Morningstar Magazine - October/November 2017 - 77

this year, it felt like we were getting pretty
stretched from a valuation standpoint. Luckily, the
volatility of this quarter has given us better
opportunities here and there, so I'm feeling a little
bit better on the valuation front.
We've had such low interest rates and pretty easy
money for companies in general. A lot of them
have taken advantage of that, rightfully so. We've
tried to be cognizant of that, making sure that,
if we do go into a downturn, none of our
companies has become too leveraged. We're
a long way into this bull market. Not that we see
anything on the horizon that's really going
to disrupt things, we are just preparing ourselves
so that if there is a downturn, the portfolio will
be well positioned.

Amazon is certainly going to be disruptive
in a lot of different areas ... [but] there
are many niche businesses that aren't in the
crosshairs of Amazon.

Taylor: The thing that keeps us up at night is
really the same thing that always keeps us up at
night: making sure that we have the highest-quality companies in the small-cap universe,
with the best management teams. The longer
you get into an economic cycle, the more
companies are able to put up decent numbers
over a long period and show good financial
success. Understanding which companies have
the wherewithal, the decision-making ability, the
balance sheets, and the business models
to go into a much tougher economic environment
and still take share and position themselves
for growth on the other side-that's where
we spend our time worrying. That's what keeps
us up. K
Dan Culloton is director, equity strategies, manager
research at Morningstar Research Services.

Andy Adams

niche businesses that aren't in the crosshairs
of Amazon.
What's keeping you awake at night?

San Jose: I feel good about the individual
positions in the portfolio, but I do worry about
absolute valuation levels. If there is some
unforeseen circumstance that takes the market off
track, what kind of damage could that do across

the market and ultimately to our portfolio?
That said, it would also give us the opportunity
to add to the strongest conviction ideas,
and potentially add new names. Our longer-term
philosophy ends up being a competitive advantage
over a long-term time frame.
Adams: We set upside and downside targets for
all our stocks, and at the end of last year and early

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Table of Contents for the Digital Edition of Morningstar Magazine - October/November 2017

Contents
Morningstar Magazine - October/November 2017 - Cover1
Morningstar Magazine - October/November 2017 - Cover2
Morningstar Magazine - October/November 2017 - 1
Morningstar Magazine - October/November 2017 - 2
Morningstar Magazine - October/November 2017 - Contents
Morningstar Magazine - October/November 2017 - 4
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Morningstar Magazine - October/November 2017 - Cover3
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