May 24, 2000

Here is a summary of important facts and personal beliefs when it comes to me and investing:

• There are two basic types of questions: recommendation and academic. A recommendation question is a question asked about specific asset allocation percentages, timing of the market or of a sector, specific stock selection rather it be one stock or a portfolio of stocks. Academic questions are all other questions that are not recommendation questions. Recommendation questions are quite interesting when you look at the facts. The so-called experts on investing are no better at recommendations than an index, an investment club, or a small individual investor. For example, 80% of professional mutual fund managers can not beat a simple index over time. This fact shows that education and experience do not necessarily make you a better investor. You had better be extra careful when asking someone, including friends, recommendation type questions. On the other hand, individuals with more education in the field of investing and more investment experience are better at answering academic type questions.

• My basic investment plan is to be fully invested in small cap stocks using some diversity, about 10 stocks per $100,000. Small cap stocks offer value as well as growth with upside potential far greater than larger cap stocks with only a little more risk as the loss in Microsoft stock of 50% in the last couple of months shows. These are only general guide lines, for example, if at the time I am fully invested in tech and NASDAQ is getting at a ridiculuos level, I may reduce my stock allocation by a certain percentage, but for most of the time, I am fully invested.

• I am a fundamental investors who tries to find stocks that have low valuation and high growth, generally, the earnings and revenue growth rates are higher than the pe's. This has only become possible because the institutions are being forced to avoid smaller cap stocks due to liquidity issues which have caused some small cap stocks to have low valuation even though they have high growth rates.

• I do look for momentum. If I do find a stock that has low valuation and high growth and the stock currently has no momemtum, that is, it's been sitting at the same price for a while, I may not buy the stock.

• Since I am not allowed to invest my 403b money in individual stocks and must invest in mutual funds I mostly invest in sector mutual funds. Sector mutual funds offer me a greater chance of beating the overall market. I have to spend more time investing in sector mutual funds than I would index stock mutual funds, but the extra returns are worth it to me.

• I do look at cyclicals, that is, there are certain groups of stocks that will go through a cycle (e.g., semi conductors and semi conductor capital equipment). If you can catch them when they are low and ride them up, the returns can far outpace the overall market. Again, this opportunity with cyclicals is created by Wall Street, by their overselling and overbuying.

• I generally use dollar cost averaging for every investment I make. If I decide on a stock or mutual fund I will buy into it slowly vice jumping in it all at once. I will do the same thing when I back out of an investment. When I first feel an investment is no longer for me, I will start to dollar cost average out of it.

• For my purposes, long-term in regards to investing doesn't exist. Nor do I believe in day, week, or month trading. My time horizon is generally six months to two years. Note: if a stock continues to support its stock price with fundamental performance I will hold the stock indefinitely and may even continue to add to my position.

• When markets are in a downward trend and especially if panic has set in, I will back off from my investments somewhat and try not to dwell on losses. However, I won't completely ignore my investments, I want to know the prices of my stocks daily and I want to know about specific news stories on my stocks daily. During panics I may not be as talkative about the stock markets as I normally am.

• I use margin and have two independent margin accounts. I have not had a margin call since October of 1997. I have had about three margin calls since I opened my first margin account (which is not the same time I got into investing).

• I randomly read or listen to investment professionals, financial TV programs, magazines, and financial newspapers. I do not read a certain financial newspaper everyday nor do I watch a certain financial TV program everyday. I don't read the same magazine every month. I do watch CNBC almost everyday to keep up with the numbers, but most of the time I do the opposite of what they and their guests say.

• I do not believe in the following strategies: short selling or short interest, insider sell and buy activity, special situations, stock buy backs, mergers, analyst's upgrades and downgrades, or personal brokers.

• I know very little about bonds.

• As far as my web page goes, I think most of the stories I have written would benefit investors. However, since virtually everyone complains about not having enough time, I suggest you at least read The Diary of a Small Investor.

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