Process

The investment selection process begins with a universe of approximately 5000 publicly traded companies with market capitalizations between $50 and $750 million. Possible investment ideas come from a mixture of sources, including in-house fundamental research and established relationships with boutique research firms and regional brokers. Top ideas are subjected to a nine-step assessment based on investment fundamentals, with top performers demonstrating strong balance sheets, positive cash flows, and expanding profitability.

After a company passes these screens, further analysis includes discussions with operating management and additional in-house research. The focus is on finding companies with a niche business, competitive edge, strong market share, and proven management with a record of success.

Final selections are based on a set of valuation metrics targeting upward trends in revenue and cash flow, positive earnings, and long term growth prospects. Sell decisions are based upon valuations, weakened fundamentals, or a market cap approaching $2 billion.

Perritt Capital Management, Inc. maintains a diversified portfolio of long term holdings as part of the strategy's risk control. The portfolio invests in stocks of 100 or more companies across all industries and sectors. Positions generally start between 0.5% and 1.5% of the portfolio's assets and may be reduced if they exceed 3% to minimize stock specific risk. Perritt seeks minimize portfolio turnover and trading cost. Investment time horizons are 3-5 years and the portfolio aims to keep turnover low, averaging 20% to 30% annually.