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February, 2016: 13 15

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.

GENC, bought on 2/9/14, redeemed on 2/10/16 for a gain of 33.91%.

GURE, bought on 1/26/14, redeemed on 2/10/16 for a loss of 28.55%.

In addition, the following assets (held for two years or more and/or with dividends having been cut or reduced to less than 3.1%) were sold from our Dividend Value portfolio:

DCM, bought on 7/15/13, redeemed on 2/12/16 for a gain of 40.97%.

RDS/A, bought on 7/31/13, redeemed on 2/12/16 for a loss of 36.02%.

The above returns are after commissions but do not include any dividends. The buy/sell dates, amounts, and results have been added to our spreadsheet for Low Price to Book Value or Dividend Value (as appropriate) closed positions and will be incorporated into the stats of our quarterly performance reports.

From my point of view, there continue to be at least a few good buys in equities out there.

My favorites at this point are: RCKY and CALM* for our Dividend Value portfolio; RCKY and TGI* for our Low P/Bk portfolio; TGI* for our Low Trailing P/E portfolio; and BEN plus QCOM for our High Quality portfolio.

BRK/B, at $128.07, remains a bit above my max. buy target of $125.75, though it has again been under this level recently, and we have acquired more shares then to add to our existing BRK/B portfolio.

All of these assets are in our nest egg already or being added to it.

The sharp drop in stocks over the past several weeks, while not without occasional rallies such as we enjoyed on 2/12, can be rather scary even for the long-term investor. Just as was the case in late 2008 to early 2009, one's imagination can come up with all sorts of nasty scenarios, in spite of realizing that in almost every case a truly catastrophic meltdown is not in the cards and that ultimately the odds are excellent for a patient investor to come out ahead in the long run. Despite the horrendous debacle of World War II, for example, between early December, 1941, and the end of the conflict, the S&P 500 Index actually rose 24%. I am as susceptible as the next person, though, to worries as our holdings' present value disappears, sometimes by several thousand dollars a trading session. With greater or lesser success, I try to keep my own anxieties at bay by remembering the following:

1. An excellent investment strategy will in time be proven out by superior returns, even if short-term results are very much in the red.

2. One need only average price appreciation plus dividend results of 12% or better to do well, especially if along the way one supplements that outcome with new investments. For instance, retirement calculators have shown that, starting from scratch and investing $25,000 a year in bargain-priced stocks at a 12% average return over 25 years, one could wind up with more than $3,000,000 after having purchased a total of $625,000 worth of equities. (These stats assume reinvestment of dividends and capital gains and that assets are left untouched in tax-deferred account[s].)

3. By focusing on value-based criteria, such as accumulating in one's portfolio total book value, revenue, or dividends from the assets one is buying, steady gains in intrinsic worth are possible without regard to the ups and downs of the market.

4. Indeed, for a bargain-hunting contrarian, downturns are opportunities to add significantly more value to the nest egg.

5. If in doubt just when to buy, concerned, for example, that a purchase now will not be at the lowest price because the market still has farther to fall, one can remember that a dollar-cost-average approach, buying in roughly equal amounts at regular intervals, of, say, once a month, quarter, or year, assures overall that one will buy more shares at lower prices, fewer at higher.

6. In like manner, if one has designated allocation percentages for one's investment categories, for instance 20% each in short-term reserves and intermediate-term bond funds and 60% in stocks bought at a discount to their value (based on earnings, book value, free cash flow, dividends, etc.), then when an investment category, such as the equities portion, is down 10% or more, while others are at a relatively higher proportion of the whole compared with their intended levels, it is a simple matter to sell off those that have gotten to a higher percentage and use those proceeds to buy more of the category(ies) that now are too low, raising the latter back up to correct levels as a percent of the total, thus with confidence buying low those that have fallen and selling those that are now high, a fundamental rule of good investing, one that works in markets that are very volatile as well as those that are more placid.

(*a new recommendation)

2/15/16-As noted in the entry of 1/9/16, I planned to analyze our overall portfolio for the current average between total revenue and total book value of our nest egg's equity shares. This would then be used as the basis for calculating subsequent targets, based on a growth goal of 13.5% annually. The current figure for the sum of total equity assets' book value plus total equity assets' revenue, and then that value divided by two = $973,182. Prorating through the end of 2016, that means our year-end target for this revenue and book value average will be $1,088,017. That figure will, in turn, be increased by 13.5% for the end of 2017, etc.

Meanwhile, our total equity dividends target remains the same: $25,888 by 12/31/16. It also will be increased by 13.5% for the end of 2017, etc.

Calculating the above values for each stock in our portfolio has shown interesting results for individual securities. For instance, these equities have among the highest averages for revenues plus book value in our nest egg: AINV; ANAT; ATW; BHE; BRK/B; CENX; CNA; CSPI; FLR; FRD; FSTR; GLPW; GM; JOY; LGIH; LPL; MN; NOV; PKX; RCKY; REGI; RRD; SSI; SSRI; SYNL; T; TSO; TX; VLO; VOXX; and WSTG.

All are, I think, good holds. Based on current info, if I were picking from those the ones that appear to have the best value for new investment this week, the list would be whittled down to ten: ANAT; BHE; BRK/B; FLR; LGIH; MN; RCKY; SYNL; TSO; and VLO. Unless or until I can find other stocks as attractive as these, I shall add to their positions this year to maintain our glide path targets for the average of total revenue and total book value in our nest egg.

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