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April, 2010: 1 4 18 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.

(The statistics combine portfolio open and closed position results and are effective as of the end of trading yesterday, 3/31/10. Dividend income has not been included in the table's performance figures. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX performance.)

( *since inception, 10/4/04)
( **since the Five-Star Stocks and Low Price to Book Value Portfolio inceptions, both on 5/14/09)
(***since Low Price to Earnings Portfolio inception, 1/14/10)
(****SPX is used as a proxy for the S&P 500 Index.)

Observations about the portfolios:

• As usual, despite the results being shown for the newer portfolios (those begun after the Classic Value Portfolio), please note that those stats, especially the annualized performance figures, are not as meaningful as if the portfolios had been ongoing longer. However it turns out, the results should be clear, for these are our actual investments, not hypothetical holdings or trades.

• It seems reasonable for Classic Value, due to its longer history, to calculate the potential total returns, based on the above figures plus a conservative estimate of an average annual dividend of 1.7%. This shows an overall CV annualized total return of 8.84%, a respectable record given the recent performance of the market averages.

Meanwhile, our net asset value has increased since early January and is a few percent higher than its level at the end of 2007. Since that earlier portfolio high point has again been surpassed, but the market has had quite a good run after the low point (in early March, 2009) we are being conservative and keeping equities at just about 65% of our total. Thus, if there is a new downturn, we have a cushion of reserves with which to take advantage of new bargains.

As of the close of trading yesterday, 3/31/10, our equities stood at just above $600,000, a little more than double their level at the 2009 low.

Our only debt remains the small mortgage on our house, at a 5.5% rate, representing 2.0% of our net asset value.

My wife and I continue to increase total equity book value. As of the end of the first quarter, 2010, it is up about 3% since the last summary and on track again to meet or exceed its 12.5% annual growth target.

By the way, although it is tempting to throw in some odd numbers, given today's date, the figures indicated are as accurate as I can make them.

We wish everyone a rewarding second quarter of 2010!

4/4/10-Since the last entry, I have (finally) noticed that a sale in the Low Price to Book Value portfolio was not properly recorded or noted here. VVI, bought on 5/28/09 for $14.66, was sold on 3/8/10 for $20.35. Net of commissions, but not including any dividends, the trades resulted in a before tax profit of 17.92%. This asset has been deleted from the Low Price to Book Value open positions spreadsheet and its buy and sell info added to that portfolio's closed positions record.

Review of the last quarterly analysis calculations also revealed that they were in error for the Low Price to Book Value portfolio. Effective 3/31/10, with the corrected amounts included, the portfolio's annualized performance, not counting any dividends, turns out to have been 18.93% rather than the 8+% indicated before. The appropriate values have therefore been adjusted on the 4/1/10 entry. Average dividends of course would raise the total annualized return, likely to at least 19-20%.

Another Classic Value (CV) pick, LECO, purchased on 3/30/09, has been held a year or more. It will be sold at the early market price tomorrow morning, 4/5/10. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 3/30/09 to 4/5/10 per share performance. Through the close of trading on 4/1/10, after subtracting a commission (while not counting any dividends), LECO has been up 76.27% in the past 12(+) months.

My current top-five low price to book value stocks are: ASI; CBR; CSS; MIGP; and SATS.

My favorite among them is EchoStar Corp. (SATS) (recent price $20.14). It meets Benjamin Graham's bargain stock safety and value criteria.

EchoStar Corp. will be added to our nest egg at its market price early tomorrow morning, 4/5/10.

4/18/10-Since the last entry, no previously mentioned assets (in a hypothetical or actual portfolio) are considered ready for sale.

My current top-five low price to earnings stocks are: AOB; HS; ITI; MRK; and NE.

My favorite among them is Merck and Company (MRK) (recent price $35.71). It meets Benjamin Graham's bargain stock safety and value criteria.

Merck and Company will be added to our nest egg at its market price early tomorrow morning, 4/19/10.

4/28/10-Another Classic Value (CV) pick, SPAR, purchased on 4/28/09, has been held a year or more. It will be sold at the early market price tomorrow morning, 4/29/10. It will then be removed from the CV open positions portfolio, and its closed position info recorded, based on the 4/28/09 to 4/29/10 per share performance. Through the close of trading today, 4/23/10, after subtracting a commission (while not counting any dividends), SPAR has been down 6.68% in the past 12 months.

Over 125 assets have now been mentioned in connection with my hypothetical CV portfolio, which began in early October, 2004. With the sale of SPAR early tomorrow, that portfolio comes to an end. If SPAR's price in the morning then turns out to be the same as its closing price today, the average annualized performance (net of commissions, but not counting dividends) of all CV cited stocks for the past more than five and a half years would be 7.24%. With dividends included, the net total return would be between 8-9% for simply holding the assets a year plus a day, or till bought out by or merged with other companies. In other words, they have proven to be reliable, if not stunning, achievers in some of the most difficult market conditions of my or most of our lifetimes.

As mentioned previously, I now believe it would probably be better not to simply sell traditional value assets at the end of a year and a day hold period, but instead to sell them after being held up to about two years or till they have attained their value targets, whichever first.

For instance, if an asset is bought with a price to book value of 0.67, it might be sold if it reaches a P/Bk of 1.2 or above (for a probable net gain of around 75% or better, assuming book value had remained the same or had increased during the interim), but, if not, then the security could be sold after being held a couple years. I think with this approach to selling, one would likely have even better overall returns than with selling fairly automatically after a year and a day.

Another variation on the sell rule (inspired by the example of one of this journal's readers) might be to use formal or mental stop losses once an asset has achieved its usual sell target. Thus, if the price keeps going up, gradually increased stop loss orders would normally assure most of the equity's gains above target would be captured.

Yet another sell technique that might be profitably employed is to sell only if an asset does not at the time of redemption have a 5-star rating through the MSN Motley Fool CAPS system, five stars being its highest rating. (Re that, please also see just below.)

Also since the last entry, a 5-Star Stock pick, ESV, purchased on 6/18/09, met its sell criteria since, at least briefly, it fell from its previous 5-star status. It was sold on 4/23/10 for a net gain of 34.28%. It has been removed from the 5-Star Stock open positions portfolio, and its closed position info recorded, based on the 6/18/09 to 4/23/10 per share performance.

Thus far, six of our previous 5-Star Stock purchases have now been sold. On average, they have been held 193 days and in that period have shown a mean price rise of over 29%. This works out to an annualized performance of around 56%. With dividends included, the annualized 5-Star Stock total return would therefore be about 57-58%, if other 5-Star Stocks wind up being as profitable. (Remember that what I am calling "5-Star Stocks" are low debt (D/E = 0.33 or less) assets, as well as meeting Ben Graham low price to value criteria, plus having MSN Motley Fool CAPS system 5-Star ratings at the time the shares are bought. They are then sold once the price to value is 1 or above, the asset no longer has a 5-Star CAPS rating, or both.)

Although I am no longer buying such assets specifically for a 5-Star Stock portfolio, I do consider the 5-Star CAPS rating when selecting among candidate low price to book value or low price to earnings assets. Today's pick, for instance, meets both low P/Bk and 5-Star criteria.

My current top-five low price to book value stocks are: GTSI; HAST; HQS; IPSU; and SYMS.

My favorite among them is Imperial Sugar Company (IPSU) (recent price $16.40). It meets Benjamin Graham's bargain stock safety and value criteria.

Imperial Sugar Company will be added to our nest egg at its market price early tomorrow morning, 4/29/10.

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