Next, we exercise the discipline and patience to invest only when a company is priced at a reasonable and sound business valuation. In theory, each company on the list could be invested in but only when the price is right.

Once the valuation appears sensible, an extensive fundamentals evaluation is conducted to verify the company as an investment-grade prospect. This process continues until a minimum of 20 autonomous businesses with similar investment characteristics are found. Then our portfolios are constructed based on a sound strategy and with a clear long-term objective.

After any company is placed in a client portfolio, it is continuously and diligently monitored and revalidated. We are constantly watching for either a deterioration of fundamentals or an excessive and dangerous overvaluation. If either occurs, the positions will be sold and replaced with an equivalent company that is currently sound and attractively priced.

We judge our holdings by how well their businesses are performing rather than what a "schizophrenic" Wall Street may be saying. If fundamentals are good and price falls, we hold or buy more as appropriate for each portfolio. If price rises to unjustifiable valuations, we sell and replace to protect against risk regardless of fundamentals.

Our strategy is based on the simple logic and reality that great businesses are, by definition, better than average. Therefore, it logically follows that a portfolio of great businesses will outperform the averages (S&P 500, DJIA, etc.). This is obvious and true under one condition: The portfolio of great businesses must act and be positioned exactly as the averages (S&P 500, DJIA, etc.). In other words, the portfolios must not be traded except under the extreme circumstances described above.

In summary, a portfolio of superior (above average) companies bought and held for the long-run, will beat the averages. This is not only common sense, this is a historical fact.

Since we tend to own our companies permanently, we enjoy the remarkable advantage of intimately getting to know and understand our portfolio companies, their businesses and industries. Consequently, our judgment is enhanced and we are able to clearly communicate our portfolio's future prospects to our consultants and clients.

The greatest weapon against fear is knowledge, which ultimately leads to wise and prudent judgment. The result is superior performance at manageable and low risk.

Therein lies the basis of financial security and sound and successful portfolio management. For as always, we remember:

Earnings Determine Market Price. Always have. Always will.