1. Stock Analysis with the NAIC INVESTOR’S TOOLKIT Stock Analysis with the NAIC INVESTOR’S TOOLKIT

2. NAIC INVESTOR’S TOOLKIT Automating Your InvestmentTasks

3. The Six Investment Tasks 1) Prospect for good quality companies 2) Obtain the necessary data 3) Analyze/Evaluate the data 4) Buy (Sell) stocks 5) Manage your portfolio to weed out the “losers” 6) Monitor your portfolio’s performance

4. Tools to Accomplish the Tasks Prospecting Stock Checklist Computer Screening Obtaining Data Printed Material NAIC/S&P Datafiles Analysis/Evaluation Stock Selection Guide Computerized SSG Stock Comparison Guide Compterized SCG Buy/Sell Stocks Telephone On-line Portfolio Management Portfolio Mgt.Guide Computerized PMG PERT Computerized PERT Performance Monitoring Club/Individual Acctg. Computerized Programs

5. Benefits of NAIC Investing 80% Successful Stock Selection Record* 15% Total Return on Portfolio (doubles every five years)* Simple procedures Carefree Portfolio Maintenance * Performance typically achieved by NAIC investors following the rules diligently and conservatively

6. Some Basic Terms: Sales/Revenue Less Cost of Goods Sold: Gross Profit Less Expenses: Pre-Tax Profit Less Taxes: Net Profit Less Preferred Dividends: Net Earnings Divided by Common Shares Outstanding: Earnings per Share Price ÷ E/S = Price:Earnings Ratio (“P/E”, ”Multiple”) Sales/Revenue Less Cost of Goods Sold: Gross Profit Less Expenses: Pre-Tax Profit Less Taxes: Net Profit Less Preferred Dividends: Net Earnings Divided by Common Shares Outstanding: Earnings per Share Price ÷ E/S = Price:Earnings Ratio (“P/E”, ”Multiple”)

9. What is the purpose of the NAIC Stock Selection Guide? Is the company a good company to invest in? Is the stock a good value at the current price?

10. The company is a good company if: Sales and earnings growth is strong, and stable. (SSG - Section 1) Management is capable of sustaining that growth. (SSG - Section 2)

11. Management is capable of sustaining that growth if: Profit margins are strong, stable, and steady or rising. (SSG - Section 2(a)) Return on Equity is strong, stable and steady or rising. (SSG - Section 2(b))

12. Is the stock a good value? What’s the highest price it might sell for in 5 years? What’s the lowest price it might sell for in 5 years? How does the current price fit in that range? How does the potential risk compare with the reward? How does the current P/E compare with the average P/E? What return can you expect on your investment?

13. Seven Simple Steps to Successful Stock Selection

14. Step 1: Acquire the Data Manually input data from source such as Value Line Open and update an existing file Import NAIC/S&P Compustat Datafile

15. Step 2: Visual Analysis Check data to determine how relevant it is Eliminate “outliers” (non-relevant data)

16. Step 3: Estimate Future Sales & Earnings Determine historical growth rates of Sales and Earnings Estimate future growth rates of Sales and Earnings Examine “Preferred Procedure” and select future Earnings

17. Step 4: Evaluate Management

18. Check % Pre-Tax Profit on Sales (Profit Margin) Consistency Comparison to industry average Trend steady or up Step 4: Evaluate Management Compare and Note Current and Average Profit Margin (for Step 6)

19. Check % Return on Equity Consistency Comparison to industry average Trend steady or up Step 4: Evaluate Management

20. Step 5: Accept or Amend Average High & Low P/E Eliminate “outliers” to provide conservative estimate Always make conscious decision about values

21. Step 6: Re-estimate Future High Earnings Evaluate “Preferred Procedure” in view of Profit Margin Trend

22. Step 7: Select Low Price Use “Projected Low Price” for Growth Stocks Use “5-yr. Average” or “Severe Market Low” for Turnarounds or Cyclicals Use “Price the Dividend Will Support” for large companies whose total return includes a large dividend component.

23. Review Result and Decide üPrice should be in the “Buy” range üUpside/Downside Ratio should be at least 3:1 üRelative Value should be below 110% üTotal Return good at 15% or more.

25. Comparing Companies

26. Step 1: Select Stocks to Compare Best if in same industry May import selections from SSG

27. Add Insider Ownership Information

28. Confirm/Select/Modify Custom Criteria Combined Estimated Yield vs. Total Return Lines 27 & 28: Any two of six selections

29. Eliminate Criteria

30. Questions ? ? ? ? ? ? ? ? ?

32. Managing Your Portfolio with the NAIC INVESTOR’S TOOLKIT Managing Your Portfolio with the NAIC INVESTOR’S TOOLKIT

33. The PortfolioManagement Guide

34. When (Why) Should You Sell? 1)adverse management change 1)adverse management change 2)declining profit margins 2)declining profit margins 3)deteriorating corporate financial condition 3)deteriorating corporate financial condition 4)competition is affecting profits 4)competition is affecting profits 5)dependence on a single product 5)dependence on a single product 6)economic conditions that affect the company 6)economic conditions that affect the company 7)company proves to be cyclical 7)company proves to be cyclical 8)to correct major diversification imbalance 8)to correct major diversification imbalance 9)the stock is grossly overvalued 9)the stock is grossly overvalued

35. Consider buying if: Price is in the “buy” range P/E is at or below the Average P/E

36. Consider selling if: Price is in the “sell” range P/E is more than 150% of Average P/E Company (E/S) is growing at less than 10%

37. Portfolio Evaluation and Review Technique

38. The Rule of Five One will exceed your expectations; Three will perform about as you had expected; and, One will probably sink out of sight No matter how diligent and conservative you may be in using the NAIC principles to evaluate your stocks:

39. The PERT Form Analyzes company performance rather than price and P/E performance Provides ongoing measurement of investment potential

40. The Trend Report Adds previous quarter’s performance to provide “trend of the trends” Provides diversification analysis by size Consolidates Portfolio Management Guide recommendations

41. Questions ? ? ? ? ? ? ? ? ?

42. The End

44. Silicon Valley Investors’ Fair