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February, 2014: 2 9 14 23

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.

TX, a Low Price to Book Value equity purchased on 9/12/11, was sold on 1/31/14 for a net gain (counting commissions but not dividends) of 29.09%. Though it obviously did not meet my sell criterion of a 50% or greater net gain, TX had been held for over two years and gave us a small profit. It has been removed from the record of open position Low Price to Book Value assets, and the 9/12/11-1/31/14 performance for this security has been added to our closed position spreadsheet.

Just as recent modest declines in stock prices have made a few more low price to book value bargains available, so have they as well for high dividend equities.

Alphabetically, my current top-five dividend value stocks are: CA; CSCO; CVX; DCM; and SXCP.

My new featured Dividend Value equity is NTT DoCoMo, Inc. (DCM) (recent price $16.00). DCM meets Benjamin Graham's bargain stock value and safety criteria.

NTT DoCoMo, Inc. will be added to our nest egg at its market price in early morning trading tomorrow, Monday, 2/3/14.

Please note that in lieu of certain rigid parameters about low price to value stocks (for instance, that the D/E and dividend payout ratio must each be 0.5 or below or the CR must be 2 or above) I am now focusing on a few stocks which generally look to be a bargain, based on low price to book value (or high dividend) and reasonably low debt and then screening them using the following formula (in parentheses showing, as an illustration, how this works using the recent stats for SXCP):

1. Add both trailing and forward P/E (16.64 + 11.60 = 28.24).

2. Add the product of D/E and 100 (100 x .1960 = 19.60, and 19.60 + 28.24 = 47.84).

3. Add EV/EBITDA (6.60 + 47.84 = 54.44).

4. Subtract 1/2 x [dividend divided by dividend payout ratio] (1/2 x [6.6 divided by .62] = 5.32, and this subtracted from 54.44 = 49.12).

5. Subtract the current ratio (49.12 - 3.42 = 45.70).

6. Multiply that result by the price to book value (45.70 x 1.58 = 72.21).

7. Divide by return on equity (72.21 divided by 12.82 = 5.63).

Everything else being equal, the asset candidate with the lowest result from these calculations is the one I'd like to buy.

I am not saying this should work for everyone or in every situation, but I find it useful and often apply it now for selecting the best pick among a handful of equities that look attractive.

Hope the approach might help others trying to weed through a number of bargain stocks. I developed the formula in order to take into account a variety of value factors at once. It may at least give another perspective to consider. It can offset emotional biases or prejudices. In my case, for example, just looking at the 6.6% dividend, I was inclined to select SXCP. Once the above formula had been applied, however, DCM, even with a yield of only 3.5%, appeared the superior overall choice.

There is, naturally, no certainty in this. SXCP may turn out to have a better business franchise and eventually the greater price gain. Yet the formula steps seem to show which securities on average offer advantageous risk-adjusted returns.

2/9/14-Last week, I sold three stocks that had been purchased at least two years ago but had not yet achieved a 50% or greater gain over the cost basis. On the one hand, I would like to have continued to hold them, awaiting a hopefully better eventual return. On the other, I am aware that stocks have been mostly heading higher for about five years now. By some measures they are also overvalued. There is in my opinion more risk of a correction or a bear market than of missing a runaway bull. Hence the redemptions.

STM, a Low Price to Book Value equity purchased on 9/28/11, was sold on 2/4/14, for a net gain (counting commissions but not any dividends) of 16.13%. It has been removed from the record of open position Low Price to Book Value assets, and the 9/28/11-2/4/14 performance for this security has been added to our closed position spreadsheet.

KMPR, a Low Price to Book Value equity purchased on 12/29/11, was sold on 2/4/14 as well, for a net gain (counting commissions but not any dividends) of 20.40%. It has been removed from the record of open position Low Price to Book Value assets, and the 12/29/11-2/4/14 performance for this security has been added to our closed position spreadsheet.

SCX, a Low Price to Book Value equity purchased on 1/31/12, was sold on 2/4/14 too, for a net gain (counting commissions but not any dividends) of 11.38%. It has been removed from the record of open position Low Price to Book Value assets, and the 1/31/12-2/4/14 performance for this security has been added to our closed position spreadsheet.

Alphabetically, my current top-five low price to book value stocks are: AEY; BVN; DDE; FDP; and GENC.

My new featured Low Price to Book Value equity is Gencor Industries, Inc. (GENC) (recent price $9.31). GENC meets Benjamin Graham's bargain stock value and safety criteria.

Gencor Industries, Inc. will be added to our nest egg at its market price in early morning trading tomorrow, Monday, 2/10/14.

2/14/14-Happy Valentine's Day, folks.

No sales or sell signals have occurred since the last entry among stocks followed here.

Alphabetically, my current top-five low price to book value stocks are: ACAS; AEG; AHL; CUO; and GNW.

My new featured Low Price to Book Value equity is Aspen Insurance Holdings, Ltd. (AHL) (recent price $38.62). AHL meets Benjamin Graham's bargain stock value and safety criteria.

Aspen Insurance Holdings, Ltd. will be added to our nest egg at its market price in early morning trading Tuesday, 2/18/14.

2/23/14-Though no sales have occurred since the last entry, our low price to book value stock, SSRI, purchased on 6/17/13 and on 10/31/13, is currently up over 70% from our average cost basis and has exceeded a price to book value ratio of 1. It will be sold at its market price in early trading tomorrow.

Alphabetically, my current top-five Dividend Value stocks are: AGU; CVX; CSCO; ELP; and UVV.

My new featured Dividend Value equity is Companhia Paranaense de Energia (ELP) (recent price $10.56). ELP meets Benjamin Graham's bargain stock value and safety criteria.

Companhia Paranaense de Energia will be added to our nest egg at its market price in early morning trading Monday, 2/24/14.

Several weeks ago, I introduced a new portfolio, Low Book Dividend Plus, for low price to book value dividend paying assets that did not meet all of the strict guidelines I had been using heretofore when selecting low price to book value equities. However, with the use of the value formula steps suggested in the 2/2/14 entry, I realize the extra portfolio is an unnecessary complication.

Instead, I am now combining the two portfolios under the original Low Price to Book Value heading and shall continue to use the value formula steps to screen in better price to value assets (so long as they at least meet Ben Graham value and safety standards), whether or not they match all of the previously more stringent criteria I had employed.

I have, though, made a small modification in that formula, highlighted with italics in the following copy:

"Please note that in lieu of certain rigid parameters about low price to value stocks (for instance, that the D/E and dividend payout ratio must each be 0.5 or below or the CR must be 2 or above) I am now focusing on a few stocks which generally look to be a bargain, based on low price to book value (or high dividend) and reasonably low debt and then screening them using the following formula (in parentheses showing, as an illustration, how this works using the recent stats for SXCP):

Add both trailing and forward P/E (16.64 + 11.60 = 28.24). (NOTE: For this part of the calculation, if either the trailing P/E or forward P/E is unavailable, use double the P/E value that remains. If neither P/E is available, use 50.)

Add the product of D/E and 100 (100 x .1960 = 19.60, and 19.60 + 28.24 = 47.84).

Add EV/EBITDA (6.60 + 47.84 = 54.44).

Subtract 1/2 x [dividend divided by the dividend payout ratio] (1/2 x [6.6 divided by .62] = 5.32, and this subtracted from 54.44 = 49.12).

Subtract the current ratio (49.12 - 3.42 = 45.70).

Multiply that result by the price to book value (45.70 x 1.58 = 72.21).

Divide by return on equity (72.21 divided by 12.82 = 5.63).

Everything else being equal, the asset candidate with the lowest result from these calculations is the one I'd like to buy."

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