect them to and investors get sucked into them. We try to find companies and industries that have suffered stock declines, because consensus thinks the growth story is over. Where we add value, is by differentiating and finding those industries that are experiencing only a temporary change, and will get back on track soon. Q:  What is your research process? A : We are thematic in nature, trying to find strong, powerful risk-adjusted investment themes. We will look everywhere for ideas whether it is reading Wall Street research, talking to the institutional salespeople, talking to our peers on the buy side, reading industry publications, watching business television shows and reading various publication. We also closely watch insider buying and selling, which tells us of the sentiment inside the company. Then we look for groups that are experiencing a similar change. As you go through the earnings reports for a quarter, looking for some change, you might notice that three companies in the same industry all reported upside surprises. That might then prompt the research process and that is where our analysts, who are all generalists look into that industry group. If we think it is something that fits into our overall macro strategy, we will start doing more work. We will try to come up with our own view of the industry’s future and the business outlook. Q:  As a thematic investor, can you explain your stock screening process? A : We do not act on very many of the ideas. It is more a function of a lot quantitative screens, but we are looking for certain characteristics in certain stocks. The best opportunities come from a change in the underlying fundamentals of an industry with long lasting results. sometimes you will see a change, you will buy the group, and the change was more cyclical than you thought. It works for a year or a yearand- a-half and the stocks do well or adequately, but it is not the big change you thought would happen. We bought many of the hospital stocks several years ago on the idea that the hospitals, as a way to improve profitability, were rolling out a system where the doctors and the nurses would work together to try to reduce costs. If they could manage the operating procedure more efficiently, then the hospital would save money and the doctors would be able to actually share in the benefit of that cost savings. It turned out that the overall mediocre trend in the industry was far more powerful than the little bit of cost savings they would get. Q:  What is your buy and sell discipline? A : When we buy a stock, we generally have an idea of where we think it should go on a valuation basis relative to our expected earnings. If the stock gets there, we tend to sell at least a percentage of the position. It then depends on what has changed. If nothing has changed fundamentally, we sell our entire stake. If the earnings are better than expected, if margins have expanded more than we expected, that means that the valuation has improved. Then we might extend our price target to a higher level, in which case we do not sell the whole position. There are plenty of times where we find ideas that we think are good but if the stock generates our projected return, we will sell the stock. Q; How did you view home builders between the years 2002 and 2005? Q:  What are your views about creating and managing a portfolio? A : It is our belief that you should find the best stocks in the best industries and buy them, though you do have to be cognitive of how big a weighting you get in certain areas. We do not work as closet benchmarkers, so if we do not like an industry or sector, we do not own it. If we like a sector in the market, we way overweight it. That is partly why we have volatility in our portfolio from quarter-to-quarter. It is also a reason why we have higher turnover than the average fund. With a concentrated portfolio, you are bound to have more volatility and we try to manage around that volatility. Even in our best ideas, if they are overbought, we will reduce our holdings. But, most importantly, it has resulted in fairly strong performance. Q:  How do you approach the risks? A : We try to stay focused in the areas that we like and we will make adjustments if we think the sectors that we are exposed to are overbought. We have the ability in our mutual fund to own puts and we will do that as a defense mechanism. We will do it in our favorite groups if we think they have risks due to the market or risks of rotation. Additionally, we will own puts on the market if we think there is risk in the market to try to dampen some of the downside risks. From a portfolio construction standpoint, we try to counterbalance our positions in certain periods. We think exposure to healthcare is a far better diversifying mechanism with our energy/commodity sectors weighting than financials or retail sectors, for example.