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at?" They look at the value per share in contrast to the trading price per share. Price and value are not necessarily the same. They think about the likely future trading range per share relative to their notion of value. On the long side, the ideal situation is if they can buy $100 worth of value at $60 and that the notional $100 of value is increasing over time.

In the past two years, as the volatility in the stock market has increased, share prices have fluctuated widely while the value per share has changed more slowly. "It is more likely that $100 worth of value may trade between $10 and $175 than the narrow ranges of the past. There is more overvaluation and more undervaluation," says Wilcox. "We need to think widely. The environment is now more challenging but it is better suited to our skill set."

The best environment for Cumberland's trading approach is a flat to slightly up environment with considerable volatility, such as 2000. A volatile market presents a challenge for their long-term orientation since they are less likely to take a buy-and-hold strategy. The worst environment for Cumberland is an indiscriminately rising market such as the late 1990s.

"We're running a marathon," says Wilcox. "It is an investment organization, not a trading organization. It is not unusual to hold an investment for many years."

Cumberland focuses most heavily on companies with equity capitalizations of between $500 million and $10 billion. The weighted market capitalization is about $6 billion. The firm runs a diversified portfolio of over 100 positions.

Since inception, the compound average annual return of Cumberland Partners has been about 19 percent. There have been six down years, including 1973, which was down 2.2 percent; 1987, which was down 3.5 percent; 1990, which was down 18.8 percent; 1994, down 6.4 percent; 1998, down 3 percent; and 2000, down 0.5 percent.

The year 1990 was a memorable one in which Cumberland learned a significant lesson. Their analysis of the companies was excellent but the distressed high-yield markets in which they were heavily invested became illiquid. At year-end, they had redemptions that had to be funded despite the illiquid market. That situation taught them to pay greater attention to portfolio liquidity.

Usually a tough year is followed by a very good year, says Wilcox. The down years (since 1987) were always followed by large gains.

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