Bill Smead: We have been optimistic about the U.S. economic recovery and stock market. Optimism has been cheap and in the minority.

MutualFunds.com: When we look at some of the value names in your top holdings, some of the companies have quite transformed themselves into more growth-oriented companies as well. Could you tell us which of these fit that mold in particular?

Bill Smead: Value can come in the form of deep discounting or misconceived future success. We own about half of our portfolio in both sides of value. Misconceived bright futures at JWN, CMCSK, CAB, WFC, and NVR.

MutualFunds.com: Many are seeing the drop in oil prices as an opportunity to step up and buy the space. Do you see value there?

Bill Smead: Until energy stocks are damned and hardly anyone has the guts to mention them, we won’t touch them.

MutualFunds.com: Are there sectors that you are simply avoiding and maybe have been for a while?

Bill Smead: We are avoiding energy, basic materials, heavy industrials.

MutualFunds.com: What would cause you to put a stock on the sell block? Does a simple increase in a stock’s beta necessarily make you wary?

Bill Smead: We sell a stock if it violates our qualitative criteria, if it gets too popular, or if we decide that we were just flat wrong in our analysis.

MutualFunds.com: Finally, What are the main themes you feel investors should pay attention to as we head into 2015?

Bill Smead: Watch for a surge in echo-boomer house buying in first-time home buyer statistics.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.