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January, 2010: 8 13 26 31

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.

(The statistics combine portfolio open and closed position results and are effective as of the end of trading yesterday, 1/7/10. 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 performance.)

( *since inception, 10/4/04)
( **since inception, 5/14/09)
(***SPX is used as a proxy for the S&P 500 Index.)

Observations about the portfolios:

• Despite the results being shown for the new portfolios, please note that those stats, especially the annualized performance figures, are not as meaningful as if the portfolios had been ongoing longer. It is still possible the differences between the two new portfolios will have been erased or reversed by the next quarterly analysis. And I would expect that the annualized performance for the Five-Star Stocks will eventually fall to a more reasonable range. However it works out, the results should be clear, for these are actual investments in our nest egg, not hypothetical assets.

• It seems reasonable for Classic Value, due to its longer history, to calculate the potential total returns, based on the above figures plus a conservative estimate of an average annual dividend of 1.7%. This shows an overall CV annualized total return of 8.49%, a respectable record given the performance of the market averages in recent years.

And here is our 2009 year-end summary for my wife's and my nest egg, a little belated due to our recent trip:

• As of 12/31/08, our equities stood at only $431,400. In early March of 2009, at their low, they had actually fallen to only $300,000. As of noon today, they have risen 38.3% (since the end of 2008), to $596,750.

• Our total nest egg was worth $726,900 at the end of 2008 and less than $600,000 at the low point in early March, 2009. Since 12/31/08, though, it is up 20.4% to $875,200, only $8100 (or less than 1%) below its end of 2007 level.

• Our only debt is on our house, now almost paid for, but with as yet a small mortgage representing 2.6% of our net asset value.

• My wife and I continue to increase our total equity book value by at least 12.5% annually. It is now 13.1% higher than on 12/31/08. The new target (for 12/31/10) is $675,300. On average, the actual equity book value increase has been 14.0% a year since the end of 2002.

I plan to do the next analysis of good low price to book value assets to buy, plus a review of CV assets ready to be sold, within the next few days.

In addition, since there are few low price to book value assets meeting my criteria now available, but still are a number of good low P/E equities to be found, I expect to be launching a low price to earnings portfolio and to then alternate the purchase of the best low price to book value stocks I can locate with the best low price to earnings equities. As with the new portfolios begun in 5/09, all of these will be actual account purchases (or sales) rather than hypothetical holdings.

We wish everyone happy and successful investing in 2010!

1/13/10-Since the last entry, another Classic Value (CV) pick, BJS, purchased on 12/31/08, has been held over a year. It will be sold at the market price early tomorrow, 1/14/10. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 12/31/08 to 1/14/10 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), BJS has been up 79.54% in the past 12(+) months.

Since the last entry as well, another Classic Value (CV) pick, MUR, purchased on 1/13/09, has been held over a year. It too will be sold at the market price early tomorrow, 1/14/10. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 1/13/09 to 1/14/10 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), MUR had been up 26.26% in the past 12(+) months.

With this entry, I am beginning a new actual account portfolio, Low Price to Earnings Stocks. As noted in the 1/8/10 entry, I am finding less low P/Bk value stocks now and so am hoping this other classic Ben Graham approach, low P/E assets, will be a fruitful source of good equity performance as well.

The securities suggested here will be added to my wife's and my real nest egg, and sales will also be reflected in our actual portfolio. I shall keep track of the results and compare them with the Low Price to Book Value Stocks I am already monitoring and regularly adding to. As with those assets, our low P/E purchases shall have value and safety criteria such as B. Graham would have approved. In general, debt to equity for these must be no higher than 0.33 at time of purchase. The prior 12 months' P/E must be low enough that the earnings yield is twice the yield of the average AAA corporate bond, as most recently reported in major investment guidance, such as "Value Line." If there are dividends, the payout ratio must be 0.5 or below. I usually also favor assets with company investment info fairly current, at least within the past six months, and with shareholder equity at least half of total assets, plus with a current ratio of at least 1.5. I prefer equities with positive operating cash flow and positive free cash flow. When rated by Motley Fool, I prefer stocks that have a higher number of "Motley Fool CAPS," ideally 4 or 5.

I consider selling after an asset has risen 50% or more, but often will continue to hold one if I do not have a better value security with which to replace it and/or if it still has a high "Motley Feel CAPS" rating.

My top-five current (and initial) low price to earnings stocks are: AMPH; HWKN; ITI; NE; and NGA.

My favorite among them is Iteris, Inc. (ITI) (recent price $1.57). It meets Benjamin Graham's bargain stock safety and value criteria.

Iteris, Inc. will be added to our nest egg at its market price early tomorrow, 1/14/10.

1/26/10-Since the last entry, another Classic Value (CV) pick, LUFK, purchased on 1/26/09, has been held a year or more. It will be sold at the market price early tomorrow, 1/27/10. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 1/26/09 to 1/27/10 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), LUFK has been up 88.90% in the past 12(+) months.

My top-five current low price to book value stocks are: AFG; CRDN; CSS; MIG; and NWPX.

My favorite among them is CSS Industries, Inc. (CSS) (recent price $17.77). It meets Benjamin Graham's bargain stock safety and value criteria.

CSS Industries, Inc. will be added to our nest egg at its market price early tomorrow, 1/27/10.

1/31/10-Since the last entry, there have been no new hypothetical or actual portfolio sales, assets held for a year or more, or stocks otherwise ready for sale. So, no new redemptions are indicated in the portfolios being followed here.

My current top-five low price to earnings stocks are: AIRT; ESV; INFI; ITI; and MRH.

My favorite among them is Montpelier Re Holdings, Ltd. (MRH) (recent price $16.89). It meets Benjamin Graham's bargain stock safety and value criteria.

Montpelier Re Holdings, Ltd. will be added to our nest egg at its market price early tomorrow, 2/1/10.

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