"We try to identify a company that's undergoing a change of some kind that creates a special opportunity. Usually, it's a new product, new management, a reorganization - some catalyst. I believe that change is key in everyone's life, certainly mine. I think the same thing is true of corporate life."

                               Richard W. Perkins


Equity Investment Philosophy

Fixed Income Investment Philosophy

Equity Investment Philosophy

In general terms, the equity investment philosophy of Perkins Capital Management, Inc., is to preserve the purchasing power of capital. Specifically, we strive to achieve a consistent total return which exceeds the rate of inflation plus the "real" cost of money. While we do compare our investment performance with the popular market indices, we believe the achievement of superior investment results over an extended period of time to be more important than outperforming "the market" over the short run.

Our approach to equity investing may be characterized as a search for opportunity. We concentrate our efforts on finding stocks that we think will appreciate in value. Our primary focus is on companies which we perceive to be undergoing change which may not have been recognized in the market place but which may result in higher earnings, and when recognized by others, a higher price earnings ratio. This combination offers what is referred to as a "double play", a situation which often results in excellent price appreciation.

There is more to successful investing than "picking stocks". They must be purchased in suitable amounts and sold at the right time. In practice, selling at the right time is often more difficult than buying, particularly because it is easy to "fall in love" with a stock when, in fact, a more objective attitude is required. A stock should be sold, of course, if something fundamental changes to negate the original reasons for the choice. Sometimes, however, a stock may go up so quickly that it becomes clearly overpriced; selling is then prudent. Occasionally, it is also necessary to "prune the tree" by selling the least attractive holdings in portfolios to make room for new and more promising ideas. We tend to keep the number of issues in a portfolio at between twenty and thirty, depending upon the size of the account. Over-diversification can result in poor performance because the holdings of the winners are too small to have a significant impact. Excessive concentration, however, can reduce performance because so few issues are held that inevitably some winners are missed.

We do not believe in trading--in fact, we tend to under-trade. We believe patience is an important ingredient in successful investing. Once purchased, situations must be given time to develop. Although we wish it were so, stocks don't start to go up just because we have purchased them. Other investors must recognize the change which we have identified and must make purchases at higher prices. All of this takes time. The elements of change may result in expansion phases that last for years. We try to stay with a winner as long as necessary to fully capitalize on it. Sometimes strong nerves are required; sticking with a stock through a reaction may be necessary if full and complete benefit of a successful investment idea is to be obtained. If we err, we prefer to hold too long rather than sell too soon. For individuals, in particular, our objective is to concentrate on increasing the after-tax value of a portfolio. While obviously not as important for tax-free portfolios, we nevertheless adhere to many of the same tenets--finding winners and holding them to fruition. Even in a tax-free account, we would rather stay with a winner than sell it and risk losing the position in something we like and then have to reinstate it at a higher price. In our investment selection process, we utilize various computer programs to derive the necessary fundamental information about an industry or a company.

Technical analysis is used as an aid in identifying those industries which appear to offer the best investment opportunities at a particular time. Stock price charts are used as an aid in determining the best entry point for a stock which we have selected through fundamental research techniques, or to help determine the best exit point for a stock we have decided to sell. Review of price charts may also point us to a stock which deserves to be analyzed because of its market action; often this results in a new investment idea.

Success in something as difficult as the stock market rarely comes by chance. It is almost always the result of hard work combined with experience and adherence to a sound investment strategy. It is our job to digest a multitude of facts and opinions and to take action based on the judgments we make. Markets fluctuate to greater extremes than one imagines and often a successful investment goes through at least one severe reaction before coming to fruition. Therefore, we require that clients have a strong financial base and the ability to withstand market reactions. In order for a client relationship to be successful, our client must have the ability and willingness to grant investment authority to us so that we have the discretion to act at the proper time.

Fixed Income Investment Philosophy

In general terms, the fixed income philosophy of Perkins Capital Management, Inc., is to seek maximum income consistent with high quality. Specifically, we believe that safety of principal is most important in fixed income portfolios and we strive to secure the highest income possible commensurate with the least amount of risk.

We analyze the outlook for both short-term and long-term interest rates within the context of our assessment of both the domestic and international economic scene. We emphasize the following factors in our fixed income selection process:

Credit Rating: a rating of A or better by Moody's or Standard & Poor's rating services is required except in unusual circumstances.
Yield Curve Analysis: the yield curves of governments, corporates, and municipals are analyzed to find possible inequities in yields which, therefore, may offer opportunity.
Liquidity: only those issues which have excellent marketability are utilized.

We also search for fixed income issues which are selling below estimated worth because institutional acceptance has not been attained, issues with special indenture features whose value is not fully recognized in the market place, and issues which may achieve rating upgrades because of improving fundamentals.