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January, 2007: 4 5 6 12 21 28

Disclaimer - IMPORTANT - Read this first!

Investor's Journal is a diary focused strictly on investments and personal finance issues, primarily from a contrarian and retiree point of view. Follow along with an average guy's failures and successes as he learns, by trial and error, the fine art of value investing.

I have just returned late today from a couple weeks of vacation out of state and have not yet finished unpacking. So I shall restrict the entry to the yearly summary of our nest egg's performance, this time through close of business on the last day of trading in 2006 (or Friday, 12/29).

Bear in mind that the portfolio is conservatively allocated: roughly 70% is in equities; about 30% is in non-equities, such as real estate, money market accounts, bank reserves, cash-on-hand, treasury bonds, bond closed-end funds, bond mutual funds, etc. Effective at the end of last year (2006), after subtracting all expenses (for many thousands of dollars of which portfolio principal had to be redeemed), the nest egg gained 15.2% in 2006. (The market averaged up about 13.6% in the same period, based on SPX as a proxy for the S&P 500 Index.)

Our overall portfolio of equities plus non-equities is up 41.6%, after subtracting excess expenses (over retirement income) since I retired on 12/31/01, and 67.7% since the end of the low year of the latest bear market, 2002. (Were it not for needing to use some of our principal for expenses, the performance since 12/31/01 would be approximately 67%, and that since the end of 2002 would be about 88%.)

The nest egg's total equity book value now stands at $388,000, or 13.2% higher than its level a year ago. (The target remains an annual rise in equity book value of at least 12.5%.) Our equity holdings' price to book value stands at 1.4 , well below the average for the markets as a whole, thus lending support for an expectation that, over time, the nest egg will continue to outperform the major markets and yet with less overall risk.

Our non-mortgage debt at the end of 2006 stood at just $17,800, merely 2.2% of the nest egg's net asset value.

Our 5½% fixed rate mortgage balance was $40,000. So, total debt stood at only 6.8% of total assets.

I plan to return in the next couple days with a new entry, a fresh stock pick, my current favorite ten equities, and the 2006 final quarter (plus annual) summary for my exclusive Leapin' Lizards (LL) and Classic Value (CV) portfolios.

Here's to you and yours having a great investment record over the next 12 months!

1/5/07-I'll be adding another entry over the weekend with the next stock pick and related information.

Here is the performance summary for the tracked portfolios, through the fourth quarter of 2006:

(The statistics combine portfolio open and closed position results and are effective as of the end of trading 12/29/06. Dividend income has not been included in the portfolios' performance. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX gains.)

( *since inception, 10/4/04)
(**SPX is used as a proxy for the S&P 500 Index.)

Observations about the portfolio results:

• The total return figures, i.e. including dividends, would again show the two main tracked portfolios to be surprisingly comparable in their results. With average at purchase dividend rates of about .5% for the LL assets and about 2.5% for the CV stocks, the annualized LL total return to date would be around 20%, and the annualized CV total return to date would average around 22%.

• The 50/50 CV/LL Blend's annualized total return is thus estimated, given the figures through 12/06, at about 21%, almost twice that of a long-term hold investment in the S&P 500 Index (with dividends) begun on 10/4/04.

• The 50/50 CV/LL Blend's combined closed positions since inception now number 65. Of these, 21 turned out to be losing stocks in the periods they were held, while there were 44 winners. The win to loss ratio was thus 2.10. The losers were 32.31% of the total. About 1/3 of the suggested stocks, then, lost the investor money, but at least 2/3 of the stock purchases would have resulted in net gains.

• Since both the LL and the CV assets seem to be proving their worth, to lower overall portfolio risk while retaining good average total return potential, I continue to recommend that investors following my Leapin' Lizards and Classic Value approach invest half in the LL stocks and half in those chosen using CV criteria.

• Because there is always the possibility of unforeseen developments spooking the stock market and causing substantial losses in paper value to one's nest egg, I caution that it seems best to maintain a reserve of short-term, cash equivalent assets. The individual may vary the percentage of total financial assets set aside in this way. My own preference is to begin with 1/3 in such reserves, two-thirds in equities, then to rebalance if there is more than a 5% shift in the relative valuations due to market strength or weakness.

• With careful selection, it should now be possible to obtain a roughly 5% or better return on relatively safe assets to be held in the short-term bond or cash equivalent reserves category of assets. If one's assets of this type average around 1/3 of the portfolio, if 2/3 are devoted to a 50/50 blend of CV and LL holdings, and if the portfolios' performances to date were to prove the norm, the resulting nest egg should be relatively secure, certainly safer than a 100% investment in the S&P 500 Index, for instance, and yet one's total return would be roughly 15-16% a year overall, significantly better than that of the major market averages.

• I caution, however, that with so far only about two(+) years' experience, there is as yet too little data to say with assurance that this will be the probable outcome. The best that may be stated definitely is that the results so far continue to be encouraging.

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  1/6/07-Since the prior entry, our Classic Value (CV) pick, FRD, has been held over a year, and so it will be sold at the early market price on Monday, 1/8/07, removed from the CV open positions portfolio, and its closed position info recorded based on the 12/30/05 to early 1/8/07 per share performance. Through the close of business on 1/5/07, after subtracting a commission (while not counting any dividends), FRD has been up 101.88% in the past 12(+) months.

  Also since the prior entry, our Leapin' Lizards (LL) pick, SCVL, has been held over a year, and so it will be sold at the early market price Monday morning too, removed from the LL open positions portfolio, and its closed position info recorded based on the 1/3/06 to early 1/8/07 per share performance. Through the close of business 1/5/07, after subtracting a commission (while not counting any dividends), SCVL has been up 40.53% in the past 12(+) months.

  Since the prior entry as well, our Classic Value (CV) pick, UNTD, has been held over a year, and so it also will be sold at the early market price Monday, removed from the CV open positions portfolio, and its closed position info recorded based on the 1/6/06 to early 1/8/07 per share performance. Through the close of business today, after subtracting a commission (while not counting any dividends), UNTD has been down 7.27% in the past 12(+) months.

  My top-ten equities for mention today are: AMCP; BRK/A (or BRK/B); ESV; FNF; FRX; FTO; JEN; MRO; URGI; and VLO.

  The focus for the current entry is on a new Classic Value (CV) asset, Frontier Oil Corp. (FTO) (recent price $27.35). FTO's trailing price to earnings ratio is 8.06. The asset's market-capitalization is $3.02 billion. Frontier Oil Corp. has a small (0.40%) dividend, with a dividend payout ratio of 0.17. The price to sales ratio is low at 0.62. FTO's price to book value is above average at 4.37. There is positive free cash flow. Return on equity is 66.64%. Debt to equity is just 0.22. The current ratio is 1.99. FTO is up 34.73% in the past 52 weeks. This stock has low P/E, low P/S, low debt, and moderate momentum in its favor. It meets Ben Graham bargain stock value and safety criteria.

  Frontier Oil Corp. will be added to our CV tracking portfolio (and our actual nest egg portfolio) at its market price as of early trading on Monday, 1/8/07.

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  1/12/07-Since the prior entry, no open position portfolio assets have been held at least a year, so no changes will be made in the monitored portfolios at this time.

  My top-ten equities for mention today are: BRK/A (or BRK/B); FARL; HRSH; NVR; RAIL; SAB; SLR; SYX; WSTG; and ZONS.

  The focus for the current entry, is on a new Leapin' Lizards (LL) asset, Systemax, Inc. (SYX) (recent price $20.22). SYX's trailing price to earnings ratio is 18.65. The asset's market-capitalization size is micro-cap: $711.22 million. Systemax, Inc., has no dividend. The price to sales ratio is only 0.31. SYX's price to book value is 2.54. There is positive free cash flow. Return on equity is 15.99%. Debt to equity is just 0.06. The current ratio is 1.88. SYX's share price is up about 217% in the past 52 weeks (vs. about 11% for the S&P 500 Index). The shareholders' equity to total assets ratio is 0.52. The stock has low price to sales, low debt, and strong upward momentum in its favor.

  Systemax, Inc., will be added to our LL tracking portfolio at its market price as of the first thing on Tuesday (following the Martin Luther King holiday), 1/16/07.

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  1/21/07-Since the prior entry, our Leapin' Lizards (LL) pick, URGI, has been held over a year, and so it will be sold at the early market price tomorrow morning, removed from the LL open positions portfolio, and its closed position info recorded, based on the 1/20/06 to early 1/22/07 per share performance. Through the close of trading 1/19/07, after subtracting a commission (while not counting any dividends), URGI has been down 18.56% in the past 12(+) months.

  My top-ten equities for mention today are: AIRT; ASPV; FC; FTO; IDCC; LMS; NX; PWEI; RAIL; and SEB.

  The focus for the current entry is on a new Classic Value (CV) asset, PW Eagle, Inc. (PWEI) (recent price $32.93). PWEI's trailing price to earnings ratio is just 4.09. The asset's market-capitalization size is micro-cap: $394.14 million. PW Eagle, Inc., has a small (0.90%) dividend, and the dividend payout ratio is 0.03. The price to sales ratio is only 0.50. PWEI's price to book value is 2.77. There is positive free cash flow. Return on equity is 115.04%. Debt to equity is just 0.13. The current ratio is 2.09. PWEI's share price is up 66.90% in the past 52 weeks. The stock has low price to trailing earnings, low debt, upward momentum, and low price to sales in its favor. It meets the Ben Graham value and safety criteria for bargain asset status.

  PW Eagle, Inc., will be added to our CV tracking portfolio at its market price as of the first thing on Monday, 1/22/07.

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  1/28/07-Since the prior entry, our Classic Value (CV) pick, UNTD, has been held over a year, and so it will be sold at the early market price tomorrow morning, removed from the CV open positions portfolio, and its closed position info recorded, based on the 1/25/06 to early 1/29/07 per share performance. Through the close of trading 1/26/07, after subtracting a commission (while not counting any dividends), UNTD has been up 2.93% in the past 12(+) months.

  My top-ten equities for mention today are: EME; GNA; GRIL; PCCC; RAIL; SEB; SYX; VLGEA; VOL; and ZONS.

  The focus for the current entry is on a new Leapin' Lizard (LL) asset, PC Connection, Inc. (PCCC) (recent price $15.27). PCCC's trailing price to earnings ratio is high at 42.07. The asset's market-capitalization size is micro-cap: $396.06 million. PC Connection, Inc., has no dividend. The price to sales ratio is only 0.24. PCCC's price to book value is 2.11. There is positive free cash flow. Return on equity is 5.19%. Debt to equity is just 0.07. The current ratio is 1.84. The shareholder equity to total assets ratio is 0.56. PCCC's share price is up 165.10% in the past 52 weeks. The stock has low price to sales, low debt, and upward momentum in its favor.

  PC Connection, Inc., will be added to our LL tracking portfolio at its market price as of early on Monday, 1/29/07.

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  Disclaimer and Disclosure Statement

  Much as I'd love it to be otherwise, I receive no payment of any kind for disseminating investment information unless, by some fluke, millions of folks, on the strength of these entries, start buying shares of stock I own, a possibility only slightly less likely than our being destroyed by a large meteorite. Do not follow any suggestions made in Investor's Journal as if I were a professional.

  Neither I nor Investor's Journal will be responsible for losses by anyone who obtained ideas from this site.

  This diary is intended for personal interest and general information only. You are advised to do your own research (as well as to consult highly compensated professionals) before spending money on anything.

  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.

  My wife, Fran, and I may at times own shares of some of the assets mentioned here. But neither of us receive any benefit from reference to them, unless you count the mutual misery when we get it wrong, or the opportunity to gloat when we get it right.

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