10 Questions: At Charles Bath's New Value Fund, There's No Room for Tech

It's a company with a very strong market niche in its core products, with its high-end appliances. Perhaps they strayed a little bit, focusing on other areas that might provide consistent growth, such as lower-end appliances. The new management is refocusing efforts on the high-end.

In fact, I remember in the 1980s Maytag used to sell almost at a market multiple because they were at the high end. We're nowhere near that now. I'm not saying they deserve that, but I think they deserve more than 10 times earnings and four times cash flow.

Valuation's a big part of why I like this company; it's a big holding in the portfolio. I suspect it will continue to be a large part of the portfolio because I think it was sold down for reasons that were perhaps too short term. The key story in my mind is: They're refocusing the business on their core and their ability to drive a higher return at a more cyclical return and get a higher evaluation.

You've done well with Black & Decker(BDK Quote) in the past; it's up about 18% this year. Are you concerned that it's getting a little pricey?

Not really, when you consider the market is up 20% in the past six weeks. Relative to the market, I don't think it's that expensive. In fact, its earnings have come through quite nicely this year. I find its valuation quite attractive.

9. Do you have any specific sell discipline as a fund manager?

Certainly, the easiest one is the valuation call. If I buy a stock because it's cheap and it runs up to the point when it's no longer cheap, then I'll be certainly more apt to sell the stock. There is no solid line; like say if a stock is $19.95, it's cheap, but $20.05 is expensive and sold. If it tends to be more fluid, I'll sell a third and if it goes up then sell another third and another third because I don't pretend to have an exact answer.

The second way: If the fundamentals change and I feel I was wrong in the valuation, or the franchise is down, I'll sell those relatively aggressively. In other words, if often you're admitting you've made a mistake or the situation has changed since you purchased the stock then the stock should be sold because the reason I own is not the same as it was before. I think my tendency over the years has proven right -- selling aggressively is the thing to do.

Then there's a third way: Let's say, as an example, Conoco Philips. If for whatever reason ExxonMobil became much more attractive and I didn't want to change the energy weighting, I could just swap out for ExxonMobil. Basically, I look for names you own vs. names you don't own.

It's all management judgment. I don't have any concrete rules -- you know, stock's down 10%, it's sold.

How long do you hold a stock? What's your time horizon?

The two stock's I've had the greatest success with, one stock was held for 14 years and the other for 13 years. The first was Schering-Plough(SGP Quote) and the second Warner-Lambert, which was bought out by Pfizer(PFE Quote).