(FORTUNE Magazine) – Renaissance men still exist. John Train, for example, the founder of Train Smith Counsel, an investment advisory firm in New York City, has had a multitude of metiers. As a young man in Paris after World War II, he helped start The Paris Review, before setting up a credit-rating agency in Greece, a consulting firm in Costa Rica, and a tire-retreading company in Guinea. Currently he heads the Afghanistan Relief Committee. Between times he has tossed off magazine columns and books, including Preserving Capital and Making It Grow and The Money Masters. Even though Train, 59, admits to being a professional amateur, he is no dabbler when it comes to managing the investments of his wealthy individual clients. Over the past 25 years the shares in his pooled account have compounded at an average annual rate of 17.3%. FORTUNE's Andrew Evan Serwer recently discussed everything under the sun with Train, including investing.

What are you telling your clients now? Patience pays more than anything else in a bear market, so we're not buying equities except in very particular cases. Our clients tend to be about 50% in stocks and the rest in cash and bonds, especially those of the German and British governments. Although I suspect the dollar has reached purchasing power parity with the other currencies, it could sink more until the trade imbalance is rectified.

We are definitely in a bear market? I presume the events in October broke the bullish psychology irretrievably. Bear markets tend to proceed through predictable stages. First the cry is ''The market can only go up.'' We heard that last summer. Then comes a jolt. People feel worse all of a sudden but they say, ''Well, the market isn't going to go up, but it is still too early to sell.'' That's where I think we are today. In the next stage the market goes down another 15% to 20%, and people say, ''Well, it's too late to sell.'' Then it continues trickling down until the word becomes ''Sell everything.'' This often happens six to 18 months after the summit. That's the time to buy because the process will be reversed on the upside.

But the economy is behaving nicely. It's very hard to make money on the basis of large economic notions. They're often wrong or misinterpreted or, if they are generally believed, it's impossible to profit from them. If I had to guess I'd say that since we are in a time of extraordinarily high employment, we might be heading into an inflationary period. But we buy high-growth, inflation-proof, specialty companies for their own sake, not because of the general outlook.

< How do you find them? We look for companies with $500 million to $1 billion in sales that have profitable niches and products that are distinctive. We look at the intrinsic growth rate, which is similar to the unit growth rate -- the dollar growth rate adjusted for inflation and acquisitions -- and we like to see at least 12% annually. Operating margins and their trend are keenly important -- often in the 20% to mid-30% range and growing -- as is the return on equity, which should be in the mid-20% range. The price/earnings ratio must be weighed against the cash in the company. If you found a growth company swimming in cash, it would be like buying a house with a pot of gold in the cellar, and you'd expect to pay a higher multiple for the house.

But isn't this a market for blue chips? I sold General Motors for $110 in 1965. It's selling for just over half that today, unadjusted for inflation, but not including dividends. Big, famous companies have all the troubles of the modern world -- Japanese competition, environmental concerns, unions -- and they don't have specialized niches. These stocks also sell for high multiples. Blue chips have outperformed growth stocks recently because portfolio managers were doing more indexing and bought Standard & Poor's 100 companies. But over time quality growth will outperform the averages.

What are some of your favorite growth stocks? We like media businesses. We own Dow Jones, Capital Cities/ABC, and LIN Broadcasting. The father of one of our directors, Randall Smith, is the late Frank Smith, the founder of Cap Cities. The company has had 33 consecutive years of sales and earnings growth. LIN owns seven network-affiliated TV stations, which produce 80% of its earnings, and its operating margin is 43%. Real growth will come from major joint ventures in cellular phone franchises. If you add the value of the TV stations to the phone franchises, you can see the company is significantly undervalued.

What else do you like? We think commercial banking is ruined forever in America. The commercial paper market has drawn away the biggest and most creditworthy borrowers. The consumer has been snatched by money market funds and credit cards. But State Street Bank in Boston is bucking the trend. The core of its business is providing custody services for institutional investors such as mutual funds. The bank is the trustee for 41% of all mutual fund assets, making it the leader in that field. Foreign lending is insignificant. The bank's five-year earnings growth rate is 19%.

You seem to own a lot of service companies. Yes, that's where most of the growth in the economy is. Take Policy Management Systems. It supplies property and casualty insurers with software and data processing, which dramatically improve their back-office operations and boost their profitability. A quarter of all insurers in North America are customers, including our favorite, American International Group. AIG is a well-run company with an outstanding operating margin and return on equity.