For no good reason our stocks are getting hammered…I can’t take this anymore, I’m starting to panic…

Ok, sorry about that, just wanted to get your attention.

There’s been no panic on my side of the coin with the PeakStocks.com recommendations, but I can see from the comments and hesitation that I am reading out there, that some of you may be.

So to allay any fears, concerns or questions, I decided to post a quick update on not only the philosophy of PeakStocks.com, but some direct commentary on the stocks in the portfolio.

Give It To Me One More Time

One thing I can say, is that no one can accuse me of being dishonest!

A quick look at my Investing Style page reveals what kinds of investments I look for, and the potential pitfalls with them, not the least of which is high levels of volatility.

Below is a quick rundown of what I look for in the stocks that I invest in:

• Companies in a niche field, emerging market, or that have some other significant advantage going forward
• Companies that are out-of-favor or have been beaten down, but that still show promise going forward
• Growth potential that exceeds the market, or sector
• Solid management that owns a large percentage of the company
• Solid margins, cash-flow, and use of capital
• Compelling value (risk/reward) at present price

As you’ll notice, all the companies in the current portfolio, all remain true to this investing philosophy.

More to the point, I wanted to reiterate the inherent risks both emotional and psychological, associated with investing in these types of companies:

• They are usually small companies with small floats, large bid/ask spreads and large volatilities. The prices can swing by a wide margin not only from day-to-day and month-to-month, but also within that same trading day.

• They are usually largely under-followed companies that can take years to get noticed by Wall Street. My picks are designed to be held for YEARS. If that’s not your time-frame, this is probably not the right service for you.

• Volatility is the name of the game in any market, especially with the types of stocks I will be picking, so if your regular emotional outlook is closely tied to your investment’s gains, again, this is probably not the right service for you.

• If you can’t stomach a short-term loss of up to 50% in any one stock for the chance of beating the market over the long term, then you probably shouldn’t own any of my recommendations.

Help Me Control Myself

Calm yourself my dear investor, it’s not all doom and gloom. I just wanted to get that out of the way quickly, so that there were no misunderstandings.

Now we can move on to the fun part. How do we fight against the tide of the risks associated with these types of stocks?

Simple, we make sure we:

• Keep Emotions in Check: Aside from all the obvious “technical” stuff, like cost-averaging, doing research, etc., this is probably the #1 problem most investors have, and it is more than likely the most important one to have under control.

Emotions can cause us to make irrational decisions. This is one of the most important aspects of your life where emotion should have NO role in your decision-making.

That being said, part of my investing philosophy is never allowing emotions to influence my investing decisions, whether I am right or wrong.

That’s exactly what you’ll get from my recommendations on PeakStocks.com.

Not only is this important in picking stocks for the right reasons, but it is also equally important when one or many of our stocks are declining and I decide to purchase MORE of them.

The best time to buy great companies is when they are declining for no reason. The best time to sell stocks is when they are rising for no reason.

Throughout the process, staying calm, collected and in control of our emotions will be another factor for lessening our risk.

• Diversify: One of the best ways to lessen your exposure to losses is to diversify your holdings with a broad mix of stocks. When some are down, others are up, and thus you smooth out your gains and losses over time.

• Cost-Average: Because of the uncertainty of the market, and specific stocks in general, it’s always a good idea to “cost-average” your purchase of shares in a particular company.

By having you buy in 3rds and 4ths (basically not putting all your money into any stock all at once that you had allocated for it), you can protect yourself from a stock that is in decline, but that is also a good candidate for a turn-around, or has been needlessly punished by the market. Learn more here.

• Buy and Hold: When I recommend a stock on this site I want you to buy and hold it for long periods of time. You must remain patient, and never try and time the market.

Market timing is a fool’s game and no one can know what’s going to happen tomorrow, next week or next month in the market.

• Research: The biggest reason that I started this website was because I LOVE researching stocks. I know, it sounds pretty boring to most people, but this love of research is what gives us as “average” investors, another edge over Wall Street.

You see, while most people buy stocks that they know: Proctor and Gamble, Coke, Apple, Nokia, Ebay, etc., we will be buying mostly stocks that NO ONE has ever heard of!

Believe me, this is a huge advantage for us. This is also where research is our friend.

All the companies that I recommend on PeakStocks.com have been HEAVILY researched by me. Every aspect of the company has been broken down, as well as their future prospects.

With smaller companies you have to dig a little deeper than other stocks that are more widely known because larger stocks that everyone knows about are usually priced and trade in narrow ranges because most people “know” what they are worth.

So, by doing our homework and always watching for warning signs within the companies that I follow, we have a big edge over others that don’t even follow these companies, and over time, that research plays out into large gains.

This research also allows us to pull out of positions that are looking shaky, or for which the original reason for purchasing them has deteriorated (See my recent Loopnet Sell recommendation). So, by doing intensive research and follow-up on all the companies that I follow, I add another layer of protection for our portfolio.

• Risk Ratings: The final piece of the puzzle for lessening your overall risk for the investments recommended on PeakStocks.com will be the risk ratings that I provide for each stock that I recommend.The rating system is simple:

1 - Little or no risk

10 - The highest possible risk

On every pick, I’ll try and assess that particular stock’s potential to decline significantly.

While never guaranteed, this rating should help you gauge whether this particular investment is suitable for your portfolio, while also taking into consideration my investment thesis behind that stock.

The Final Piece of the Puzzle

If you are looking for safe stocks and low-risk investments, then you are better served investing in mutual funds, Bonds, CD’s or Large-Cap stocks. But on the flip side, your returns probably won’t ever be higher than the overall market, and certainly never higher than investing in solid small and micro-cap companies.

If however, you have a long term outlook, say 3-5 years or more, and want the best possible returns, research has shown that investing in small, high quality companies before they grow big, will yield you the highest returns on your money of any investment class, and that’s what I will aim for here on PeakStocks.com.

Onward and Upward

Now that that’s out of the way, let’s talk specifically about the stocks in the PeakStocks.com portfolio.

AuthenTec (Nasdaq: AUTH)

Read my full research report on AuthenTec.

I recently commented on AuthenTec’s quarter, and how good it was.

Promptly after that quarterly announcement, the stock has sold off by about 10% or so for absolutely no good reason.

Now don’t get me wrong, there are reasons, just not good ones, and some that we might not even know about.

For instance, the overall market was down about 4-5% last week, and when things like that happen, smaller stocks like AuthenTec get taken down much harder. They also tend to rise much faster in better markets.

On top of that, the overall semiconductor industry has been getting pounded on fears of a US and Global recession in the PC and chip business. AuthenTec operates in this sector, so fair or not, their shares can get taken down with everyone else.

Finally, there could be some institutional or other large sellers that are dumping their shares. To be sure, AuthenTec’s daily volume the last week or so has been way higher than normal, implying higher levels of volatility, and some large players buying and selling the stock.

When these things happen, we have no control over them, but it does sometimes make us feel helpless, even in spite of a great quarter and forward guidance by AuthenTec.

So what are we going to do? Nothing.

We’re going to be patient, and in fact, if shares dip too much lower here, I’m going to be recommending another purchase. I never thought we’d ever get AUTH shares for anything under $13 ever again, let alone possibly near $11 which was the IPO price!

I’ll also be issuing a full report on the AUTH conference call, and their 10-k when they file it.

Stay Tuned.

AAR Corp. (NYSE: AIR)

Read my full research report on AAR Corp.

The same problems that have plagued AuthenTec’s shares have also befallen AAR Corp.

After AAR released earnings about a month or so ago, their shares rose in price to about $38 per share, or about 30% higher than my recommendations.

They have since given all of that up, and then some, trading around $27 today.

What changed? Well, with AAR there were a few things that changed:

- Their 10-Q was filed, and with it their cash flow statement, which showed them losing more money on capital expenditures and inventory, which investors didn’t like.

- They called in some of their secured debt and took it off the market.

- They issued MORE debt and diluted shares.

As for the first point, no biggie there, as I detailed that fully in my AAR follow-up report that management already stated that they increased their inventory to service more customers which would lead to double digit growth next quarter, and we all knew that they were still burning through cash from their acquisitions and expansion.

That doesn’t concern me at all. Neither does the issuance of further shares for more cash for the company to continue this investment and expansion strategy.

I detailed that fully in my research report and follow-up. They were going to need to pay for these acquisitions somehow, and tapping the equity markets was a way of doing that.

So, bottom line, nothing unexpected happened with AAR, and to be honest, their latest moves don’t change the initial investment thesis at all, but coupled with the market turmoil, and a revaluation of the entire sector in which they compete, has led to a rapid and steep decline in their share price.

I’ll be breaking down this recent activity in a later post.

Again, not something I am too worried about, and if I were you, I would seriously be filling out my full position of AAR right now.

uWink, Inc. (Nasdaq: UWKI.OB)

Read my full research report on uWink

It’s been eerily quite over at uWink lately.

That’s neither good nor bad.

uWink shares are trading around $1.25 right now, and my last recommended buy was right at those levels.

Remember that uWink has about $.70 in cash per share on the books, so they are well capitalized and poised for further growth and expansion.

I have a sneaky feeling we’ll be hearing from uWink in the not-to-distant future with some great new announcements concerning current expansion plans.

Remember, uWink has only 1 location right now. For them opening a new location is a bigger deal than say McDonalds or Starbucks that open new locations every day.

But that’s precisely why I invested in uWink in the first place.

Everything here looks fine, and I am seriously considering rounding out our full position of uWink soon.

SoundBite Communications (Nasdaq: SDBT)

SoundBite is right around where I initiated a buy recommendation on it.

Look for a full company report soon, but suffice it to say, my prognosis for SoundBite is extremely good, and I’ll be recommending further purchase of more shares in the company.

That’s It?

Yep, that’s it. Nothing Earth-shattering or revelatory.

That’s just the way the markets work, and in particular, small and micro-cap stocks.

Quite simply, if you can’t stand the heat, get out of the kitchen.