Our Investment Process Stocks Matrix employs Benjamin Grahams value investment precepts as the predominant guide in our

r investment process. Our primary objective is to identify a diversified group of financially strong companies, each of whose stock we feel is traded at a substantial discount to its intrinsic value; i.e., the price an astute entrepreneur would pay to acquire a business outright. We call ourselves Opportunistic Value Investors because we are willing to scan the entire economic spectrum for potential investment candidates. Unlike some of our peers, we believe that value can be found in all sectors and industries. We therefore do not a priori rule out any sector; conversely we do not feel the need to have a presence in any particular sector. The core effort in our research process is to determine a realistic intrinsic value for a companys stock and then, if fundamentally attractive, to purchase the stock at a substantial discount to this intrinsic value. Our focus is on large capitalization stocks, and our expectation is that we will typically hold them for one to three years. Stage One: Qualification We begin with data from more than 1,500 large capitalization publicly traded companies. Our first task is to eliminate companies whose balance sheets are not strong and conservative. We do this because many of the companies in our portfolio are encountering near-term operating challenges. To compound these operating issues with fundamental financial uncertainty would create too much investment risk. We also generally avoid stocks that are new to the market, since it would be difficult to ascertain a realistic intrinsic value for them based on their short operating history. This qualification process typically eliminates almost one-half of the initial universe of companies. Stage Two: Quantitative Valuation The next step is to evaluate the remaining companies through our proprietary analytical models. These models identify an intrinsic value for a company that is then compared to its current stock price. This process, based on the classic value-oriented security analysis pioneered by Graham and Dodd, employs eight different criteria, both absolute and relative for determining intrinsic value.

On an absolute basis, we employ criteria such as the growth rates of earnings and dividends to ascertain an intrinsic value. On a relative basis, we examine how a particular company is currently priced according to such criteria as price to earnings*, price to book** and prices to sales***, all in comparison to its historic price levels. We require the market value of the stock to be at least 33% below the companys intrinsic value as determined by at least two of our analytical models. This process narrows the universe of prospective investments to only 75 to 100 statistically undervalued companies. This universe of undervalued securities is constantly changing, based on market dynamics. These companies are now subjected to further fundamental research. Stage Three: Fundamental Qualitative Research The purpose of fundamental research is to ascertain why we believe a company is statistically inexpensive, and whether and when it can return to its intrinsic value. We carefully differentiate between short-term operating issues and fundamental weaknesses. We review a companys financial statements and filings, and conduct discussions directly with its senior management. We also confer with industry competitors and professional securities analysts to ensure that we have a thorough understanding of the company. Additional factors reviewed in this qualitative analysis include quality of senior management, managements shareholder orientation, inside ownership of stock, recent insider transactions, and whether any near or mid-term catalysts exist that might have a significant positive impact on a companys stock price. The result of this extensive process is a final decision on the company under review. We decide at this point whether we have an interest in purchasing the companys stock. If so, we determine its preferred purchase price. Stage Four: Portfolio Construction Portfolios are then constructed from the 30 to 40 most attractive stocks spread across 2025 different industries. We employ a self-imposed restraint of investing no more than 4% at cost in any given company nor more 15% in any given industry. Since we are building our portfolio with our top choices of individual businesses we are willing to be overweighted or underweighted in particular economic sectors compared to broad market benchmarks. Stage Five: Determining When to Sell Central to our philosophy is the belief that an astute buyer should know when and why to become a seller. Our equity investment process determines a sell target at the time of purchase the intrinsic value of the stock.

Since our acquisition targets are selling at 33% or more below their intrinsic value, selling at fair value would produce a 50% or greater return on a particular investment. Of course, the concept of intrinsic value is dynamic. As a companys earnings power increases, so does its intrinsic value. Companies are also sold based on a significant change in their long-term fundamental prospects or if their balance sheet is no longer sufficiently conservative. Our investment discipline is systematic and rigorous. Once a stock reaches its intrinsic value, we realize gains and reinvest the proceeds in other undervalued stocks. Ultimately, the key to our long-term success is the repeatability and common sense wisdom of our discipline. *Price/Earnings (P/E) is calculated by dividing the current price by forward earnings. **Price/Book (P/B) is calculated by dividing the current price by current book value. ***Price/Sales (P/S) is calculated by dividing the current price by the current sales per share.