As some of you may have heard from previous announcements, on Monday we are going to officially announce ThinkFunds – three growth-focused mutual funds (ThinkGrowth Fund, ThinkGlobal Fund, ThinkGreen Fund). We are extremely excited to have the opportunity to provide vehicles to participate directly with investments that we have been researching and recommending for two decades.

One could naturally question the launching of three new funds in the current market environment (which has been awful!). It is widely known that numerous growth funds have shut down for poor performance – the average growth fund for the past ten years having a compounded annual return of 5.4%, which suggests that the waters have been very traitorous. Year-to-date, volatility has been extreme and markets have been mainly down with the ThinkGrowth Index down 20%, NASDAQ down 14.7%, the Dow down 14.7% and the S&P 500 down 10.4%.

It's been our experience that the greatest opportunities are when everybody has given up. Currently, conventional wisdom is that the poor performance of growth stocks for the past seven years is expected to continue for the next 700 years. Year-to-date there have been $40 billion of outflows from equity mutual funds, with $11 billion this week alone. What we do know is that over time there is an almost 100% correlation of how a company does (i.e. revenue growth, earnings growth) and how its stock does, and, in our opinion, being able to invest in fast-growing, high-quality companies at lower prices is a recipe for having big winners over time. Accordingly, while we won't pretend to know when the environment gets favorable for growth companies, we do have a high degree of confidence that now is a great time to be investing in these companies for the long-run.

The management of the funds will be myself together with my friend and partner Stuart Pulvirent, and the funds will be assisted by Luben Pampoulov. Stuart won Institutional Investor All-Star honors for six consecutive years as an analyst and Wall Street Journal honors as well. Stuart was Managing Director of Axia Capital Management, LLC and advisor to hedge funds in 2004. During his 23 year investment career, he held senior analytical and research management roles at Lehman Brothers (NYSE: LEH, $37.87 - Not Rated), Furman Selz LLC and Zweig-DiMenna Associates LLC. Luben has worked with me for the last year analyzing stocks and he has helped me with ThinkThoughts.

Obviously I can't guarantee performance but I can guarantee that we will be relentless in our mission in identifying and investing in what we view as the stars of tomorrow - the fastest growing, most innovative companies in the world.

The ThinkGrowth Fund seeks long-term capital appreciation by investing U.S. and non-U.S. companies the advisor believes have the potential for the highest, most sustainable earnings growth. The philosophy is that over time, the share price of a stock is directly correlated with earnings.

The ThinkGlobal Fund seeks long-term capital appreciation by investing selectively in companies of any size, located throughout the world which the advisor believes have the potential for leadership, innovation, and long-term growth of capital.

The ThinkGreen Fund seeks long-term capital appreciation by investing in companies (both U.S. and non-U.S.) that help in the sustainability of our planet and help to improve people's health and well-being.

To find additional information on the three mutual funds go to http://www.thinkcapitalfunds.com.

We have chronicled our investment process in the past but I will outline it here again.

Formula for Identifying and Evaluating the Stars of Tomorrow
One of the most bizarre realities of Wall Street is the generally random process security analysts use to evaluate investment opportunities. I was an analyst at Lehman Brothers when it had the number one ranked research department on Wall Street. I was Director of Global Growth Research at Merrill Lynch (NYSE: MER, $39.93 - Not Rated) when it was ranked number one. I was Director of Growth Research and Strategy at Montgomery Securities when that firm did better research than the other two top ranked firms. And at all three places, the instructions were essentially the same.

"Here's a laptop, this is your industry. Go write research and recommend companies."

Was there a Merrill Lynch way? A Lehman Brothers way? (Or a process to identify, analyze and recommend stocks?) Absolutely not. Basically the "process" for doing security analysis was to hire bright, ambitious people and tell them to do their thing. Sometimes it works. And often it doesn't. It's not a mystery that research analysts are typically held in such low regard. The way Merrill Lynch and Lehman Brothers have established themselves as world-class firms, in our opinion, has nothing to do with their approach to identifying the stars of tomorrow.

But it's not their fault because they haven't been given a process. If Starbucks (NASDAQ: SBUX, $17.05, Accumulate - Price Target: $20) hired a kid off the street and told them, "Go make a latte," very few people would have ever heard of Starbucks.

One of the characteristics of great companies is that they are systematic and strategic in how they operate their business. Similarly, we believe that if you want to be a great investor, you need to be systematic and strategic in how you analyze companies.

We have created a "recipe book" on how to identify and invest in the fastest growing companies in the world. It starts with our Think 10 Commandments, which then proceeds to our Megatrend analysis, our evaluation of a company's Four Ps and a disciplined valuation approach. How is this integrated in my process to identify the Stars of Tomorrow today?

The ThinkEquity Process for Identifying and Investing in the Stars of Tomorrow
The ThinkEquity Partners 10 Commandments are embedded in ThinkEquity's investment process. We believe it's through these simple principles that investors will create the foundation to enhance their investment returns. Obviously, as an investor, the objective is to make money, but without a method, there is usually madness!

First, be right on the fundamentals. Earnings growth typically drives stock price. There is essentially a 100% correlation with how a company does and how its stock performs over time. Focus on the fastest growing companies.

Second, be proactive, not reactive. Looking ahead and anticipating where the world is heading is how we catch winners early on. Try to predict what will be in tomorrow's newspapers, as opposed to reacting to what is in today's.

Third, be rigorous, but don't have rigor mortis. It is possible to overanalyze opportunities. The best investments are often easy and intuitive.

Fourth, when wrong, admit it. The best investors and analysts are wrong a lot. The worst thing to do is rationalize a mistake. Be intellectually honest. Make decisions based on fats now, not what you had thought to begin with.

Fifth is the cockroach theory. You seldom find just one cockroach in a kitchen. Likewise, if you find a problem at a growth company, there are always more behind it. It's rarely a one-quarter issue - the first loss is the best loss.

Sixth, investment ideas are about information and insight. Information is valuable if it is proprietary. Insight is valuable if we know what that information means.

Seventh, the four Ps are key for any successful growth company. As I said earlier, the four Ps are People, Product, Potential and Predictability, and, in our opinion, the first P, people, is the most important.

Eighth, use five independent sources for each stock you invest in. If possible, have a regular dialogue with the company management, but remember they will always see the glass as half full.

Ninth, find three main reasons for a stock to move up or down. In addition, identify near-term catalysts for price movements. Maintaining a thesis for why you own a stock is key.

Tenth, and finally, be passionate about investing, but dispassionate about the investment. The stock doesn't have feelings or know you own it.

The 10 Commandments create a consistent framework to cement my philosophy and is integrated in all that we do. We then start with a top down view of each growth sector to determine what influence Megatrends and industry drivers are creating for the future potential of an industry. From that top down approach, we create investment themes which are where I focus my research and my resources.

Within the investment theme we've identified, we will know and list all the companies within it. From big to small, public to private, fast growing to slow growing, we will rank the companies on the four Ps. We may not have a model on every company but we will have an opinion on who the best and worse companies are based on the four P framework.

After we have the companies within our investment themes rated, we have a disciplined valuation approach based on earnings growth and price to earnings to determine near term attractiveness. The reality is that at any given time, there are great companies selling at bad valuations which create near term risk and bad companies selling at compelling valuations which creates near term opportunities. A disciplined valuation approach focused on future earnings gives us a framework to make informed decisions and manage risk.

The other part of my research process is to have one eye on the short term and one eye on the long term. There is no question that the greatest benefit will be derived from being right in the long term but we need to be alive to enjoy the success.

The eye focused on the short-term needs to understand catalysts, data points and valuation. Having an understanding what will move a stock in the next two minutes, two hours, two days, two weeks, etc., is highly relevant. The eye focused on the long term is focused on earnings growth. As I'll say again and again, earnings growth is what typically drives stock prices and is nearly 100% correlated with long term performance.

Megatrends - the Drivers of Long-Term Growth
The largest market growth opportunities are those created on the frontiers of the economy, where change at the edge leads to wide-scale change within the economy, in our view. A core element of my strategy in successfully identifying emerging growth opportunities is to understand the Megatrends that drive change, productivity and ultimately growth, throughout the economy.

We see Megatrends as the fundamental catalysts for growing markets, through their influence on consumer behavior, business processes and by serving as building blocks for the introduction of new products and services. Additionally, we believe that by influencing price and quality improvements, Megatrends unlock latent demand and reinvigorate growth in mature markets, while freeing resources to finance the growth of new market opportunities.

Megatrends effectively create a tailwind at the back of emerging industries. The tailwinds help accelerate the opportunity and provide the fundamentals to grow at a high rate for a long time.

We believe that great growth opportunities are often found where Megatrends intersect the growth sectors of the economy - technology, healthcare, alternative energy, media and education, and business and consumer services.

Some of the current Megatrends affecting consumers, businesses and entire economies for that matter are Knowledge Economy, Globalization, The Internet, Consolidation, Branding, Demographics, Outsourcing, and Convergence.

Megatrends Explained
Below are the key Megatrends I believe will drive sales and profits for the long-run.

Knowledge Economy - American society has been shifting from an industrial-based economy since World War II to a service-based economy in which the educated are kings

Globalization - Interdependence between countries is increasing with improvements in communications, technology and transportation The Internet - Media, commerce, education, social life, work and leisure move to interconnected computers from traditional forms

Consolidation - Mom and Pop shops are disappearing into memories as conglomerates eat up market share

Branding - Creating memorable slogans and logos as well as a consistent reputation is increasingly important in order to differentiate products in a global economy

Demographics - Changes in the age, race, educational level, employment status, and economic standards of living create predictable markets

Outsourcing - As the cost of employing American citizens becomes increasingly expensive relative to the rest of the world, US employers look abroad

Convergence - Physics, Biology and Chemistry are merging into one science while phones, TVs, Radios and Computers are merging into one.

In the long-run we believe these are dynamic forces that will drive sales and profits of entire industries, some directly and others indirectly, while companies focused on becoming industry leaders will capture the largest share of these rapidly growing markets and ultimately create substantial shareholder value.

The four Ps
Identifying the catalysts behind rapid market growth is an important element of successful growth investing, though finding companies that are able to translate these opportunities into bottom-line results remains my ultimate objective. We believe that companies that are best positioned to accomplish this feat are those with the most dynamic earnings prospects, and incorporate the four Ps - great People, leading Products, huge Potential and Predictability in their business.

We believe that the critical components of success for a growth company are the People and its growth culture. With young growth companies, this is particularly important given that a young company won't likely have a measurable track record, but the management and key personnel of the company will.

Next, we look for companies that are leaders in their market, with a proprietary Product or service that can lead to disproportionate gain relative to the competition. Having a "claim to fame" is essential.

With respect to Potential, we look for large addressable markets or nascent growth opportunities with open-ended growth, where small, rapidly growing businesses have the opportunity of becoming big companies. Megatrends play a critical role in assessing how large a market can become and how fast.

Finally, we assess the visibility of a company's growth, or its Predictability. Does the company have recurring revenue or a formula that produces predictable returns? The best growth companies typically have high predictability and gain operating leverage as they continue to achieve economies of scale.

Ultimately, we hope to identify companies capable of capitalizing on nascent market growth, rather than relying upon a favorable market "tailwind," as those are the companies that will capture larger market shares and be rewarded with premium valuations.

Investors that are early to identify the potent combination of a dynamic market with open-ended growth, and companies executing their business to achieve a disproportionate share of the market, will ultimately receive the benefits of the growth premium.

Finding companies with characteristics such as these is as difficult as spotting rare and swiftly moving elephants. The good news is that when we find one, we should know it!

What do we like:

ThinkGreen, ThinkGrowth, ThinkGlobal :)

We will have some individual stocks next week.