Investment Strategy

We consider ourselves as investors not speculators. We try to avoid putting money into highly speculative stocks such as penny stocks, momentum stocks, etc. We try to identify stocks with long term investment values. So, we adhere to the following rules for our investment strategy:

1. We only invest in NYSE, NASDAQ and AMEX listed stocks;



2. We do not short stocks;



3. We will not buy stocks in margin;



4. The stocks should have good liquidity.

In general we invest in two types of stocks:

1. Beaten-Down stocks. That is, we select stocks only from those which have lost at least 90% of their value from their all time highs or have lost at least 50% from their recent highs.



2. Earning-Growth stocks. In this case, we will look for stocks with recent accelerated earnings or for stocks which became profitable after many quarters of losses and the profitability will persist into the future.

For the first type of stocks, we will further limit our selections to those which

• Either have no/little debt and have enough cash



• Or have strong money support from big investors to implement their turnaround business plans.

For the second type of stocks, we will concentrate stocks under $20.00/share.

• In most cases we will sell the stocks if the investment gives us 100% annualized return.



• Our holding period is normally limited to one year, this may be true even we may have to take a loss for the investment we made one year ago. In rare cases, we may hold stocks longer than one year.



• Our holding period, however, may be affected by market conditions. During a down market, we may execute quick trades for quick profit. If the broad market is in a downtrend, 70-80% of the stocks, even the best stocks, will follow the trend. During the process, there are rebounds. But the rebounds most likely are short lived. For such cases, our strategy will be to look for oversold companies, which were profitable, were traded near their book values and a base has been built. We will buy on a dip, take advantage of market rebound and exit quickly for a nice profit.



• Our holding period may also be affected by sudden price movement. If the stock gained too fast in too short period of time, we may consider selling it. In most cases, the quick run cannot last even for the best run companies.

In general we do not submit a stop loss order after the selected stocks were bought. Instead, we may implement our multi-buy strategy, averaging down. We will take a loss in two cases:

1. We have hold a stock for more than one year and its price is still lower than its purchase price;



2. Unexpected news broke out concerning the company¡¯s financial situation and we have to re-evaluate the company and may take a loss to avoid further loss.

Profit Protection:

If a stock gained 10% or more after purchase, we should not let the profit slip away. Turning a profit into a loss is a very painful experience..

Never put all eggs into one basket. Diversification will reduce investment risks. On the other hand we should not over-diversify. For our portfolio, we will limit our holdings to 20 stocks at anytime. The positions will not be equally weighted however. Their specific weightings will depend on our level of comfort for a particular position.