1/1/09-Here's our own nest egg 2008 year-end summary:
I thought 2007 was volatile and challenging, but last year of course was far worse. In fact, I believe for the economy, housing, financial institutions, the domestic auto industry, commodities, and equities, taken together, it was the most difficult 12-month period in my lifetime. The NASDAQ, for instance, fell 40%, its most severe one-year decline ever. Most of the losses occurred in just the final one-third of 2008. Among several more severe outcomes, the traditional rule that the stock market can be depended on to go up in presidential election years was clearly shattered.
Perhaps due to low debt and being well diversified among investment classes before the stock market's cascade began in September, then low price to value purchases (using our cash reserves or bond funds) once the decline had commenced, and a modest rally in stocks during recent weeks, our overall portfolio's losses were limited to 17.7%, about comparable to those we had in 2002.
There is no guarantee we have now seen the end of this bear market and that 2009 will end with a great turnaround. In fact, a case could be made that, just as in the early years of the Great Depression, any rallies experienced going forward might in retrospect wind up looking more like good selling opportunities than reasons for encouragement. Are we just at the beginning of a similar deflationary debacle? Time, as they say, will tell. However, historically, when the stock market has been down a great deal one year, it is significantly up in the next year or two. May it be so in this instance as well!
Personally, I do not believe we are out of the woods. If the economy gets much worse, it is likely the stock market will be seeing new lows before things get much better. But I also cannot counsel getting out of the market. Rather, dollar-cost-average investing in excellent price to value securities and otherwise maintaining a low debt, well allocated overall portfolio seems the way to go. If we are fortunate and there are major surges in stocks, these might be good times to reallocate some, keeping one's preferred allocation percentages, and thus selling high what was purchased low.
Our overall portfolio of equities plus non-equities is up 29.6%, after subtracting excess expenses (those beyond a modest retirement income) since I retired on 12/31/01, and 53.5% since the end of 2002, the low year of the last bear market. By contrast, the S&P 500 Index is down 21.3% since 12/31/01 and up only 2.6% since the end of 2002. (Were it not for needing to use some of our principal for expenses, the last seven years' performance would be significantly higher.)
The nest egg's total equity book value now stands at $530,700 or 13.8% higher than its level a year ago. (The target remains an annual rise in our stocks plus stock mutual fund book value of at least 12.5%. So far, since the end of 2002, its compound average annual gain has been 14.1%.)
The equity holdings' price to book value stands at a record year-end low for us of 0.81, well under both the current and historical average P/Bk for a broad index of U.S. stocks, lending support for the nest egg continuing to outperform the major markets, with less overall risk. At equities' deepest down part of 2008's final quarter, our price to book value had temporarily dipped to only 0.74. We have regained $67,000 in market value since then.
Non-mortgage debt at the end of 2008 is zero. Our 5½% fixed rate mortgage balance is $27,526. So, total debt is just 3.8% of net assets.
And here is the performance summary for the tracked (hypothetical) portfolios, through the fourth quarter of 2008:
(The statistics combine portfolio open and closed position results and are effective as of the end of trading 12/31/08. Dividend income has not been included in the table's performance figures. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX gains.)
Observations about the portfolio results:
1/12/09-Since the last entry, there have been no assets held for at least a year, so sales are not now in order among the Classic Value (CV) portfolio securities.
My top-ten equities for mention today are: ANF; CDI; ESV; FRD; GIFI; MEI; MOV; MUR; SCHN; and SYNL.
The focus this time is on a new Classic Value (CV) selection, Murphy Oil Corp. (MUR) (recent price $45.28). MUR's trailing price to earnings ratio is just 4.79. The forward P/E is estimated at 11.85. The PEG ratio is only 0.29. The asset's market-capitalization size is large-cap: $8.63 billion. Murphy Oil Corp. has a 1.80% dividend, with a dividend payout ratio of 0.09. The price to sales ratio is low at 0.32. MUR's price to book value is 1.39. There is positive free cash flow, with a price to cash flow of only 3.70. Return on equity is above average at 31.91%. Debt to equity is 0.16. The current ratio is 1.58. This stock has high return on equity, quite low P/E, P/S, P/CF, and PEG ratios, below average P/Bk, and low debt in its favor. It meets Benjamin Graham's bargain stock safety and value criteria.
Murphy Oil Corp. will be added to our CV tracking portfolio, as well as our own nest egg, at its market price early on Tuesday, 1/13/09.
1/26/09-Since the last entry, our Classic Value (CV) pick, KELYA, purchased on 1/14/08, has been held over a year. It will be sold at the early afternoon market price on Monday (today). It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 1/14/08 to 1/26/09 per share performance. Through the close of trading on 1/23/09, after subtracting a commission (while not counting any dividends), KELYA had been down 40.00% in the past 12(+) months.
My top-ten equities for mention today are: BHI; CIR; ESV; GIFI; ISIL; IXYS; LUFK; MUR; TDW; and TIE.
The focus this time is on a new Classic Value (CV) selection, Lufkin Industries, Inc. (LUFK) (recent price $33.69). LUFK's trailing price to earnings ratio is just 6.16. The forward P/E is estimated at 7.96. The PEG ratio is only 0.42. The asset's market-capitalization size is micro-cap: $500.46 million. Lufkin Industries, Inc. has a 2.10% dividend, with a dividend payout ratio of 0.18. The price to sales ratio is 0.71. LUFK's price to book value is below average, at 1.15. The shareholders equity to total assets ratio is 0.78. There is positive free cash flow, with a price to cash flow of only 4.50. Return on equity is above average at 20.76%. Debt to equity is 0.00. The current ratio is 4.28. This stock has above the norm return on equity, low P/E, P/CF, and PEG ratios, below average P/Bk, and zero debt in its favor. It meets Benjamin Graham's bargain stock safety and value criteria.
Lufkin Industries, Inc. will be added to our CV tracking portfolio, as well as our own nest egg, at its early afternoon market price today.
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