), has beaten the Street's expectations for 26 consecutive quarters. The builders have several things going for them. First, there's a large market for new homes and huge barriers for competitors to break into the industry. There's no foreign competition. There's no technology to supplant a builder. And the demographics are phenomenal. We've had a tremendous influx of immigrants. That is driving first-time home buying.
In the energy sector, we like gas and oil exploration companies Patterson-UTI Energy (PTEN
), Pride International (PDE
) and Ultra Petroleum (UPL
) I think we are in the midst of a potential energy crisis. Right now, U.S. gas reserves stand at a full 25% below last year's levels. Meanwhile, industrial energy demand is down 50% from last year. What happens when that demand comes back? We may have an energy shock like we did in the 1970s.Q: What about technology?A: In the 1990s with tech stocks, all boats rose. That's not going to be the case this decade. We've got 15% to 16% tech right now, and there's no real theme. It's very stock-specific.Q: How do you control risk?A: An initial position in a company is typically only 1% or 2% of the portfolio, and we don't let it grow beyond 5%. We use a lot of technical analysis -- relative strength, volume, money flows -- to give us signals as to when to sell. If a company has no good reason to miss an earnings estimate, it's out. There are far more losers in small-cap stocks than in large. That's why the portfolio's turnover ratio is 150% to 200%. We trade to avoid land mines.