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February, 2005: 7 13 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. |
2/7/05-The market's overall comeback in the past week or so has been good for our nest egg portfolio which is now down just 0.4% for the year (after our expenses), compared with -.8% this year for the S&P 500 Index.
Our equity book value total now stands in excess of $361,000 (with a 2005 year-end target of $342,000).
In the Leapin' Lizards vs. Classic Value competition, the Leapin' Lizards still are jumping head over tail above the Classic Value average, up 18.47%, while Classic Value has appreciated just 4.35%. The S&P 500 is up 6.18% since the 10/4/04 contest inception. I keep thinking the Leapin' Lizards, like the proverbial hare, will run out of steam before reaching the one year finish line, while the tortoise-like Classic Value assets may in time prove their worth, but so far that certainly is not how it is working out.
The selection for the competition this time will be added (a little later today at the then market price) to the Leapin' Lizards tracking portfolio. The five finalists are: AE, HUBG, MANC, MTLM, and USG.
My favorite among them is Metal management, Inc. (MTLM) (recent price $27.98), which is up 52.63% relative to the S&P 500 Index in the past 52 weeks. MTLM has a price to sales ratio of .42, debt to equity of just 0.05, price to earnings of only 6.69, positive free cash flow, a respectable current ratio of 1.79, a return on equity of 47.67%, an operating margin of 8.39%, and a small dividend (1.10%). Its market capitalization is micro-cap, at $667.35 million. This asset has momentum in its favor but also meets both Benjamin Graham value and safety criteria.
2/13/05-I continue to be impressed with the sustainability of the Leapin' Lizards' lead in their competition with Classic Value's assets, the former now ahead 15.52% vs. the latter's mere 3.82%. Since the contest's inception, on 10/4/04, the S & P 500 Index has appreciated 6.45%. (As indicated previously, the figures do not take into account either the portfolios' or the S&P's dividends. However, the purchase commissions have been subtracted from the LL and CV tracking portfolios.)
I note that if one were to create a combined Classic Value and Leapin' Lizards portfolio, half in each, at this point it would have relatively great safety, yet a performance, in its first 27 weeks, of 9.67% almost exactly 50% higher than that for the S&P 500, despite the fact that the average holding period of the portfolio's holdings is only a little over three months, about half that of the S & P 500 in the comparison period. Of course, over the balance of the hypothetical CV plus LL assets' portfolio tenure, it remains to be seen if their combined appreciation will still average better than the market.
The current selection will be added, at the early Monday morning (2/14) market price, to the Classic Value tracking portfolio. The five best candidates I have found are: CECX, GFR, HGGR, HRSH, and SCHN.
My favorite among them is Great American Financial Resources (GFR) (recent price $16.09). GFR has a micro-cap market capitalization of $757.13 million. This asset has a low P/E (7.91), price to sales (0.74), and price to book ratio (0.72). The price to free cash flow is quite low, at 2.17. The return on equity is 9.78%. Operating margin is 13.72%. There is a small dividend (0.63%), with a 4.9% dividend payout. The debt to equity ratio is reasonable, at 0.29. Let's hope GFR will prove a good Valentine's Day gift to the laggard Classic Value portfolio.
Our retirement nest egg is having a hard time getting airborne so far this year, down 0.5% since 12/31/04 after our expenses, but I'm optimistic for it over the long-term.
2/21/05-In the Leapin' Lizards vs. Classic Value competition, the Leapin' Lizards remain ahead (up 16.12%), while the Classic Value average holding is still far behind (up 3.57%). The S&P 500 Index, since the competition's 10/4/04 inception, is up 6.18%.
Our selection this week will be added effective with the early trading market price on Tuesday, 2/22, to the tracking portfolio for the Leapin' Lizards. The final five candidates are: AE, DELI, HUBG, INT, and SGR.
The choice among them is Adams Resources and Energy (AE) (recent price $23.88). Its price to sales ratio is quite low at only 0.05. The price to free cash flow is just 7.65. Market capitalization is in the nano-cap range at $100.73 million. AE's P/E and P/BK ratios are below average and reasonable, at 13.11 and 2.07 respectively. Return on equity is 17.39%. Debt to equity is low, at 0.24. There is a small dividend (1.26%), with a dividend payout ratio of 12.63. AE is up 83.50% relative to the S & P 500 Index in the past 52 weeks, and up 35.37% already in 2005.
2/28/05-A few weeks ago I criticized The Motley Fool site here. However, I was wrong. I have since come to see that there is much worthwhile in their Discussion Boards, particularly the one for Mechanical Investing (MI). I'd recommend any investor interested in purchasing individual stocks check out their investment-related boards.
In addition, it may be remembered that when I began the Leapin' Lizards vs. Classic Value competition my intuition was that the momentum driven Leapin' Lizards would probably not do as well over time as the Classic Value assets. It is too early to come to a conclusion on that, but I have noticed that a number of momentum or momentum-plus-value-blend screens and strategies discussed and available through TMF MI Discussion Board have had excellent long-term performances.
I am impressed enough by both our Leapin' Lizards and the MI screens to revise our nest egg, incorporating some of the more powerful MI techniques. Such approaches often turn out to be more volatile than the major averages, however, so my intention is also to gradually raise cash reserves, to be used for buying bargain assets after major downturns.
Through 2/28/05, the post-10/4/04-inception performance (not counting dividends) of the tracked portfolios is as follows: Leapin' Lizards, up 13.75%; Classic Value, up 4.75%. The S&P 500 Index is up 6.36% in the same period.
This week, these assets seem attractive for addition to the Classic Value tracking portfolio: APFC; CERG; GTIV; OSTE; and USG.
My choice among them is Ceres Group, Inc. (CERG) (recent price $5.36). CERG has a market capitalization of $185 million. Its P/E is low at 8.93. The price to book value ratio is low as well, at 0.91. The price to sales is only 0.38, and debt to equity is 0.06. Return on equity is 10.91%. Its operating margin is 5.10%. CERG has lately received "buy" and "strong buy" recommendations.
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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.