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By Pat Dorsey, CFA | 12-06-2010 12:00 PM

Morningstar Webcast: Three Takes on Today's Market

Pat Dorsey: Hi, I'm Pat Dorsey, director of equity research for Morningstar, with the live panel broadcast, Three Takes on Today's Market. I'll do the introductions briefly, and then we'll dive right in, since you're not here to hear me read introductions, you're here to hear what these three investment professionals have to say.

All the way down on the far end is Charlie Bobrinskoy, who is vice chairman and director of research for Ariel Investments, also co-portfolio manager at the Ariel Focus Fund, right here in Chicagoland. Next to him is Tom Forester who runs the Forester Capital Management and the famed Forester Value Fund, one of the only equity funds do not lose money, if I am correct, in 2008. Right here, immediately to my left is Doug Ramsey, Director of Research for the Leuthold Group and co-manager of the Leuthold Global Fund.

Thanks for joining me, guys. Much appreciated.

So just to set the stage, we have three really different approaches here, which actually made coming up with questions a little tough. Charlie, you run a very focused fund with the top position at maybe 7% or 8% of assets, a very small number of names; your top position, Tom, is maybe around 3%-ish of assets; and you [Doug], of course, are doing top down kind of macro asset allocation.

So I have found over time that portfolio managers tend to gravitate to a style that kind of resonates with their personality. So I'd maybe like to just talk a little bit about why you've chosen to run money the way you do.

Charles Bobrinskoy: Sure. Ours actually comes less from personality than from philosophy. It's the Buffett idea of, in this world you may only get 20 great investment ideas in your lifetime, and it's better to invest in those 20 ideas than your 21st or let along your 100 best.

Secondly is the idea of knowledge, of really being smart about what you invest in. It's a lot easier to invest in 25 or 30 names that you can know really well rather than trying to be smart about a lot of things. So those two ideas have brought the whole firm around this idea of concentrated portfolios, somewhere between 20 and 40, 45 stocks.

Tom Forester: Well, we like safety. I've got most of my net worth tied up in the funds, and so we double down on Charlie, we've got about 40 names in our portfolio, which some people tell me why so many names, and other people say how come you don't have more? So we think we're about right, but we think the diversification gives us a lot of protection in the case that we happen to be wrong, and that does happen from time to time. It doesn't hurt the portfolio nearly as much.

Douglas Ramsey: You know, I think safety and conservatism for us is also a big driver of the way we manage assets. We maybe just accomplish it, I think, in a different way. Even your 20 or 30 best ideas 10 years ago were at ridiculously overvalued levels, and with our approach to flexible asset allocation, we can move away from those.

We were as low as only 13% equities in our Domestic TAA fund in early 2000, allowing us to wait for the types of opportunities that developed, let's say, for example, October 2002, with the low or the low last year, March of '09. So it's that ability to be flexible with actually managing the equity exposure as a result of that desire for safety.

Dorsey: So we will start with the top down then, and we will start with you, Doug, the macro guy on the panel.

Ramsey: Okay.

Dorsey: If you had to pick one big picture issue that's kind of keeping you up at night, what is it?

Ramsey: At this point dollar weakness. It's pretty clear that we have authorities that are not very focused on the exchange value of the dollar, that the desire to avoid deflation at all costs is really what's driving Ben Bernanke. In fact, last night on 60 Minutes, he estimated that he has a 100% chance or the 100% ability to avoid deflation, which I think is, to me that's a difficult one to buy into.

So, we've actually protected ourselves, and by the way, I think in periods of moderate inflation, equities can actually be a decent hedge against the loss of purchasing power. Now, not when you get above 7% or 8% or 9% inflation, but I think at moderate levels of inflation, equities can be a reasonable hedge. We've also got a small position in physical gold in our global fund and, in fact, all of our TAA funds, as a hedge against further U.S. dollar debasement.

So, we think this cyclical bull market is intact and that it pushes higher. We've actually got a target of 1410 for the S&P for 2011. But the question becomes down the road, even if those equity prices do go up, will they retain the same purchasing power that they have had in the past. So, that would be the one big late-at-night issue for me.

Dorsey: So, in your view in the inflation/deflation punchout, inflation is the knockout one?

Ramsey: Longer term, yes. I think the thing to watch is monetary velocity. Watch the money supply. I mean at this point, all of the Fed is pumped in. It's not yet showing up in the system in terms of lending and money supply. So, I don't think there is an imminent threat, but I think looking out to 2012-2013, it is a real threat.

Dorsey: What keeps you up in night, Tom?

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