Diversification is an important part of our risk management. Average individual positions range from 1 to 2 percent, with the largest core positions at 4 to 5 percent. In 15 years, we've had three positions that got as high as 8 percent, two that worked out very well and one, Tyco, that was a disaster [...]

Here's how we think about it: Say the S&P 500 companies sell at 15× next year's earnings, 3× book value, 11× cash flow, 1.5× revenues, have an ROE of 17 to18 percent and have anticipated trend earnings growth of 8 percent. We're looking for companies with equal or superior growth characteristics that sell at discounts [...]