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tant criteria for selection of stocks. Management quality, balance sheet strength, and market liquidity are also important. Stocks are sold if they reach targeted prices or there is a significant deterioration in the selection criteria. Kingdon recognizes that some of the best opportunities are in underfollowed securities. When buying a stock, generally his goal is to look for at least a 30 percent gross return. There are about 200 positions in the portfolio.

Kingdon says they do not attempt to optimize the portfolio in any formal sense. "While we agree with the merits of portfolio diversification, our goal is to find stocks and industries with the best risk/reward ratio around the world, not mimic the S&P 500 or some other index."

Liquidity is also quite important. The majority of the firm's holdings represent less than one day's trading volume.

Kingdon observes that charts are often misleading. They are used to time positions. "Charts are used differently today. Today we use them more to determine support and resistance rather than as a reliable reflection of strength and weakness of the companies themselves. They are just another tool. We view them more skeptically today because of the noise in the market."

The high-growth sector, which includes technology, telecommunications, Internet companies, and health care, has ranged from 10 percent to 45 percent of the net assets over the past year.

Kingdon has invested in private equity for more than six years. "Although the category represents under 5 percent of assets, it provides an early window on developing technologies and sometimes offers outstanding returns."

Does Kingdon allocate to other managers? He says under 3 percent of the assets are allocated to a dozen other hedge fund managers. "We do not charge our clients a fee on top of those managers who charge us 20 percent, so the investments are primarily for relationship purposes. We have identified a number of specialty fund managers whose ideas and information we find helpful in our own stock selection process."

For Kingdon, his edge is doing solid fundamental research and having a strong trading discipline. The keys are a strong global research–driven organization (22 portfolio managers and analysts plus five traders), extensive contacts on the Street, and a strong trading discipline.