1/10/03-Am in the process of gradually shifting some of our liquid assets from bond and money market holdings into carefully selected stocks suggested through AAII. For this 10% portion only, I'll be purchasing stocks based on recent recommendations rather than assuring that each issue meets our own strict selection criteria. As a group, these assets appear to have lower risk than the market as a whole, hence the willingness to move more out of defensive debt instruments or reserves and into equities.
Once the exchange process is complete, early next month, we anticipate our stock holdings (including REITs) will stand at about $385,000 (barring a market crash).
This week, I purchased shares in Engineered Support Systems (EASI) and American Healthcorp (AMHC).
This past fall I had bought Helen of Troy Limited (HELE) and Stewart Information Services (STC), also key American Association of Individual Investors (AAII) cited stocks.
The latter two have done well enough that this quartet is up on average over 9%, though half the shares were just obtained in the past couple days.
1/13/03-Gasoline is up, as are menu prices at many of our favorite restaurants. But the main risks to our budget, apart from macro-economic disasters, are increasing taxes, insurance premiums, and health care costs, all of which recently are heading north at double digit annual rates. We must somehow assure equivalent or better increases in our retirement nest egg to keep our financial heads above water. Accordingly, our intention is to increase the book value of individual holdings by at least 12% a year and to invest in superior value mutual funds, such as Clipper Fund and Longleaf Partners Fund, which themselves aim to purchase assets at only a fraction of their intrinsic value.
Have placed an order for shares of Doral Financial Corp. (DORL), another of the AAII recommended assets and also one of thirty-three Standard and Poor's selected stocks, based on screens that mirror many of the criteria Warren Buffett uses in picking both stocks and whole companies for purchase.
1/14/03-Have invested in two more AAII recommended assets, Banta Corp. (BN) and SICOR, Inc. (SCRI). Despite the fact that four of our recent AAII assets have been purchased in the last five days, and two others just last fall, the portfolio as a whole is up 8%.
From the latest "Outstanding Investor Digest" comes new warnings of dire consequences looming for all of us from the collapse of a derivatives market gone wild and/or unprecedented levels of consumer indebtedness. To this I would add: 1. vulnerability to geopolitical instability, including new wars or major acts of terrorism; and 2. enormous deficits or shortfalls in federal and state budgets, probably the largest in history. Weakness of the U.S. dollar is also a concern.
There seems to be little, though, the average investor can do to prepare for the financial and other major crises that may occur. Rather, it may be best to just "stick to one's knitting," buying stocks at very attractive price to value ratios, and hope for the best.
One such company that I find still of interest is Washington Mutual (WM).
1/17/03-In the latest (Feb., 2003) issue of "Smart Money," Paul Sturm ("Stockscreen," pp. 54-55) focuses on the excellent record of money manager, Irwin Michael, whose (Canadian) ABC Fundamental Value Fund has a ten-year compound annual return of 19%, beating the record of all diversified mutual funds in Morningstar's U.S. data base.
It turns out Mr. Michael has his own site, Value Investigator, well worth a periodic perusal.
Not coincidentally, he has recently (10/02) purchased shares in one of our recommended assets, Lone Star Steakhouse (STAR) (recent price $21.90). Though not quite as attractive as when we first mentioned it, STAR remains a worthwhile investment, as Michael explains on his web page.
1/25/03-The most recent downturn in the stock markets has again produced some good values and lowered our equity holdings significantly below their current ($400,000) target. Over the next couple weeks, I'll be purchasing more shares, to lift our investments back to within 95% of the goal.
Today, for instance, I placed an order for Friedmans, Inc., Cl. A (FRDM) which, at its recent price of $10.10, is a Benjamin Graham bargain. FRDM has a P/E of 7.5, a price to book value of 0.63, a small dividend (with a payout ratio of 4%), a PEG ratio of 0.6, and total debt to total equity of 0.25. At a market capitalization of $188M, this is a micro-cap stock.
1/30/03-As equities have continued to go down, but we are exchanging out of bond assets or reserves and into stocks or stock mutual funds, the portfolio book value keeps going up while the current market value of our holdings remains essentially the same. I'm reminded of how cosmic bodies may become more and more concentrated until a teaspoonful of a neutron star, for instance, may have a mass of many thousand pounds. One result for our investments is that the liquid assets now have an average yield of 3%, more than twice that of the S.&P. 500 in the late 1990s, while the price to value ratio of our portfolio has been greatly reduced over the past couple years.
The increase in our nest egg's dividends helps offset the lack of extra income from part-time work.
I'm gradually preparing our records for the accountant and 2002 tax return. There were more sales than usual, and most of them represented losses, which at least should keep taxes low for my first full year of retirement. We might even see a refund.
Basing our allocation decisions on information from studies reported by AAII, we are gradually adjusting our liquid holdings to include:
Over the past decade this type portfolio would have performed at least 20% better than a traditional allocation of 60% in the S.&P. 500 and 40% in a good mix of bond assets, but with no greater risk.
This week we also applied for a ten-year refinancing of our home mortgage, which, even after the costs, should reduce our monthly payments by over $100 and lower our house interest rate to 5½%.
Despite our strategies and precautions, though, if 2003 turns out to be another losing year, one or both of us shall need to return to at least part-time work, beyond the music gigs Fran has now, to avoid a substantial depletion of principal just to cover expenses.
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I know of no reason anyone should take my financial musings seriously. At best I am a dedicated amateur providing a bit of investment-related insight and entertainment, at worst an amusing diversion.
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