1/5/04-To complete our beginning of the year rebalancing, on both January 2 and this morning I've made several Benchmark Investing (B.I.) purchases for our overall portfolio. The new securities generally are either Dow Jones Industrial Average stocks at a discount to their 10-year low price targets, other S & P 500 assets at such a discount and with strong fundamental and/or growth factors in their favor, or Mid-Cap 400 B.I. stocks with at least a 10% discount to their 10-year low price targets or (if no 10-year history) a 20% or greater discount to their 5-year low price targets, plus having other strengths. All are projected to have positive earnings growth. Where available, they are at or below their "Buffett Quick Screen" intrinsic value. I believe that, as a group, they are likely to outperform the S & P 500 Index over the next year.
The new B.I. holdings are as follows:
Since we are now already less than $10,000 from our year-end 2004 equity target of $530,000, there will be no further stock or stock mutual fund orders placed except for annual IRA contributions or once a portfolio has fallen over 5% below its intended level (probably as a result of a significant market drop), so that assets for it may be purchased at clearly bargain prices.
The hope is that, despite intervening expenses, by the time I reach age 62 (about a year and a half away) and can begin to receive some Social Security benefits, our net asset value will stand at $687,000 or above ($563,000 of which should be in equities). We might consider a move to a more attractive area and situation, for much of the balance of our retirement years, once our assets are at about $750,000 and our combined retirement and Social Security checks at well over $30,000 a year, i.e. hopefully within a couple or three years.
Of course, the above is an optimistic scenario. Economic depression or medical disability, among many other negative contingencies, could well throw a seriously frustrating monkey wrench into our plans, just as the 2000-2002 bear market did.
1/16/04-Day before yesterday I sold the 100 Men's Wearhouse (MW) shares in the Essential Value Portfolio (EVP) at $22.86 a share. Although the EVP had not quite achieved a sell signal (up about 7% above the equities' target level but not enough for the 5% + $2500 or more threshold), MW no longer has as good prospects as it appeared to when purchased, and it has been generally trending lower in recent weeks. The per share purchase price for MW was $28.01. Thus, after the commissions, there has been a 20.3% loss on this asset.
More pleasantly, this loss was somewhat offset by the sale today of 300 shares from the EVP of The Shaw Group (SGR) at $13.40, for a profit of 53%. There have been both upgrades and downgrades on SGR lately, but their most recent, rather negative report on earnings prospects vs. debts was alarming in view of their already having significant indebtedness. Accordingly, I chose to sell with the profit for a fraction of a year investment, figuring that, once the market is down again, I can always find better bargains that have lower risk and debt plus better potential.
With these two sales, the EVP's closed positions are now 5. The combined closed position initial investment, including commissions, since the portfolio was begun has been $13,196. Their combined net proceeds were $12,114. The average total purchase amount was $2639, and the average net proceeds per sale were $2423, for a per closed position loss of $216 or 8.2%.
The remaining open position purchases now are 16, with an average initial investment per purchase, with commissions, of $2548, and a combined initial open position investment of $40,774. The current combined market value of the open positions is $44, 687, for an average per purchase open position market value of $2793, a gain of $245 or 9.6%
After the five sales plus all dividends since the 8/18/03 portfolio inception, the cash position is now $12,295. That amount plus the current open positions total of $44,687 results in an EVP current total of $56,982.
Since the combined total investment in the EVP has been $53,970, there has been an overall gain of 5.6%, which works out to an annualized total return of 13.6%, a little above our 12% compound average target level for the portfolio.
On a still happier note, yesterday I sold over $15,000 (709 shares) worth of MGP Ingredients (MGPI), first recommended here on 12/3/02 when its price to book value was 0.53. The per share sale price yesterday was $21.76, more than triple the first recommended level of $7.25. I've retained a number of shares, keeping simply the amount of the initial investment in MGPI still in our overall nest egg. But, with a P/E of over 150 and a P/BK about 1.6, it is no longer a great deal, and I'll likely sell the rest if the price goes up a little more.
The asset recently noted which comes closest in my analysis to MGPI's earlier value characteristics is T-3 Energy Services (TTES) (recent price $6.12), but there are, of course, no guarantees it will perform so superbly as has MGP Ingredients!
1/24/04-Our total nest egg's net asset value (NAV) is up just 2.8% for the year so far, besides what has been needed for expenses. But this represents over $18,000 and has occurred while we are more conservatively allocated than during much of the last year or so.
I am becoming concerned because equities on average are overvalued once more, not as much as in the late 1990s, but still to a degree similar to shortly before the 1929 Wall Street crash or the huge 1973-1974 bear market.
Our NAV, at over $655,000 (as of yesterday's close), is already ahead of the year-end goal. So there is plenty of flexibility in the investment program to allow a still more cautious allocation.
Given the high market valuations, in addition to a Bush administration that believes in printing press economics (print more dollars without restraint in order to give people whatever they'll want, to get the president a second term, regardless of the long-term consequences of such an immature and irresponsible fiscal policy), and a higher ratio of total debt (individual, corporate, and government) to the gross national product than we've ever had, I think that, regardless of short-term momentum, eventually stock prices will either cease rising for a very extended period (as in the 17 years from 1965 to 1982, when the Dow Jones Industrial Average began and ended in the 800s) or there will be one or more enormous drops in equity worth.
I am not a market timer, but I can find few assets now that are real bargains and so will essentially tread water for awhile, keep debts low or at zero, and allow cash reserves to rise until there are again plentiful opportunities attractive to a value investor.
Concerning the Essential Value Portfolio (EVP), its value is $57,958 (1/23/04). Portfolio investments were $53,970, giving a total return since the 8/18/03 inception of 7.4%. The current cash position is $12,295. The portfolio's January, 2004, equity target was $48,763. After recent sales, open EVP stock positions stand at $45,663. While that is 6.4% under the target, it fails to qualify for new purchases since the 5% plus $2500 minimum threshold below the target is not yet met.
1/29/04-Perhaps I'm being overly cautious, but I think the market's overvaluation (not to mention our country's huge debt levels, excessive dependence on derivatives, dollar instability, and mammoth trade deficit) is reason for the investor to be quite conservative, and so I've been selling off a bit more of both the Essential Value Portfolio (EVP) and our overall nest egg.
Among the total holdings, I've redeemed some of our equity mutual funds. As Corrections Corp. of America (CXW) appeared to have the least worth for its price and risk levels in the portfolio, yesterday I also sold its EVP shares (86) at $28.90. After the commission, net proceeds were $2455, for a 3.2% gain.
The EVP closed positions' (from 6 separate purchases) combined initial investment was $15,576. Their total net proceeds were $14,569, for an average loss of 6.5%.
The remaining open position purchases (15) involved a combined initial investment of $38,394. At today's close, their total market value was $44,688, for an average gain of 16.4%.
Considering the EVP as a whole, the current equity ($44,688) plus cash ($14,750) value of the portfolio is $59,438, a 10.1% increase over the initial investment of $53,970 since inception (8/18/03). Annualized, this would be a 27.7% total return.
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