Instead of the usual review of the performance of our portfolios, I will attempt to answer some of the questions recently received and bring to your attention some of the gems I have recently come across

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Investology (™)

http://www.fortunecity.com/meltingpot/greece/362/index.html

It's not rocket science

Sept 12, 1999

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Instead of the usual review of the performance of our portfolios, we will attempt to answer some of the questions recently received and by so doing highlight some of the investment ideas that have immensely helped us build our investment portfolio.

Question 1:- You mentioned about 4 weeks ago to seriously consider Cisco. I started tracking it with the hope to taking a position on weakness, but the b----- stock will not come down so I could buy some, it has continued to appreciate in price. Do you think it would be a good investment to purchase Cisco now? By JD

Answer 1:- I cannot emphasize enough the risks involved in tech stock investing but with Cisco you are acquiring a company with a great record and also an incredible future.

Cisco is getting into telecom. Currently, Nortel & Lucent make incredible profits from optical fiber networks and Cisco's intention is to get a piece of this pie, if not to dominate it. This is the fundamental reasoning behind its recent acquisition of Cerent, which to my mind is very cheap at $6.9B. In a few years time when the whole complex strategy and puzzle becomes clear, people will then see the reasoning behind the Cerent purchase.

Bandwidth will need to soar by a gigantic percent over the next few years to handle the huge amounts of data traffic. SONET, as a standard is not particularly suited to data traffic, compared to voice, and hence companies such as Sycamore Networks are highly desirable acquisition targets because of their ability to use software to move data instead of SONET equipment. (We believe Sycamore will be acquired before March 2000).

Another plus for Cisco is the recently announced $7B revenue deal with IBM

Cisco also has John Chambers, as a leader. What else can go wrong?

Question 2:- Have a look at Wi-Lan (Canadian) they have a product (IWILL) that can produce internet 30mbp wireless transfer speeds. Sweden's Telia and Britain's Tele 2 have signed up to implement their technology. This sounds like it will be big in 12 to 18 months... Let me know, By Joe

Answer 2:- I don't have to look, I took a position in this company over a year ago at $1.40. To confirm my decision and also get some sort of comfort to go ballistic on this one, I asked JB (a data expert) whether their technology was hot and his answer was that Wi-Lan operated in an unregulated spectrum (at the time) and hence not reliable. I did not increase my $5K investment because of that.

Thank God, I held on to it, and sold last month at $10 each. It's a good technology but I think its gone too far (especially having purchased it at 1/7 of what it is today). I will buy into Wi-Lan again whenever it dips below $8.

Take a look at Wi-Lan's sister, its called Cell-Loc (both created by the same 2 Egyptian guys from Calgary University - Drs Fattouche & Zaghloul); its going to be bigger than Wi-Lan. They will announce a quarter of a billion-dollar agreement with the Brazilian government soon, they have completed trials with a major US telco to deploy cellular location technologies in the USA. Bought in at $3.15 in July 1999, its trading at $6 now, track it and buy it at a price you are comfortable with.

Question 3:- A lot of people continue to make loads of money through Initial Public Offerings (IPO's). What do you consider to be a good strategy to get into IPO's without losing your shirt? By Peter

Answer 3:-

If you must go the IPO route then you must follow the fundamental rules of

Buy IPOs near the end of their Quiet Periods.
Sell or short into their lock-up expirations

A Quiet Period (QP) is the first 25 calendar (NOT trading) days after a company's first day of trading as an initial public offering. During the Quiet period news and coverage from the IPO's underwriters is not permitted. Since stocks often dips after its first day, the end of the quiet period presents a potentially profitable buying opportunity. When the QP expires, there is normally a barrage of announcements of a strong buy with a lofty price target and News Releases and the stock price starts appreciating. See Juniper Networks QP ending on July 20 when the stock closed at $138.00 and rising to over $200 after a month. This rule doesn't always work, it depends largely on the quality of the underwriters. Test this theory with these IPO's that occurred on week ending Aug 20 1999, the 25 days expires on Monday, Sept 13, 1999.

The lock-up period (LUP) is the 180-day stretch after the IPO's debut. During the LUP, insiders are not permitted to sell shares. There is a school of thought, which believes that insiders will unleash a large volume of shares to cash-in to cause a noticeable sell-off. Hence, investors will, ceteris paribus, either want to be out of the stock before the lock-up, or sell the shares short.

You can test this theory with recent IPO's that will be 180 days old soon e.g. IVillage in the next 10 days or so.

StockPower and NetStock Direct allow investors to participate in direct stock-purchase plans (DSPPs), which we believe is a better way of participating in these stories instead of through IPO's. DSPPs allow an investor to buy stock directly from the companies e.g. Dell, Cisco etc.

The advantage of this approach is that the commissions are usually very small, if not zero, and they also allow an investor to reinvest dividends and set-up investment plans, whereby, an investor can invest up to a certain amount every month.

Most importantly there is no big rush for stocks as normally happens during IPOs and hence the serious investor obtains highest value for his/her investment dollar.

Question 4:- Why is it that any stock I purchase tend to go down in price, right after the investment? Am I doing something wrong, should I sell them at a loss and move to another stock? By JL

Answer 4 I have been in this game for 10+ years and I still follow the basic rules of

writing down the exact reasons for taking a position in a stock,
the target price to pay and
the exit price/condition

The reasons for the price dive after each purchase are infinite, I could only speculate, but for most instances, buying a stock after the release of a major news item is a recipe for disaster as many investors and speculators take such news as the signal to sell.

For example, on August 14 update of the Jan 1/99 portfolio, readers were reminded that Cryptologic (TSE:CRY) at $15 was very attractive but many investors did not make any move. We reminded readers again on Monday, Aug 30 that the stock had closed at $15.25 the previous Friday and was ripe for an upward move. Two days later we reported that Cryptologic had gone up by 37% in the past two days. It was at that point ($20.95) that some investors started taking positions. Luckily it rose up to $23.95 (providing 60% gain to those who had purchased on Aug 14) but many of us who had purchased under $15 started taking profits, and consequently the price started to fall.

Luckily, the good news for CryptoLogic does not really start until mid October when it starts trading on the NASDAQ National Market. We will continue to accumulate as many shares as possible, on price dips, and take profits when it hits Nasdaq.

By following the 3 rules above we have, to some extent, minimized impulsive buys and cut our losses.

In cases where stocks have gone down after purchase, for example, Ecompark Inc (EKP:ASE) , formerly SOJ, we have averaged down considerably so as to break even earlier when the stock starts to make its move. On the subject of EKP it is important to know that the recent price decline is due to the 45 cents warrants that expire on Sept 17.

We are glad that you see the purchase as an investment, hence believe in it and average down. Cut your losses and run only if the reasons that attracted you to the stock have dissipated. On the other hand, if the reasons are still intact, please continue to hold the stock, sooner or later, you will recoup more than your losses. We are glad you didn't say gambling, there is a big difference. If you pick the wrong horse at the race track and you see it starting to fall back-you cannot get some of your money back but with investing, you can get back 90% of your bet. .

Question 5:- Have you come across any investment gems lately that you will like to share with readers? Why are most of your picks internet related? Do you have any non internet picks? By JR

Answer 5:- Yes, I have come across a lot of investment gems. Follow this link to these toddlers and if you keep the faith, you will share in their joy someday. Put these two on your tracking worksheet Modern Records (MZR:VSE -$0.70) and Delsecur (DLSC:NASDAQ- $US3.12). Don't say, I never told you about these two.

To answer your question about most of my picks being internet related, I will refer you to a statement made by Mayoshi Sun, the President of Softbank in a recent issue of Forbes Magazine.

"Short term internet stocks will have ups and downs, but long term the Internet will expand its reach and stocks will go only one direction--up. Look at the math. Right now the Internet industry's market cap is only 10% of the PC industry's. But when I ask audiences whether they think there's a bubble in Internet stocks, 70% say yes. If I then ask whether the Internet or the PC industry will have a bigger market cap in ten years, almost everyone says the Internet will. Name one industry where you can close your eyes and be almost certain that in ten years it will be at least ten times larger. Autos ? Will people drink ten times as much Coca-Cola or watch ten times more Disney cartoons ? The Internet is the safest bet around."

Softbank holds 7-8% of the publicly listed value of all Internet properties (including 27% of E-Trade and 28% of Yahoo) and Mr Sun has a personal net worth of $6.4 billion.

If you had read our investment philosophy, you would have noted that our strategy is not solely internet-based but growth oriented leaders in mature and fledgling technologies, e.g. Forbes Medi-Tech (biotech), World Heart Corporation (medical device), Bionutrics (cancer research), IGT Pharma (biotech), Smed (furniture), Callnet (telephone).

For your purposes, let us start tracking a resource company called Tethy's (TET:TSE - $2.16 on Sep 10, 99) and let's assess this periodically. Please don't say I never told you. Good luck!!!!