How does your own fund fit into the hedge fund concept? It fits in the sense that shorting is used actively. We always have some shorts. I also spend a good deal of my
time thinking about net market exposure and risk, and planning and adjusting for it. In the twenty-one years that I
have been doing this, our overall exposure here has averaged about 40 percent.
You mean 40 percent net long? Yes. In contrast, I would doubt that the most conservative of typical mutual funds has had an average
exposure of less than 80 percent during the last twenty years.
On average, you have been about 40 percent net long. What range does that encompass? I remember being 15 or 20 percent net short at one point, and, at another time, being over 100 percent net
long.
So you have the flexibility of being net short as well as net long? Yes. One of the things I would emphasize about our approach is its flexibility to shift market exposure so as to
make it an exceptionally meaningful—sometimes perhaps too meaningful—tool in our investment management
arsenal.
How do you determine your outlook for the general market direction, since that is obviously a very critical element of your approach? It is really beyond definition, except to say that there are a host of variables, with some sometimes more
important than others, and they change all the time. Having done it as long as I have gives me the opportunity to be
51 percent right rather than 50 percent right.
Does that imply that your main profitability comes from stock selection as opposed to net exposure adjustments for anticipated changes in the broad market direction? No, I was being a bit facetious. It is more than a 1 percent edge, but it is not a big advantage like being right
80 percent of the time, or anything approaching that.
Relatively speaking, how important is the bias of the right market direction versus stock selection
