Investment Philosophy Investment Philosophy We employ an investment strategy we refer to as “Value Plus Favorable Change”. Three factors define our “Value Plus Favorable Change” investment strategy. We invest in securities (mostly stocks) that are (1) undervalued, (2) where investor expectations are low and (3) where favorable fundamental change is occurring within the company. Using this approach we attempt to achieve superior investment returns and at the same time decrease our risk. How do we determine that stocks we are interested in are undervalued? We look at several valuation criteria and ratios: Price/Earnings, Price/Cash flow, Price/Free Cash Flow, Price/Asset value, Price/Book value, Price/Sales. These are standard metrics used by other investment analysts and portfolio managers. What is unique in our analysis is that the above assessments are primarily based on our proprietary forecasts and evaluations. So for example, we will often develop our own earnings model for a company in order to forecast their likely earnings over the next few years. We do this by researching the company’s SEC filings, and by often speaking directly to company management. Why is a stock good for my portfolio when other investor expectations for the company are low? When investor expectations are low and favorable surprises occur, they tend to have a greater positive impact on the stock price; conversely, unfavorable developments tend to have a lesser impact. Simply put, if our forecasts are correct, the positive benefit should be large; if our forecasts are wrong, the mistake should be less costly. Low expectations are usually the consequence of investor disenchantment and/or neglect. Low expectation caused by neglect is often a result of little or no coverage by Wall Street analysts. Smaller and medium-sized companies are often overlooked in this manner and therefore, are a prime focus of our research and analysis effort. Why is “favorable change” used in making a “buy decision” for a stock? Favorable fundamental change should increase the value of the companies in which we invest. It can be caused by several factors including: new management, new corporate strategy, new products, favorable demographic demand, changing industry competitive environment, changing regulatory environment and/or improvement in company cost structure.