We identify investment themes of potential interest. This entails a thorough analysis of short- and long-term macroeconomic trends, including a top-down economic review, demographic factors and industry influences affecting sector growth rates. It also involves frequent visits with senior management, as well as attendance at trade and brokerage research conferences.

We find superior companies. To achieve this, we perform further research that measures mid-sized and small companies against 11 specified characteristics. The criteria for a company to be included in our portfolios are extremely stringent. Out of the thousands of mid-sized and small companies in the U.S., we are looking for only 35 to 55 to be in our portfolio at any given time (45 to 60 in the Small Cap).

The third step is to construct a portfolio. We continually track 150-200 mid-sized and small U.S. companies that meet our criteria. In-depth, detailed research helps to prevent mistakes, and as a result our portfolio turnover is relatively low.

The fourth step is to re-balance the portfolio periodically.
Judicious adjustments can help to manage portfolio risk by limiting overexposure to any one sector or issue.

The fifth step is to give considerable attention to our sell discipline, because often the sale of a stock is as important to portfolio performance as the original purchase.