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April, 2008: 1 6 14 26

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 3/31/08. Dividend income has not been included in the portfolios' performance. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX gains.)

( *since CV, LL, & SPX inception, 10/4/04)
(**SPX is used as a proxy for the S&P 500 Index.)
(***since WW inception, 1/5/08)

Observations about the portfolio results:

• The total return figures now even more clearly show the two main tracked portfolios to be quite disparate in their results. With conservative dividend rates of about .5% for the open plus closed position LL assets and about 1.7% for the open plus closed position CV stocks, the annualized LL total return to date would still show a loss of around .4%, and the average annualized CV total return to date would be around 11.9%, a difference of over 12% a year.

• As indicated previously, though, I believe the longer term record of the closed positions more accurately reflects the potential and pitfalls of the respective portfolios than do the short-term swings of the open position assets. If we look only at the closed positions, then, we see that both the LLs and the CV assets have held up at least somewhat better. The LL closed position performance has averaged 5.7% compounded annually, for a total return of about 6.2% a year, once a conservative LL dividend of 0.5% has been included. The CV closed position performance has averaged 16.7% compounded annually, for a total return of about 18.4% a year, once a conservative CV dividend of 1.7% has been included. By this method of comparing the two hypothetical long-term portfolios, CV still tops LL by over 12% annually.

• For a hypothetical 50/50 CV/LL Blend, the closed position figures would indicate an annualized total return record of about 12.3%. Incidentally, in my opinion this is not so depleted a return, despite the much lower relative performance of the LLs, as to warrant one's selling off one's LLs early. If one continues to hold depressed assets, there is at least a potential for their bouncing back before the usual year and a day sell point. However, each investor must assess her/his investment needs and portfolio management style in determining whether to sell off assets early, for instance to obtain tax loss benefits, to limit possible further reductions in principal, and/or to put funds to better use with new CV or other investment approach securities.

• The 50/50 CV/LL Blend's overall (open plus closed positions) annualized total return, though, is estimated, given the figures through 3/08, at only about 5.4%, roughly comparable to or a little below the total return for a buy and hold investment in the S&P 500 Index (with dividends) begun on 10/4/04.

• The 50/50 CV/LL Blend's combined closed positions since inception now number 132. Of these, 52 have turned out to be losing stocks in the periods they were held, while there were 80 winners. The win to loss ratio has thus fallen substantially since an analysis of the portfolios 15 months ago (when it was 2.10) to a far more daunting and risky 1.54. The losers were a whopping 39% of the total. As emphasized in a recent entry, I no longer am advising folks to sell all long-term hypothetical portfolio type assets after a year and a day, but rather to assess them on a case by case basis. If at the year plus a day analysis they still represent good price to value, I personally would hold them till that is no longer the case or they have been in my portfolio a couple years, whichever occurs first.

• CV stock picks also have shown themselves more vulnerable to market downturns than they had previously demonstrated. Through 3/08, 35% of the CV closed position assets turned out to be losers, for a win to loss ratio of 1.85, but this is closer to the target win to loss of 2.0 ratio for which I had hoped.

• By contrast, with only 6 more winners than losers, a huge 45% loser rate, and a win to loss ratio of just 1.23, the LL closed position assets have shown themselves to be far too volatile on the downside to warrant future investment consideration.

• CV assets, however, seem to still be proving their worth, holding up reasonably well after several months of a correcting or bear market, and so this approach continues to look like a good way over time to increase one's investment wealth.

• Despite my "nervous Nellie" misgivings about the Wild Wizards (WW) only a few entries ago, a surprise so far is that, even in this most recently down quarter, the worst for the U.S. markets in over five years, these usually high momentum assets have through 3/08 performed fairly well, all things considered. They were at least up when the markets as a whole have been down, and on an annualized basis the combined open and closed position WW assets came close to a 15% average price rise. With a conservative 1.1% estimated average dividend, this would work out to an annual total return of around 15.7%, second only to that of the CV closed position holdings. It is way too early to say this will prove to be a winning approach, but the WW assets (combining low debt, good momentum, investment advisory support, and short-term trades) bear watching and show promise, at least for one's tax-deferred accounts. Therefore I'll continue to feature them here.

• One would expect that a short-term portfolio that is also partly momentum driven would be more hazardous. Sure enough, so far the WW closed positions have shown a 40% loss rate and a win to loss ratio of just 1.50. On the other hand, the annualized performance of the closed position Wild Wizards so far has been 61.90%, for an estimated total return, including estimated dividends, of about 63.0%. If the long-term WW results fulfill just half of such performance prospects, maybe this strategy's potential is worth its somewhat greater risk.

• Because there is always the possibility of unforeseen developments spooking the stock market further and causing large losses to one's nest egg (at least in paper value), I caution again that it seems best to keep debts very low and maintain a reserve of short-term or cash equivalent assets. The individual may vary the percentage of total financial assets set aside in this manner. My own preference is to begin with one-third in such reserves, two-thirds in equities, and then to rebalance if there is more than a 5% shift in the relative valuations due to market strength or weakness. Current conditions, for example, suggest it may be time for shifting more of these reserve or short-term assets into bargain equities, so long as one's optimum non-equity percentage is maintained.

4/6/08-It is a little hard to know how best to handle intervening buy and sell info regarding the Wild Wizards (WW), given that this is a short-term strategy (that depends on changes which may occur in as little as a week or less), and yet my usual time for an evaluation of the WW hypothetical portfolio is, as with the others, about every other week. I believe, to keep things simpler, when I have information or guidance that may be relevant to the WW but before time for my usual buys and sells in that portfolio, I'll just concisely summarize it here, but not yet actually make any changes in the WW portfolio. Thus, for those following the WW approach, if I were doing the Wild Wizards assessment this week instead of next, I would sell MA and CF and then buy, as their portfolio replacements, OMG and SCHN. (Note that it may be a few extra days before my next formal WW analysis. I shall be away next weekend.)

Since the last entry, our Leapin' Lizards (LL) pick, ABM, purchased on 4/2/07, has been held over a year. It will be sold at the early market price Monday morning. It will then be removed from the LL open positions portfolio, and its closed position info recorded, based on the 4/2/07 to early 4/7/08 per share performance. Through the close of trading on 4/4/08, after subtracting a commission (while not counting any dividends), ABM had been down 15.68% in the past 12(+) months.

My top-ten equities for mention today are: CINF; EMCI; FTO; MXGL; ORH; PRE; PTP; SAF; SAFT; and TRMS.

The focus this time is on a new Classic Value (CV) selection, PartnerRe, Ltd. (PRE) (recent price $76.78). PRE's trailing price to earnings ratio is just 6.47. Its forward P/E is estimated at 7.36. The asset's market-capitalization size is mid-cap: $4.16 billion. PartnerRe, Ltd. has a 2.40% dividend, with a dividend payout ratio of 0.14. The price to sales ratio is 1.00. PRE's price to book value is below average at 0.98. There is positive free cash flow. Return on equity is 17.71%. Debt to equity is 0.20. The current ratio is 1.63. This stock has low price to earnings, low debt, low P/Bk, and a healthy dividend in its favor.

PartnerRe, Ltd. will be added to our CV tracking portfolio, as well as our own nest egg, at its market price early on Monday, 4/7/08.

As after my last CV analysis and pick, I am in our own nest egg taking advantage of bargains provided by the recent downturn in the markets to purchase additional first-rate price to value assets. Besides, PRE, I am picking up a number of shares each of CINF, PTP, SAF, and SAFT. These companies' shares may not meet all of the criteria (such as having C.R. 1.50 or above or positive free cash flow [FCF]) that I normally use in making the hypothetical portfolio selections. However, each of these in my view has quite good value and at least meets Ben Graham bargain stock criteria.

4/14/08-In my last entry, I noted a question about how to handle intervening information bearing on the Wild Wizards (WW) portfolio, when it would currently be the turn of Classic Value (CV) to have the new focus. In other words, should I suggest buys and sells for WW when evaluating primarily for the CV assets?

Since then, we have had at least one small test bearing on this. As I indicated on 4/6, it was my suggestion that, based on the information I had at that time, one might wish to sell two of the assets in the WW portfolio, MA and CF, and replace them with shares of OMG and SCHN. The WW hypothetical portfolio, however, was not changed since it was not then time for an evaluation of those assets.

Unfortunately for my wife and I and any others who may have followed this intervening guidance, had one sold MA and CF early on Tuesday, 4/7, their combined net proceeds then would have been a few percentage points lower than their combined sale price less commissions as of the close of trading on 4/13.

Meanwhile, had one bought their 4/6 recommended replacements, OMG and SCHN, their combined purchase prices plus commissions would have been greater than their total price with commissions as of the close of trading on 4/13, a difference again of at least a few percentage points. What is more, as of this weekend's analysis, CF is now again one of the more attractive WW assets, while neither OMG nor SCHN is presently among them.

Overall, then, my wife's and my actual (combined open and closed positions) WW portfolio now falls more than 2% below those of the WW hypothetical portfolio. While the recent relative price changes for CF, MA, OMG, and SCHN might eventually prove to have been flukes, it is evident that one does not necessarily lose by waiting to take action on WW portfolio or candidate assets and might even gain.

Further, it is simpler to keep track of just one portfolio than two independent ones, and also simpler not to provide intervening WW info, requiring as this does about twice as much evaluation as if I just do the WW analyses about every other week. I shall therefore from now on only do the WW calculations (or other WW investigations) when it is time for the next focus on purchase of at least one new WW asset.

Since the last entry, our WW pick, MA, purchased on 2/19/08, has been held at least 4 weeks. And it no longer meets our WW buy or hold criteria. So it will be sold at the early market price tomorrow (Tuesday morning). It will then be removed from the WW open positions portfolio, and its closed position info recorded, based on the 2/19/08 to early 4/15/08 per share performance. Through late morning today, after subtracting a commission (while not counting any dividends), MA has been up 8.33% since purchase.

Since the last entry, our CV pick, ACE, purchased on 4/9/07, has been held over a year. It will also be sold at the early market price Tuesday morning. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 4/9/07 to early 4/15/08 per share performance. Through late morning today, after subtracting a commission (while not counting any dividends), ACE had been down 2.20% in the past 12(+) months.

My top-ten equities for mention today are: APA; AXYS; BRK/A (BRK/B); CF; FAST; ISRG; LNN; MON; NGS; and POT.

My first focus currently is on a new Wild Wizards (WW) selection, Natural Gas Services Group, Inc. (NGS) (recent price $26.06). NGS's trailing price to earnings ratio is 25.70. Its forward P/E is estimated at 18.22. The asset's market-capitalization size is micro-cap: $314.94 million. Natural Gas Services Group, Inc. has no dividend. The shareholder equity to total assets ratio is 0.75. The price to sales ratio is 4.22. NGS's price to book value is 2.67. Return on equity is 11.39%. Debt to equity is 0.13. The current ratio is 3.32. In the last 52 weeks, NGS has risen 75.82%. This stock has advisory support, low debt, and healthy momentum in its favor.

Natural Gas Services Group, Inc. will be added to our WW tracking portfolio at its market price early on Tuesday, 4/15/08.

My second current focus is on another new Wild Wizards (WW) selection, Fastenal Co. (FAST) (recent price $49.01). FAST's trailing price to earnings ratio is 31.72. Its forward P/E is estimated at 23.45. The asset's market-capitalization size is large-cap: $7.31 billion. Fastenal Co. has a 1.00% dividend, with a dividend payout ratio of 0.28. The shareholder equity to total assets ratio is 0.87. The price to sales ratio is 3.59. FAST's price to book value is 7.34. Return on equity is 24.08%. Debt to equity is 0.00. The current ratio is 6.39. In the last 52 weeks, FAST has risen 25.86%. This stock has advisory support, low debt, and modest momentum in its favor.

Fastenal Co. will also be added to our WW tracking portfolio at its market price early on Tuesday, 4/15/08.

4/26/08-I regret the delay of several days in getting this online. Have been ill as well as quite busy. Am better plus more caught up now.

Since the last entry, our Leapin' Lizards (LL) pick, XETA, purchased on 4/16/07, has been held over a year. It will be sold at the early market price Monday morning. It will then be removed from the LL open positions portfolio, and its closed position info recorded, based on the 4/16/07 to early 4/28/08 per share performance. Through the close of trading on 4/24/08, after subtracting a commission (while not counting any dividends), XETA had been up 3.71% in the past 12(+) months.

Since the last entry, our Classic Value (CV) pick, PMRY, purchased on 4/23/07, has also been held over a year. It too will be sold at the early market price Monday morning. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 4/23/07 to early 4/28/08 per share performance. Through the close of trading on 4/24/08, after subtracting a commission (while not counting any dividends), PMRY had been down 36.68% in the past 12(+) months.

My top-ten equities for mention today are: DFG; FLXS; HCC; HDNG; MRH; NSEC; PLFE; PTP; SAFT; and UFCS.

The focus this time is on a new Classic Value (CV) selection, National Security Group, Inc. (NSEC) (recent price $15.50). NSEC's trailing price to earnings ratio is just 6.33. The asset's market-capitalization size is nano-cap: $38.22 million. National Security Group, Inc. has a hefty 5.80% dividend, with a dividend payout ratio of 0.37. The price to sales ratio is 0.55. NSEC's price to book value is only 0.79. There is positive free cash flow. Return on equity is 10.06%. Debt to equity is 0.27. The current ratio is 0.48. This stock has low price to earnings, low debt, low P/Bk, and a healthy dividend in its favor.

National Security Group, Inc. will be added to our CV tracking portfolio, as well as our own nest egg, at its market price early on Monday, 4/28/08.

Incidentally, although I ignored one of my extra CV safety criteria to select NSEC, namely the requirement, when several candidates were available with current ratio 1.5 or above, that I pick one of them, NSEC meets the guidelines for my "Best Value" stocks, so designated after reviewing those low price to value assets which had performed exceptionally well in the period of greatest bargains following the last bear market (that ended in late 2002 or early 2003). These stocks simply had to meet at least 2 of the Ben Graham value criteria in addition to having some dividend, with a dividend payout ratio 0.5 or below, and debt to equity 0.33 or below. Assets I had bought meeting just these simple standards tended to perform admirably over the next year or so after purchase, with an average annualized total return in excess of 60%. Of course, there is no guarantee that NSEC will do nearly so well or even be profitable, but it is encouraging to again find a stock that at least meets these Best Value indicators.

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