PHILOSOPHY - CONTRARIAN VALUE INVESTING
The Fund will adhere to a Contrarian Value Investment Strategy
which focuses on investing in out of favor and undervalued securities.
The Contrarian Value Strategy is a discipline that refers to investing
in securities that are out of favor and undervalued. A contrarian
mindset is necessary to look at out of favor areas of the market.
Usually out of favor securities are in the least popular areas of
the market, surrounded by controversy and investor sentiment is negative.
Typically with fewer investors analyzing a security or sector, there
is a greater chance that share price inefficiencies and under-valuation
exist in the short term. Investors frequently overreact to current
economic, company and industry information leading to hastily made
investment decisions. These decisions may cause a particular security,
industry group or entire market to become undervalued in the short-term.
Among such investments the Fund will emphasize is the purchase of
small, medium, and large capitalization U.S. common stocks. The Fund
will typically invest in common stocks, although it may also invest
in other equity securities; preferred stocks, convertible bonds,
convertible preferred stocks and foreign stocks. In addition, the
Fund retains the flexibility to invest in fixed income securities;
investment grade corporate bonds, below investment grade (junk) corporate
bonds, U.S. treasury bonds, foreign government bonds and REITS.
The Adviser believes that the price you pay for an investment is
very important to the long-term return of that investment and to
minimize permanent loss of capital. The Adviser will concentrate
research efforts in areas of the market that are currently out of
favor in order to find undervalued securities. Also, the Adviser
believes that investors continually overreact by overpaying for the
most popular stocks while discounting the unpopular stocks. It is
these extreme swings between optimism and pessimism, just like a
pendulum, that is used to build long-term capital appreciation. This
is the Contrarian aspect of the strategy.
The Adviser will then focus on those securities that trade at a
discount or reasonable price to various fundamental valuation criteria.
The Adviser believes the following undervalued characteristics are
important in the security selection process:
*Current as well as anticipated future levels
*Book Value or replacement cost of assets
*Private Market Values/Franchise
This is the value aspect of the investment strategy.
Adviser will maintain a proprietary list of potential investment
securities that meet strict valuation criteria that become potential
candidates for future purchase. In order to be included in the Fund,
each security will go through a rigorous Four Step Investment Process
in order to determine its long-term investment viability. The Adviser
will intensify and increase its interest in a security in the face
of negative price action.
The Four Step Investment Process is the following:
1. Complete Financial Statement Analysis/Financial Integrity - The
Adviser will analyze the 10k annual report, the 10q quarterly report,
the proxy and the accompanying footnotes to these SEC documents of
the company. This in-depth analysis will allow the Adviser to have
the conviction in the company's financial strength and flexibility
to weather a difficult environment.
2. Industry Dynamics - The Adviser will analyze the current competitive
landscape in the Industry. The Adviser prefers to invest in companies
that possess a leading competitive position in an industry that has
a growing long-term outlook within a reasonable pricing environment,
has products or services that provide real value to the customer
and are not faddish in nature and have at least some barriers to
3. Overall Management Strategy - The Adviser searches for high quality
management teams that make prudent operating and capital allocation
decisions to grow the underlying value of the business. Also, they
want management teams that treat shareholders like partners and have
a vested stake in the company.
4. Analyst Sentiment - The Adviser looks at analyst estimates and
ratings preferably when downgrading and upgrading. The market reactions
to these rating changes are used to the Fund's advantage when acquiring
or liquidating a position.
Once a position is acquired, constant research and monitoring follow
throughout the holding period. As with accumulation, selling is also
price stimulated. When a security approaches what the Adviser considers
a fully valued price, then a sell strategy will begin. The Adviser
will seek to maximize gains by selling into strength. In cases where
the stock moves ahead of the fundamentals the Adviser may sell a
portion of the position to stay disciplined with current valuations.
Also, if the initial assumptions regarding a company are invalid
or inaccurate, the Adviser will sell out the entire position. The
Adviser tends to be fully invested. However, when there is a lack
of good values based on our investment strategy, then cash reserves
may increase to higher than normal levels. Cash is only invested
when undervalued opportunities that meet our disciplined Contrarian
Value Strategy are found. In difficult markets, the Adviser may find
select trading opportunities for short-term profits.
While it is anticipated that the Fund will invest across a broad range
of industries or group of industries, certain industries may be over
weighted in the Fund at any time. This may happen since the Adviser
seeks the best value presented in the markets regardless of the particular
industry. This may include industries that are economically depressed
or any industry out of favor.