STOCK SELECTION METHODS
Stocks advance by exceeding expectations. Out-of-favor stocks generally have low investor expectations. Thus, unpopular stocks have a higher likelihood of exceeding expectations than trendy, investor favorites.
Thunderstorm Value Fund generally buys stocks that are out of favor. To identify undervalued stocks, Thunderstorm Value Fund looks for equities that trade at below-average multiples of earnings, sales, or book ratio, or some combination of the three. The actual ratios will vary over time and with market conditions. As of early 2008, the fund is looking for stocks that sell for less than 15 times earnings, less than 2 times book value and less than 2 times sales.
We prefer stocks of companies that have relatively low debt. This is not only a matter of reducing the chance of a bankruptcy. A strong balance sheet gives a company strategic flexibility to launch new products, pay dividends or make acquisitions.
When a corporate executive buys stock in his or her own company, it is an expression of confidence that we believe may have predictive value. Conversely, we view insider selling as a danger sign.
We lean toward seasoned companies with a history of profitability. A high profit margin indicates that a company is providing goods or services that are unique or under-supplied in the marketplace.
To provide adequate diversification, the portfolio will generally consist of 30 to 50 stocks. They will represent at least 10 industries and a variety of company sizes — small-cap, mid-cap and large-cap.
The Price to Book (P/B) Ratio is calculated by dividing the current price of the stock by the company's book value per share. Price to Earnings Ratio is a common tool for comparing the prices of different common stocks and is calculated by dividing the current market price of a stock by the earnings per share. Price to Sales Ratio is a tool for calculating a stock's valuation relative to other companies, calculated by dividing a stock's current price by its revenue per share.
Mutual fund investing involves risk; principal loss is possible. The Fund will invest in small- and mid-cap companies, which involve additional risks such as limited liquidity and greater volatility. The Fund will invest in foreign securities which involve political, economic and currency risks, greater volatility and differences in accounting methods. In addition to the risks of foreign securities in general, countries in emerging markets are generally more volatile and can have relatively unstable governments, social and legal systems that do not protect shareholders, economies based on only a few industries, and securities markets that trade a small number of issues.
