FAQ
Q: Why do you claim that you are one of the best stock pickers and hedge
fund managers?
A: I run a diversified portfolio against other 66,000
portfolios in the world. As on March 12, 2004. I am the No. 1 in the 30 day ranking, and the No. 4 in the 90 day ranking. The 66,000
portfolios use an independent tracking program on Marketocracy.com.
The ranking for Q1 2004 is out on April 10th. Growingvalue was ranked #17.
Q: What are the characteristics of your picks and funds?
A: We
focus on stocks that are traded below intrinsic value and have a
profitable growing business or turnaround business. Based on relative P/E
and P/B and absolute ROI and Debt ratio, we use a proprietary formula to rank
all stocks, and we select stocks in the top 100 to long and the bottom 20 to
short. Within the long side stocks, we screen out those using cooked books,
facing legal troubles, or having management interested only in risk-free stock
options. We give priority to those with insider buying or institutional buying.
We closely follow news from beaten-up companies to look for signs of turnaround.
Our trading desk uses our proprietary software to select entry and exit points
based on technical indicators. We never limit our fund between value and growth
or between fundamental and technical. We allocate the most money in value plays.
Growth is always a factor when we calculate the value of a company. Without
growth, many are forgotten for long time. We only consider value generated by
growth in near term, so we never overvalue growth. We call our investing
strategy as searching the Growing Value. We never invest purely based on
technicals, however among similar Growing Value stocks, we select the ones with
better technical indicators. We consider technical indicators as a reflection of
supply and demand imbalance.
Q: What is your style of trading?
We use fundamentals to pick LONG
and SHORT candidates and use technicals to find entry and exit points. We place
most limit orders between 10pm to 9am to allow a final 30 minute DD before
confirming any trade. There are also automatic trades during the day triggered
by pre set alerts. We trade long scalps on long stocks and short scalps on short
stocks so our individual stock performance constantly beats its underlying
stock. We also act as an unofficial market maker on certain types of stocks with
large spread between bid and ask and with healthy volume to take those profits.
Q: Does your computer science background help you in your
investing?
A: Yes. I heavily use data mining. We have an in-house program
to screen stocks based on its liquidation value. My artificial intelligent
program scans news, events and 10Qs to search keywords and phrases to pre screen
trend changes in stocks we don't cover. We have a database linking companies to
favorable events. For example, we group the companies which will benefit from
flu outbreaks. Once our program found key words "flu outbreaks" in news, those
companies will be popped up to screens along with this news for event analysis.
Our key success is that we program the best researcher/trader's thinking process
and actions. Our programs can never replace people, but they help us use the
least time and energy to cover many stocks with a fractional cost of a large
fund.
Q: I heard that you have a special way to track supply and demand
imbalance in stocks.
We use unique data which is not available to most
investors and fund managers. For example, we have access to web logs on a very
popular stock quoting/charting website. Using the web logs we can find which
stocks are suddenly being visited from new IPs. With the assumption that only a
small percentage of investors short stocks and even fewer trade options, we can
conclude stocks with a huge traffic increase from new IPs are in buying
interests from retail investors. Similarly, if we find stocks with huge traffic
increase from old IPs are in selling interests. If we find falling stocks with
huge traffic drop, then we can conclude the selling is most likely completed. We
also track message board posts to search for the price/volume patterns vs the
number of messages posted and who posted them. This way can help us screen
professional pumpers and bashers and their habits.
Q: You talked about getting data from retail investors. How about those
institutional investors?
A: Most investors find institutional interests
from Nasdaq.com. We use it too. Other than that, we have access to a large group
of small ($1M-$10M) LONG-ONLY hedge funds' daily trading data and trading
performance. Using this real-time data, we can find what the best performing
funds are buying or selling recently. The data is definitely giving us an edge
over others.
Q: What technical indicators do you use?
A: We build our own
technical indicators from raw trading data. We mainly use daily data (open,
high, low, close, volume) over 6 months and 5 minute data over 20 trading
days. We look for trend, boundary, increased volume and institutional holding
changes. I have a special method to track large interest in stocks from intraday
trading data (ask sequence, bid sequence, trade price, trade size, time between
trades, limit order change etc). You can read more of it from the paragraph of
my research project for Goldman Sachs about Intraday Datamining
Q: When do you decide to sell?
A: Reason one for us to sell a stock
is that we find a better investment. When we buy stocks, we weigh Growing Value
more and technicals less. We then recalculate its intrinsic value after each
10Q, with the consideration if their revenue is on track and cost is not out
control. After a stock's price goes above its intrinsic value, we will only sell
it when its technical indicators turns bad. Many value plays become momentum
plays. We let profit run. We always ask ourselves two questions before we decide
to sell a stock.
1 Do we have a clearly better stock to buy using the money
we get from selling our current holding? If the answer is YES, we will sell it.
If the answer is NO, then we ask the second question.
2 Do we think we can
make money by shorting this stock now? If the answer is YES, we will sell the
stock. If the answer is NO, we keep holding it.
Q: Is your fund diversified or concentrated?
A: People love to talk
about diversification, because many believe diversification can reduce risks.
However, a forced diversification does not reduce risk but only reduce
performance. If a fund is forced to invest in more than 50 stocks, because of
rules, and there are only 10 stocks worth investing, what can the manager do? A
forced diversification can force managers to invest in second tier investment
opportunities. We reduce our risks by diversifying our investments in different
investing styles, frequent scalp trading and holding cash. We will diversify as
much as possible within first tier investments. If we can not find enough great
opportunities, we stay sidelined. Missed money is better than lost money. Our
main goal for investing is Not To Lose Money. Patience is one of the most
important skills an investor must have. We will never increase a position if it
is already more than 25% of the portfolio. We only force to reduce a position if
it grows more than 50% of the portfolio. Statistics of all mutual funds show
that less than 10% of the portfolios are accounted for more than 80% of the
gains. Our turn over rate seems high. However, since the turnover mainly comes
from scalp trades, and our core holding has low turnover rate.
Q: How is your hedge fund set up?
A: Most hedge funds are set up as
a partnership. The fund manager and clients provide money to a joint account. We
use a different method. InteractiveBrokers.com offers a service that allows us
to trade in our client accounts without capability of withdrawing money. The
advantage is that our clients can check the performance of their money in real
time without worrying it in the wrong hand. Also, the tax reporting and legal
formation are much simpler. All income is reported under clients. Most
importantly, our clients do not need to be accredited investor. The disadvantage
of this setup is that diversification will be suffered in each individual
account, comparing to running a more diversified joint account. Another
limitation is that we can only trade in up to 15 accounts.
Q: What are the fees and commissions?
A: We charge no fees and we
only charge commissions based on performance. We will not charge any commission
if your portfolio is making less than prime rate (currently 4% per year). We
charge 19% (hedge fund industry standard is 20%) of the portion which is greater
than prime rate. Our commission is one of the lowest. Our projected return in
for 6 months is 30%, and 80% over 12 months.
Examples for fees for 12 months
if we make 4% gain for you, we charge (4%-4%)*19%=0%, you take home 4% gain.
if we make 20% gain for you, we charge (20%-4%)*19%=3.04%, you take home
16.96% gain.
if we make 50% gain for you, we charge (50%-4%)*19%=8.74%, you
take home 41.26% gain.
if we make 80% gain for you, we charge
(80%-4%)*19%=14.44%, you take home 65.56% gain.
if we make 100% gain for you,
we charge (100%-4%)*19%=18.24%, you take home 81.76% gain.
Q: What if I just want to have access to your picks, and trade myself?
A: Tier II picks are free and released to several stock message boards. Tier
I picks are available to members only. As a paying member, you will receive all
Tier I and II picks, 1-10 days earlier than the public viewers. Our Tier II
picks have average 8% gain within 5 trading days once they are released to
public. You know ahead of the public. Your membership fee can be well paid back
within 1 week. You will receive 2-10 picks per month by email and receive
answers of your questions on those stocks. Please make payment of $100
for 6 month stock picks. If you want a complete realtime trade book of the World No.1 Ranked Hedge Fund, the fee is $100
for 3 month trade book. You will be able to check daily updated trade book
in a member only area, however you will not receive stock picks. To receive both
realtime trade books and stock picks, the fee is $200
for 6 month trade book + 6 month stock picks -- we give you another 3 month
realtime trade book free if you order them together.
Q: Could you tell me something about your background.
A: I did my
master's degree in computational finance, specialized in pattern finding, data
mining and fuzzy logic. I wrote programming codes to use the web logs and hedge
fund trading data to pick stocks. Prior to my graduate school, I worked in a
hedge fund in China as a trader and buy side researcher. Based on my trading
experience and programming skills, I designed a program to profile stocks and
traders. My program can pinpoint intra-day lows and highs with an accuracy of
85% and lows and highs in 3 day period with an accuracy of 75%. That gives me a
great advantage in market timing and scalp trading over other traders. You can
read the paragraph of my research project for Goldman Sachs about Intraday Datamining
Q: How Do I contact you for membership or trading service.
A: My
voicemail is 603-316-2556. If you have ordered my service, you will receive my
other contact info.