10 Questions With Calamos Growth Fund Manager John Calamos

In sports and the markets, sometimes statistics tell the story more thoroughly than pages of waxing rhapsodic on stellar performance. For instance: Number 1. Number 1. Number 1.

The preceding numbers are the three-, five- and 10-year percentage ranking of the (CVGRX)Calamos Growth fund as compared to its mid-cap growth peers. While that might be enough to send some TheStreet.com readers speed-dialing their brokers to move some money, you'll want to read the rest of our interview with John P. Calamos, co-manager of the fund since its September 1990 inception.

Calamos, the founder of the enormously successful Calamos Asset Management fund family, is well-known for writing the book on investing in convertible bonds, literally -- his Convertible Securities is the seminal work on the subject. His firm's convertible-bond fund offerings such as (CCVIX)Calamos Convertible have racked up stellar numbers over the short and long haul.

In this week's 10 Questions, Calamos -- who co-manages many offerings with sons Nick and John Jr. -- goes beyond the numbers, pulling back the hood on his Calamos Growth fund to discuss what he likes and dislikes about this market. The fund skipper discusses the strategy behind his success, why this feels like the 1970s, where tech is heading and, of course, what he's buying and selling. While we focused extensively on the Calamos Growth fund, Calamos also touches on why he still loves converts -- and high-yield offerings -- in this market.

Read on. We're guessing you still might want to call your broker when you're done.

Click on Company Name to Jump to Calamos's Comments on a Stock

Amazon.com

Apollo Group

Career Education

Cendant

Corinthian Colleges

Darden Restaurants

eBay

H&R Block

Lucent

Nike

Nortel

Qwest Diagnostic

Tenet

UnitedHealth

Weight Watchers

1. How has your investment strategy enabled Calamos Growth to outpace the competition so consistently the past 10 years, in good times and bad?

Our investment strategy is both quantitative and qualitative. We do a lot of quantitative modeling from the total universe of stocks. We're downloading data every day, looking at different trends using various models. Once that's done, we backfill that with qualitative data and balance-sheet items.

In the quantitative area, we look for ideas -- companies with the best sales growth, the best earnings trends or the most expanding margins. Those are our first scans, which we use to rank those companies. Then, on the qualitative side, we back that up by looking at cash flow to total capital, returns on capital, comparing those numbers to the industry. Essentially, we try to reconfirm what our quantitative models are telling us.

Using the combination of the two has really been the key. Often a lot of our qualitative findings contrast with what we see on the quantitative side. This sets up a sell discipline for us. The reason for our performance is not so much what we're buying as what we're selling -- and when we sell.

This sell discipline results in a fairly high turnover rate in the fund. But we think a higher turnover is necessary, given this climate.

Our sell discipline, for example, allowed us to get out of technology -- which we started selling in 1999 all the way through 2000. This helped us to post positive returns in both 1999 and 2000 [the fund returned 77.7% in 1999 and 26.6% in 2000]. We had a fairly heavy weighting in tech, and our cash flow to total capital analysis showed the growth trends for these tech stocks were unsustainable.

The qualitative work showed that these stocks were so overpriced -- two, three times -- that we wondered what the hell was wrong with our models! (Laughs.) Usually it makes sense, and it didn't make sense at all. Typically, when we don't understand something very well, we sell.