The "V" Risk Rating System

By Douglas C. McGill

This rating system is rough-n-ready. It reflects the biases inherent in my style of reporting and writing -- the gaps in which are plain for all to see -- rather than a systemtically objective, scientific, or quantitative system of measurement.

The trait shared by all of the Virtual China 30 stocks is high risk. The only question is, how high? Therefore the stocks get one of four ratings:

V-1 Very Risky
V-2 Very, Very Risky
V-3 Very, Very, Very Risky
NVMS No Visible Means of Support

This system is subjective, but I make a passing effort to apply my subjectivity equally across the board. When I rate a company, I ask seven questions of each company under consideration. The questions vary only slightly from case to case and they provide, roughly, a consistent frame of reference from one company to another.

The seven questions are:

1. Can you reach the company easily by phone?
   
2. How good are the company's main products?
   
3. Does the company talk big? Is the big talk in any way justified or nearly so?
   
4. Does the company claim to have "good guanxi" or "partners at high levels in the Chinese government?" Are the claims credible?
   
5. Does the company have good products in the pipeline?
   
6. Is the management team up to the task?
   
7. Does the company have a strong overseas operating presence that would give it either technological or financial expertise?

If a company is rated "NVMS" -- for No Visible Means of Support -- the rise in its share price is attributed solely to hype and the stock is removed from the Virtual China 30 list.

To see the Virtual China 30 Hot Internet Stocks click here.

To reach Douglas C. McGill: dmcgill@virtualchina.com