No. of Recommendations: 3
I think Tim, Nate and company have done an excellent job of giving us a variety of investment ideas and also good thoughts about how to handle our portfolios.

Recent (in my mind over-stated) concerns about AOB and CHBT, and Starrob's spirited defenses of Chinese stocks, have caused me to reflect on my investment philosophy concerning small cap Chinese stocks. Possibly these reflections will be useful to others; in any event, I would appreciate reactions and criticisms, so that I can improve my portfolio-building skills.

I currently have two categories of small-cap Chinese stocks: (i) "investments" and (ii) "basket cases." Here I feel free to make liberal and flexible use of the phrases "small cap" and "Chinese." (And I guess my use of "basket case" is a little different than the usual usage as well -- at least I hope so!)

I take a full position in the "investments," and also opportunistically take a trading position in "investments." My current small cap Chinese investments are: CGA; AOB; MPEL; and CMFO. I will happily increase my holdings of CGA and AOB at good opportunities; I am still waiting to get a better understanding of CMFO before increasing my stake; and I am treating MPEL as a "hold."

I buy smaller positions of my "basket-case" stocks and put them in baskets (well, figuratively, not literally). Here are my baskets in order of investment size per stock (small to smallest):


GSI was in the basket with YGYB, etc., but I sold it today after its recent run-up in price. I will buy it again if the price goes back down. I have been selling covered calls against FMCN, trying to get rid of it, for 6 months now. I think finally the calls will be assigned this weekend, so it will be gone from its basket (forever, probably).

People are currently nervous about CHBT, but I think it has a very respectable place in a basket. In fact, I recently sold it on a major spike, and re-bought it two days later at a much lower price. I suspect the price spike occurred because an institutional investor took a position, which may augur well for increased checks on any "Aubrey McClendon"-type management adventures.

I treat my "basket-case" positions like quasi-trading positions: if I see a sudden, sharp, illogical run-up in price, I will sell and hope to rebuy at a better price. CHBT and YGYB are on the verge of graduating to "investment" status, where I would always maintain a core position.

BITB is listed as a basket case because my daughters insisted I belong there.

Any thoughts?

who has a number of additional basket-case stocks on his watch list
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