1/2/16-Low P/Bk asset BAMM, bought on 6/23/15, was redeemed in a shareholder approved cash buyout effective 12/10/15. Net gains after commissions (but not counting any dividends) were 17.40%. The round-trip investment expenses and gains for BAMM have been added to our spreadsheet for Low P/Bk closed positions and are reflected in the statistical results.
The following is my regular summary of quarterly statistics (through 12/31/15) for the asset approaches followed here:
On average, the annualized returns obtained by our combined long-term portfolios, including dividends, would have been roughly 8.00%. As noted at the end of my last such report, the outcome of our portfolios compared with the S&P 500 over the periods in which they have been invested have supported the idea of John C. Bogle (founder of The Vanguard Group) and others that the average investor would do better to simply put his or her saving and investment funds into low cost index funds.
Consistent with this, while I note that my wife's and my total equity investment 30 years ago was about $5000 and today more than 200 times that figure, a compound annual rate of increase of about 19%, if we subtracted the effects of our additional investments over those three decades, the actual average return is hardly different than the growth with dividends of the S&P 500 Index.
It seems to me that a low price to book value strategy has been helpful in giving our accumulated holdings relatively greater safety. A mix of market-capitalization stocks with average share prices below their book value will not stay down so much nor as long in a severe bear market as is the case for higher price to book assets. Thus our nest egg dropped only 22% during the financial crisis of 2008 and then bounced back rather quickly. Nonetheless, in an extended bull market such as we have had since then, they can put one at a disadvantage.
Are there strategies which have value characteristics yet which are not as encumbered while the market averages are comparatively soaring? I believe so. My view now is that a company's financial strength is often more important than its having relatively low P/Bk, high dividend, and/or low trailing P/E.
Per back-tests, had I put my emphasis on the shares of safe, profitable companies with low debt when available at a bargain, the difference in quality over Graham style "cigar-butt" investments would mean my wife and I would by now have around four times the nest egg we enjoy today. With the caveat that back-tests can give erroneous indications of future proceeds and so their "returns" must be taken with a grain of salt, it is evident that the odds would favor a portfolio of successful companies bought at a discount over one comprised of less sterling enterprises.
Accordingly, though I am grateful to have gotten to this point with our portfolio fairly unscathed, the aim in future will be to place our biggest bets on superior corporations that appear to be suffering but temporary setbacks, not on businesses that on average are struggling just to stay above water.
In practice, this means, in spite of gradually increasing the low P/E portfolio's assets, overall I'll be only maintaining our Ben Graham equities at their late 2015 net investment levels, buying about the same amount as is being sold.
A new portfolio, High Quality, started in December, 2015, will be receiving the bulk of our new investment dollars. It is up only about 1% at this time yet has good potential. Its holdings thus far include: AAPL; FLR; QCOM, and SLB.
For awhile, I have each year been increasing our nest egg's total equity book value by 13.5% while also keeping dividends at 2.0% or greater of that amount. This set of goals was again achieved in 2015, with total equity book value and dividends per year once again above their year-end target levels, $1,140,466 and $22,809, respectively.
However, in future the larger of those totals, albeit still advancing at least 13.5% on average per year, will be attained as the sum of asset shares' revenue plus book value, which I think better reflects a larger emphasis on strong portfolio profit generation. The 2016 target for this sum is $1,294,429. (Actual total equity book value in our nest egg for 12/31/15 was $1,142,106.)
The minimum 2% dividend level will be maintained yet will be based on a glide path advancing at 13.5% a year (since began this approach). Hence its target for the end of 2016 will be $25,888. (The actual equity dividend level at the end of 2015 was already $28,615.)
Our total market price to total book value now stands at 0.86. Effective 12/31/15, the full amount of our assets of all kinds is only about $5000 above its level as of 12/31/14. This partly reflects yours truly following less than stunning investing strategies, partly our needing to buy a replacement vehicle last year.
I realize readers here may be more keen on specifically Ben Graham investment suggestions, while companies cited for the High Quality portfolio are likely to be more generic sorts of value bargains. In case folks are interested, though, I'll be including henceforth all four varieties of investing ideas that meet my criteria: low P/Bk, Low P/E, dividend value, and high quality.
Besides the High Quality stocks noted above, our current nest egg assets include...
Low Price to Book Value: AEY; AGII; AGO; AHL; AIG; ANAT; ATW; CSH; FRD; FSTR; GBLI; GENC; GGB; GLPW; GTE; GURE; HDNG; IOT; ISHC; JOY; KELYA; LQDT; NE; NOV; PFIN; PGH; PNTR; PRE; RCKY; REGI; SCX; SSI; SYNL; TCK; TX; VOXX; VOYA; and WILC. I may add to some of these positions from time to time.
Low Price to Trailing Earnings: CENX; FOSL; GHC; RE; and VLO. I may also add to some of these positions from time to time.
Dividend Value: AP; AVX; BRKS; CCUR; COP; CSPI; DEST; EC; ESV; ETN; GME; IQNT; MLR; MN; NOV; PETS; PSEC; RCKY; RDS/A; RGR; SSL; STO; SUP; T; TEO; TGA; TICC; TNH; TX; UVV; VIV; and WSTG. I may add to some of these positions too from time to time.
I shall in addition be investing further in Berkshire Hathaway once its share price falls under P/Bk 1.2.
Whether trying new things or sticking with a long-term regimen, may we all have a prosperous 2016!
1/4/16-No assets followed here have been sold since the last entry.
Qualcomm, Inc. (QCOM) (recent price $50.12) (annual yield 3.8%), already among our High Quality assets, has been added today to our Dividend Value portfolio.
1/6/16-No assets followed here have been sold since the last entry.
In light of the recent downturn, have reviewed potential candidates for the followed portfolios. New assets were not found that meet current criteria.
Though all have been previously mentioned, my favorites at this point are as follows: QCOM for our Dividend Value portfolio; RCKY for our Low P/Bk portfolio; VLO for our Low Trailing P/E portfolio; and AAPL, QCOM, and SLB for our High Quality portfolio.
I continue to find BRK/B too high for new share purchases.
1/9/16-No assets followed here have been sold since the last entry.
In a recent post (1/2/16) I wrote: "However, in future the larger of those totals, albeit still advancing at least 13.5% on average per year, will be attained as the sum of asset shares' revenue plus book value, which I think better reflects a larger emphasis on strong portfolio profit generation..."
Oops. There was something wrong with my math there. The sum of book value plus revenue per share times the total number of equity shares in our nest egg is likely to be substantially higher than the total book value alone. I should have said the average of asset shares' revenue and book value. Even that figure is likely to be significantly different than the total book value from the year before. Accordingly, since comparing apples and oranges is not very useful, in the next few weeks I'll come up with a new baseline amount (our asset shares' revenue and book value divided by two), from which future targets can be projected.
1/28/16-Since our earlier entries, the following asset (now with price to book about 1.00 and dividend payout ratio over 90%, above the safe dividend range) was sold from the Low Price to Book Value portfolio:
PRE, bought on 3/9/14, redeemed on 1/28/16 for a gain of 39.21%.
That return is after commissions but does not include any dividends. The buy/sell dates, amounts, and results have been added to our spreadsheet for Low Price to Book Value closed positions and will be incorporated into the stats of our quarterly performance reports.
With the downturn having continued, am again seeking potential candidates for the portfolios followed here.
My favorites at this point are: ANAT; ATW; CSCO*; MN; QCOM; RCKY; and VLO for our Dividend Value portfolio; ANAT; ATW; BHE*; MN; and RCKY for our Low P/Bk portfolio; ATW; MGA; MN; TSO*; and VLO for our Low Trailing P/E portfolio; and BEN* plus QCOM for our High Quality portfolio.
BRK/B, at $126.01, is a hair above my buy target of $125.75, though it has been lower than that recently, and we acquired some shares then to add to our existing BRK/B portfolio.
Shares of all of these assets are in our nest egg already or being added to it.
(*a new recommendation)
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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.