Q: What is the investment philosophy of the fund?

A: We think that the market is highly inefficient and there are tremendous opportunities that can be exploited. We do not believe in the concept of passive investing. Whatever market index you are targeting, we believe it can be beaten by a lot over time, not just by one or two percentage points.

We invest in a diversified portfolio of domestic stocks that we think present the most favorable potential for capital appreciation. We employ a bottom-up investment approach because we think that if you buy the right companies at the right price the stock will outperform the market.

Q: How does your investment philosophy translate into the actual investment strategy?

A: Our approach has been time-tested for two decades with our personal investments, and has been documented in our prospectus. Our investment strategy is based on two important things - growth in earnings and revenue growth and the price you pay.

We review the financial statements of companies to identify those that report substantial sales and earnings growth. We also calculate a price to earnings ratio using our proprietary formula and we aim to find companies whose earnings multiple has decreased substantially over the prior twelve months. Then we focus on earnings per share growth, earnings guidance, and the balance sheet of the individual companies.

We are looking at the quarterly profits - not only do we like them to be growing year over year but we want them to be increasing sequentially, too. We are looking for quarterly earnings growth of 25% year over year and annual sales growth of 20%.

Q: Do you look at the trailing 12-month earnings or the forward earnings?

A: We don’t just look at the trailing 12-month earnings because we think that they are stale. We do not put all the weight in the forward earnings because they are not in the bank yet. We take a blend of the trailing 12-month earnings, the forward earnings and the current quarter earnings, extrapolated. We look at the GAAP and the fully diluted earnings. We also compare current earnings with the fully diluted from last year.

No stock goes in the fund if it didn’t have the minimum 25% earnings growth but we do not exclude anything. We invest in all of the market capitalization tiers, from small to large-cap stocks. The smallest stock in the fund has a $13 million market cap and the largest stock is Exxon Mobile, which is also the largest stock in the US by market cap.

Q: What is unique about your screening process?

A: In a nutshell, we focus on individual stocks with strong growth potential that are currently undervalued as we believe that these stocks can offer good returns whether the market is up or down. Our investment strategy is very disciplined – all the stocks that qualify, regardless of style or company size, have to meet a number of established criteria. Historically, this screening process has helped us identify future winners long before the market.

When we say we are a “go-anywhere fund”, we really mean it. Some people say that too, but they won’t buy a $10-million market cap, they won’t buy a bulletin board stock or a pink sheet stock. We don’t invest in stocks that you cannot sell. We might not like the bid we get but there is a bid on everything we buy.

We believe that our proprietary multistep stock screening process helps us identify companies poised for 100% growth within 12 months. From our analyses of over 9,000 stocks each quarter, we select what we believe to be the fastest growing companies at extraordinarily low prices that meet our specific growth criteria and valuation characteristics.

We believe that a majority of mutual funds really offer nothing unique or special. They are essentially “closet indexers” which hug very close to whatever index they are trying to beat, usually tracking within a percent or two either way of the index. Because of this, you’ve witnessed many advisors and investors throwing in the towel and giving up to just use Exchange Traded Funds, versus really looking for managers who try to add real value with active management. We believe over time, our process over a market cycle will provide investors a fighting chance to outperform the markets, although we offer no guarantee of such performance as only time will show how our fund delivers.

We revisit all 9,000 earnings reports every quarter. We are looking at 36,000 reports every year. It is not as time consuming as you think because the minute we don’t see the earnings up 25%, we go on to the next report. We just have to get to 500 or 600 companies out of the 9,000 and then we can really start dissecting them one by one.

Q: What drives your buy decisions?

A: We are looking to buy stocks at about half the value of what they are worth and sell them when they trade at or above their intrinsic value. We are not looking to hold these stocks if they trade above our estimated value.

When we buy a stock we have to truly believe that it has the ability to double. For example, when Dell Computer went public and issued its first quarter earnings report, it qualified under our system and went in our portfolio. The stock was $8 and it quickly went to $16 and was sold. It was never purchased again because it never re-qualified.

Q: Could you describe your sell discipline in more detail and perhaps illustrate it with a historical example?