As the number of companies increase, your ability to know them and understand them decreases significantly. We have found that investment managers, typically, lose their performance in down markets because they sell stocks during periods of fear. For example, over the last fifty years, in virtually every major stock market downturn, equity mutual funds have, typically, sold stocks to raise cash. The less you know about a company, the more likely, during periods of adversity, one is likely to be willing to sell a stock due to fear. A good knowledge base about a company helps to reduce that risk.
People tend to forget that styles come into and go out of favor with great regularity.
For example, Sanford Bernstein, the brokerage firm, has been doing a study of growth versus value managers as compiled by a number of large consulting firms. What is interesting is that over the last thirty years, what you see are periods of three and four years where one style outperforms another. History has a way of reversing these periods and I believe we are in the beginning stages of that as we speak. We look at a number of areas but one of the first ones we look at is the new low list that appears everyday in the Wall Street Journal that is summarized in Barron's over the weekend. We also screen companies, the stock market, vigorously for various types of companies.