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Our Investment Ideology

Abandon Pure Technical Analyses and Adhere to Company Fundamentals
As the Pareto Principle, the 80-20 rule states that 80% of a task only yields 20% of the value of that task. This is partly true for investing. Eighty percent of investors are losers in the market. The successful investors are few and far between. Our goal is to be neither oracles nor predictors of the precise movement of stock indices. We do not follow stock index and price-volume analysis. We rarely use individual stock charts as the basis for investment decisions. We only partly agree to fundamental analysis. By taking a longterm view, we believe that the share price of a well-managed enterprise will undoubtedly reflect its intrinsic value over time. Our selection criteria are quite simple. We seek enterprises that can survive. These enterprises have been established usually for a decade or more and have relatively high success track records. We strongly believe that, if we own part or most shares of these enterprises, our investment will grow and breed success together with the companies. We see ourselves as private enterprise investors rather than security analysts. We dedicate ourselves from the onset to the fundamental investment. Our first step is to screen for enterprises with long-term competitive advantages and a high probability of becoming industry leaders within 20 years. We then conduct due diligence on a company’s financial reports and announcements in a critical manner. Our analyst team conducts ground research by visiting their clients, raw material suppliers, electrical power suppliers and so on. We also investigate the actual sales statuses of these enterprises. We spend a lot of time listening to evaluations from competitors, and at the same time we process the data of these enterprises from different sources. Only after confirming the story and earning drivers do we begin communication with management in order to further understand its strategy. The goal of such screening is to elucidate questionable dark areas. We need to know whether management is achieving its objectives and if management has the integrity reliability we require in becoming a long-term trusted partner. Based on quantitative benchmarks, we input data into our evaluation model to calculate its intrinsic value. The market price is then compared with the intrinsic value of the companies. Only with sufficient safety margins, in other words only if the market price is traded below the fair intrinsic values, i.e., half of the value or lower, would we consider taking a position. We continue to monitor all business conditions faced by the business and adjust the parameters every quarter according to the real market environment.

We do not invest rashly. We value patience and aim for an ideal price. We would lose the opportunity rather than take on unnecessary risks. In the capital market, we believe that survival should always be the first consideration. Controlling risk is the key to smart investing. Once ready to invest, our strategy is based on concentrated investment and long-term holding. Instead of diversifying investments, we channel investment into the best enterprises. We believe that this strategy is not only a form of risk control, but a way to harness and release their actual inner value. Our strategy is not to follow blindly a diversified portfolio management. Investors with an unclear strategy need the broad and diversified investment strategy. Good enterprises are rare. Once discovered, we would invest heavily in them and hold for the long-term until the rise in share price outgrows its future earning growth. Therefore, we would not trade as frequently as others. We may find ourselves standing at the starting point of a new era in the global capital markets when looking forward 30 years from now on this historical chapter. Investment Brokerage Capital Investment Fund (IBCIF) will accompany you to reap the rewards from these changes.

Philosophy of Investment — Art of Subsistence
The advantage of a fund is not reflected primarily on the selection of certain stock or get into the market at certain period of time, but the ability to consistently control the risk. Quantifying the degree of risk is the criteria to measure the professionalism of a fund manager. In investment circles, “to survive” is always the first. But for the professional investor, discussing the risk estimate by itself is usually meaningless. The core of investment is to confirm the symmetry of risk and return. Any kind of risky assets can be invested and compensated with enough yield return. The core goal of investing research is to look for the symmetry between risk and yields around which it can be extended to all assets, class stock and security pricing, pricing of insurance products, pricing of mortgage bond and pricing of derivatives such as futures and options, etc. The main aims of professional investment is to look for divergence between the level of risk and return. When the asymmetric pricing relations between risks and return reach our investment target range, opportunities do exist for us to gain the profit far exceeding the average return of the market. The simplest application of this theory can be illustrated with selecting growth stocks that are traded at lower than the average P/E multiple — thus minimizing the risk of a trading position. Of course, as a fund or a professional investor, we need to consider from a broader picture: 1. Is the current level of market P/E ratio rational? 2. Is the P/E ratio level of the stocks compared to the overall sector rational? 3. Is the P/E ratio enough to compensate for the inner risks of the company? 4. Is there a better method for risk-yield measurement?

Investment Process
1. Communicate with the company’s management and professionals to get first-hand information and form investment ideas. 2. Collect public information such as financial reports and operation data of the company and industry. Make comprehensive analyses on the industrial overall prospects, management efficiency and risk factors to form an initial investment decision. 3. Investigate the enterprise thoroughly, inspect the competitors, clients and suppliers, visit its management, liaise with industrial research institutions and conduct in-depth research through its sales channels to form a final investment decision. 4. Carefully and strictly select some of the best enterprises to construct a core investment portfolio.

Stringent Risk Management
Risk control target: While maintaining an appropriate level of diversification, be dedicated to fundamental research of each enterprise to enhance the risk control over every investment — and hence achieve the monitoring of risk for the whole portfolio. 1. Only invest in enterprises which have been researched deeply, and maintain consistent follow-up with management and its stock. 2. Employ quantitative risk-prevention approaches such as liquidity/volatility analysis, risk/return analysis, quantifying risk control, etc. to manage investment risks.

Rut Abera Gezachew
Rut Abera Gezachew Vice President of Operations & CFO INVESTMENT BROKERAGE