Q:  What is the history of the fund? A : I founded Thunderstorm Capital LLC in August 1999. Our investment firm, which is based in Boston, provides investment services to pension funds, charitable trusts, endowments, foundations, and individual investors. The firm uses a value investing approach to stock selection. Thunderstorm Value Fund is a multi-cap value fund, which was launched on December 31, 2007. It serves individual investors and is managed by Thunderstorm Mutual Funds, a 70% owned subsidiary of Thunderstorm Capital. Q:  What are the main principles of your investment philosophy? A : We buy stocks that we think have superior appreciation potential and are severely out of favor with investors. Our belief is that stock-market profits are achieved in the long term by investing in out-of-favor stocks. We believe in buying stocks of good companies when they are selling below what we regard as their intrinsic value. Our conviction is that unpopular stocks – those selling for below-average multiples of earnings, sales or book value offer appreciation potential for an investor. Generally, we love to buy good companies on bad news and we believe that stocks with lower expectations perform much better than stocks with high expectations. Q:  How does this philosophy translate into an investment strategy? A : The fund generally buys stocks that are temporarily out of favor. To identify undervalued stocks, the fund looks for equities that trade at below-average multiples of earnings, sales, or book ratio, or some combination of the three. We screen for stocks that sell for less than fifteen times earnings, less than two times book value and less than two times sales. Sometimes the bad news for a particular company, sector or industry will drag down the company, prompting us to make a judgment as to what impact this news will have on the company and how lasting it might be. If we think that it is temporary and would be alleviated in a few months, we are likely to take a position. As a whole, we prefer stocks of companies that have relatively low debt. For us, this is not only a matter of reducing the chance of a bankruptcy but it also demonstrates our conviction that a strong balance sheet gives a company strategic flexibility to launch new products, pay dividends or make acquisitions. Two “sincerity barometers” barometers we find useful are insider purchases and dividend increase. For example, we added Intel Corporation to our portfolio this year because it exhibited both these traits of rising dividend and insider purchase. Q:  What is your research process in terms of idea generation? A : We get ideas from several places. Our screens have been a helpful source of ideas over the years. Among consistent sources of ideas, for example, are low price-to-earnings outliers. Here, we apply our normal balance sheet test and look for cheaper stocks that have an acceptable level of debt. Another screen that has been a fruitful source of ideas for us has been growth at a low price. These are basically stocks with historical earnings growth of 25% annually or more for the past five years that are currently selling for a price-to-earnings of 12 or less, so the growth rate is twice the price-to-earnings. Other starting places for ideas are screening, adverse news developments, meeting with companies, going to conferences and conducting meetings on a one-on-one basis. Sometimes we may also get ideas from competition research or brokers. Additionally, we watch insider purchases. When a corporate executive buys stock in his/her own company, it is an expression of confidence that we believe may have predictive value. Conversely, we view insider selling as a danger sign. We also review a company’s management and analyze the managers’ character, integrity and leadership abilities in the way they execute their vision. We like to determine where the company stands in the competitive landscape. As part of our research, we talk to competitors, suppliers, customers and sometimes former executives who give us insights that we sometimes may not gain by reading financial documents and brokerage reports. We try to analyze catalysts that could cause the stock to become fairly valued instead of undervalued. After we have generated an idea we take into consideration the valuation, balance sheet, insider purchases and sales, our impressions of management, our understanding of where the company sits compared to competitors, as well as what might cause investors to change their outlook. Q:  Would you illustrate your research process with an example? A : An example of a company that went through temporary complications is Cameco Corporation, one of the world's largest publicly traded uranium companies. They produce about 17% of the world’s uranium and most of that is from one mine. But when that mine flooded, the stock dropped $10 a share in only two days. We already owned a small position and at that point we expanded it to a large position because we thought that is exactly the kind of real but temporary bad news on which we like to invest. At that moment we were confident that the mine would be up and running again in a matter of months. Indeed, within a period of four to five months the mine resumed its production. Cameco had not lost any sales because they had enough uranium stockpiled during the time that the mine was closed. Our investment doubled in approximately a year. Q:  Do you consider that you are buying stocks or businesses? A : We want to own stocks in businesses that we are proud to own and that we think have the potential to thrive. In that sense we are buying businesses. However, we also want to buy each of them at a time when it is undervalued. We want to own a good company but only at the right price. Q:  What is your definition of the term “undervalued?” A : What “undervalued” means to us is that we are buying a stock below market price-to-earnings, price-to-sales or price-to-book ratios. Q:  How do you view global investing? A : We invest in the common stocks of U.S. and foreign companies, selecting stocks that we consider to be undervalued. When we think it’s wise to do so, the fund may invest up to 50% of net assets in foreign securities, including American Depositary Receipts, European Depositary Receipts and Global Depositary Receipts. The allocation to foreign securities may at times include an allocation of up to 25% of the fund's net assets to emerging markets. We have invested in Jardine Matheson based in Hong Kong and also have a couple of Indonesian holdings, but we recently sold one of them as it stretched beyond our value parameters. Also, we are invested in an Australian company that mines gold in Thailand. We have invested in China Advanced Construction Materials, which trades in the U.S. but has all of its operations in China and we are currently reviewing some opportunities in Malaysia too. In addition, we own one Israeli company, a Singapore-traded company, and a couple of stocks in Brazil, including the apartment builder Helbor Empreendimentos SA. We like having a presence in emerging markets primarily because their population is younger than in the U.S. The economic growth has generally been higher in the past five years and the government deficits are smaller or in some cases non-existent. Those are three reasons why we like to have some presence in emerging markets. That said, we also like to stay alert for opportunities in developed Europe and Asia. Q:  How do you execute your portfolio construction? A : We typically have 40 stocks in the fund. The portfolio is spread out between holdings from the U.S., Europe and Asia. As for industry balance, we usually have representation in at least seven of the ten S&P 500 Index sectors but the weights in the sectors may be quite different from those of the S&P 500. We tend to be overweight in industrials and commodities. In terms of market capitalization, our default position for the fund is about a third in each – large cap, mid cap and small cap. It can vary. Our prospectus gives us the flexibility to go more heavily in large caps or small caps if we think that is where value can be found. We can invest up to 49% outside of the U.S. and up to 25% in emerging markets and currently we have about 13% in emerging markets. In addition to the S&P 500 Index, which serves as our primary index yardstick, we also use the Russell 2000 Index and the Russell 3000 Index as benchmarks for the fund. Q:  Do macroeconomic events have any bearing in your stock selection? A : Yes, they do matter to our team. In early 2010, macroeconomic factors influenced us to be very wary of European stocks as they were still in the thick of their recession and now we are more receptive to opportunities in the region. We are also interested in valuations in the different markets. We reduced our exposure to China this year partly because the government is serious about tightening the money supply and credit conditions. We feel it is a less propitious time to be heavily invested in China than it was a year ago. Q:  What do you see as sources of risk and how do you contain various risks at the portfolio level? A : One risk that we like to avoid is holding stocks when they are valued too high. To mitigate this risk, we check every week to see what stock in our portfolio has the highest price-to-earnings ratio and the highest price to book ratio and we consider weeding out holdings that are valued higher than we feel comfortable with. Diversification is another risk control measure that we apply. We like to diversify our holdings across several sectors and in different geographies.