Chris Welch, Co-Chief Investment Officer and Portfolio Manager for Diamond Hill Capital Management, Inc., Interviews with The Wall Street Transcript: Finding Value Among Small- and Mid-Cap Companies

Wall Street Transcript

67 WALL STREET, New York - August 5, 2013 - The Wall Street Transcript has just published its Deep Value Investing Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Small Cap Investing

Companies include: American Equity Investment Lif (AEL), Willis Group Holdings Ltd. (WSH), Southwest Airlines Co. (LUV), Juniper Networks, Inc. (JNPR), Freeport-McMoRan Copper & Gold (FCX), Staples, Inc. (SPLS), Radian Group Inc. (RDN), Best Buy Co. Inc. (BBY), Office Depot, Inc. (ODP), Amazon.com Inc. (AMZN) and many more.

In the following excerpt from the Deep Value Investing Report, an expert portfolio manager discusses his investing methodology and top picks:

TWST: What are some of the most common questions, concerns or misconceptions clients have about value investing?

Mr. Welch: I think one of the concerns that we get asked about at times is how we avoid value traps, and I think there's a couple of aspects of that. The value trap is a stock that you buy because it looks cheap and the fundamental news on the company comes in negative and the stock price falls, but it still looks like it's cheap and so you continue to own it and then that happens again and again.

We've had a couple of those over the years, but I think we've had only a very small number of them. And one of the reasons is because of our focus on the fundamental positioning of companies. We have a very broad analyst team that's very focused on the industries that they cover and have a limited set of companies that they're looking at.

So our observation has been that companies that have weak fundamental positioning, weak competitive positioning or pricing power, those companies, no matter how cheap they look, sometimes things can just continue getting worse and worse. However, companies that have stable or improving fundamentals, if we are able to buy those companies at attractive valuations because of perhaps short-term concerns, then we can get really good opportunities.

An example of that is Staples (SPLS), the office supply store that we bought about a year-and-a-half ago. And the concern on Staples was that they were going to go the route of Circuit City and to some extent, Best Buy (BBY) - Amazon (AMZN) was just going to continue taking more and more of their business. And, in fact, the office supply stores have been in a very challenging position for some time...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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