Q:  What’s the investment philosophy of the fund? A: Lifetime Achievement is a fund of funds that came as a result of what I was doing for my largest clients. About 30 years ago, as I was able to diversify the assets of my wealthiest clients, it still made sense to hire the best professionals that I could find. But it didn’t make sense to follow 50,000 stocks or to just listen to what the brokerage firms pushed because if I did, I would end up with mediocrity, which is a losing game. So eventually I created a private mutual fund, in which we put 100 beneficial owners and I could do for those 100 what I did for the very wealthy. Pooling the money enabled me to buy any mutual fund with no load because when you invest a million in a fund, there is no load. That removed another set of handcuffs, or the fees, the commissions, and the deferred sales charges. Now I felt free to choose and hunt down what I felt was the very best of the best. The general investment philosophy is ownership. The fund’s goal is total return and is primarily an equity fund. We don’t hold cash and we don’t hold bonds unless we can argue for deflation and in that case we use bonds to hedge. We think that’s the right way to build and maintain wealth because of the inflation that erodes away buying power in bonds and bond funds. I’ve been saying for 30 years that to build or maintain wealth, you must be an owner. When you buy bonds, you are a lender. Over the long term, with bond funds you’ll lose your buying power, so why not accept the yo-yo of being in the stock market knowing that it climbs a flight of stairs? You will lose money two or three times per decade and once in a while there will be a big drop. But if you just leave your arms crossed, you can win and possibly outperform the majority of your peers. Q:  What are the major criteria when looking for the best? What drives your investment decisions? A: We have a top-down long-term approach where the understanding of the fiscal and monetary policies is important because the action of the government has consequences. That means anticipating which areas will benefit or be hurt by the policy, and buying or selling accordingly. The other part is looking for the absolute best bargains. For example, if the crowd is abandoning small-cap value as in 1998 and 1999, then it makes sense to buy small-cap value and avoid what the crowd is chasing, which was large-cap growth and technology at that point. Wall Street runs in a pack, and if you do the opposite, you can end up doing well. So if I see an opportunity that has nothing to do with fiscal and monetary policy, I’ll certainly take advantage of it. Q:  Would you explain your approach to hedging and risk management? A: We may hedge ourselves with two mutual funds of gold mining shares; right now we have 7% in gold mining shares. As gold has increased over the last five years, we’ve sold off and maintained our hedge but we’re not in it to make money. It’s just our hedge position and if gold goes down, we’ll buy more. If the risk increases because of the fiscal or monetary policy or world events, we can increase that hedge position. For example, in the 1970s Jimmy Carter gave a speech that effectively said to me that he was going to create a bunch of in- flation. The media didn’t react and when I called all my clients recommending to increase the gold hedge position to 20%, my colleagues at the time thought I was crazy. I took the profits and invested them in conservative long-term growth-oriented mutual funds of common stocks. Q:  Are you worried by the levels of the trade and budget deficits and the impact on the dollar? A: No. A trade deficit equals a capital surplus. When you look back at history, you’ll find that the years of large trade defi- cits were the years of maximum growth and prosperity in America. We’ll have a problem the day the rest of the world decides they don’t want to hold dollars. If I smell it coming, you will quickly see 20% gold in my portfolio. I’m not worried about the dollar as much as I’m worried about the derivative trading. We saw Barrings Bank, Orange County bond disaster, and the biggest bank in France collapse. We saw Long-Term Capital Management collapse in 1998; derivatives at that point had gone all the way up to $100 trillion daily. Today derivatives are approaching 300 trillion on a daily dollar denominated nominal value, and that’s insane. Q:  How do you protect your portfolio from that risk? A: Most of my peers in this industry will have a large chunk of bonds in there portfolio, but a bond is a claim on paper money. If the paper money collapses, they will likely lose, and we’ll still own stock in about 990 companies. Right now we have around 1,000 companies and I’m sure that 10 of them could go broke. So when the dust settles, our gold shares will have exploded. The normal corporations around the world will still be there and we’ll have ownership in them. In the real world, we are far safer than the illusion of safety provided by the guarantee of a bond or an annuity. Another risk management strategy is that we do diversify around the world, so we have exposure to other countries and other currencies through the mutual funds. Today we have approximately 25% international exposure. Q:  Would you explain your investment process? Do you hand-pick the funds you invest in? A: To explain the process I’ll give you a rundown of a scenario. We seek to buy investments based on the fundamentals, not based on the noise of what’s happening. For example, if we think that the U.S. large-cap value sector looks very attractive, we’ll use the database and start screening for money managers that buy stocks in that area. After we filter it down, we get two or three finalists. Then we start calling these people to hear how they buy stocks. At some point, we’ll like to go and meet these money managers just to make sure that the comfort level is there. We hire them by investing with them. Once we hire them, as long as they continue to perform, they keep the invested money unless we find something better. Since we can move money over to other funds without paying a load, we’ll do so if we find something better. Q:  How do you decide on the allocation between the funds you invest in? Also, what’s your strategy for building a position? A: Right now we are invested in about 15 mutual funds but this is a little higher than the historical average. We can own anywhere from 10 to 20 funds and we usually do not go outside those parameters. Currently about 8% of the fund is in Templeton Growth Fund, for example. I have owned that fund for 29 years and for me there is no reason to sell it because I think it is a classic fundamental value fund for our mutual fund portfolio. We start building positions in small chunks. We don’t jump around fast and our turnover is very low, around an average of 15% to 20% mainly due to re-allocations. But we shift slowly because we are looking at long-term trends. Q:  You mentioned that you would use bonds only for hedging. Could you explain how? A: I use the zero coupon bond as a hedge if I can argue for deflation. Then I’ll put 10% of the money in 30-year zero coupon bonds because if, for whatever reason, the monetary collapse invokes deflation, interest rates would plunge and the prices of bonds would rocket. Government bonds are the only ones I have used because the government is the only one with a printing press. But right now the portfolio has no bonds because I can’t argue for deflation. I can only see inflation. Q:  Do you use the arbitrage opportunities between the European or the emerging markets and the U.S. market? A: Yes, we do arbitrage but not in the traditional sense. Six years ago as I came back after going around the world, I told my associates that the dollar was way overvalued. We moved another 10% overseas and we bought a mutual fund that was heavily invested in Europe. Then, two years ago, I came back from Europe and I told them that the dollar was oversold so we moved 7% or 8% of our money from Europe back here. Right now, I believe that the dollar is still undervalued in much of Europe. Q:  Do you find opportunities in the emergence of China in every manufacturing sector? A: No. It is our belief that China is the next Enron. You can’t constantly sell below cost and have your losses covered by loans. When unsustainable, these loans are picked up by another shell of government. That’s what is going on in China. I don’t know how long they can keep this facade going, but if they don’t change their ways, there is going to be an implosion. There is no specific weight of China in our portfolio and, in fact, I want to avoid it if I can. And, actually, manufacturing in America is growing exports of manufactured goods are at an all time high. Q:  My final question is why is the fund named Lifetime Achievement? A: Because that’s what it is. People often don’t realize that their nest egg is for the rest of their life. I was going to name the fund ‘Best of the Best’ as it is comprised of the best investments I can find. Then somebody said in a discussion, “Why don’t we name it Lifetime Achievement?” I thought that was brilliant. I am the largest shareholder and this is where the bulk of my assets will be for the rest of my life.