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April, 2012: 2 8 15 23 29

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.

Observations:

The first three months of 2012 have seen the best quarterly performance of the averages in decades. This development is certainly reflected in the results for our monitored portfolios. The mean result for our five followed here was an increase of 16.17%. With dividends added in, their average total return since inception would have been about 18.50%. Most of these gains occurred in just January through March of 2012.

As these portfolios are a significant portion of our overall nest egg, it is not too surprising then that my and my wife's combined net asset value (including not just stocks but bond assets, stable reserves such as money market funds, and a little bit of real estate) rose 10.00% in that period, adding $99,000 to the market value of our bottom line.

Since we anticipate that, as it has always done in the past, the market will fall after a period of such bullishness, we have significantly been raising our stable liquid holdings (in anticipation of purchasing bargains later) by selling off currently less attractive stocks as prices have been going up.

Despite redeeming a number of our holdings, we have retained enough high book value assets that, together with our other holdings, we are still a little above our end-of-year target for total equity book value. As the reader may recall, the intention is for the combination of increased book value targets plus stock (or stock mutual fund) dividends to total 15% annually or better before taxes. As of the end of the first quarter, this end-of-year target has already been achieved for 2012, and now it is just a matter of holding onto the same or better levels of book value and dividends for the remaining nine months. (For more info on my book value calculations, please see this journal's entry dated exactly a year ago, 4/2/11.)

In general, the approach will be to buy good bargains among mostly dividend paying equities when our portfolio has fallen and to sell not so good assets when it has risen.

Currently, our total equity price to total equity book value ratio is 1.03. I prefer it to be lower, reflecting good safety margins, but at least this is not so high as to be alarming.

Concerning the monitored investment categories in the above table, the performance of a strictly buy-and-hold investment in the S&P 500 Index has remained relatively good, if one had stayed out of the bear market that preceded this upswing and then simply bought at the right time, around the spring of 2009, and held on regardless of what the markets have been doing.

As noted previously, though, the index's longer term record has been less impressive. For example, over the past five years, through the close of trading on Friday, 3/30/12, the S&P 500 Index has actually had a negative performance, off about 1%.

The average dividend of the Selective Six Percent Plus (SSPP) portfolio assets is still high, at 6.11%. Thus the effective total return of this portfolio has been just under 25% since inception, with an average hold duration of 0.41 years. I seriously doubt such sterling results will persist, but one can say, at least, that this experimental approach is enjoying a good beginning. (For more on the criteria for the SSPP portfolio, see my entry dated 10/1/11.)

The results so far are also excellent for the lower risk portfolio, B. Graham Div. with Value. With dividends included, this one is up about 13% since its 5/20/11 inception, which, given the average 0.60 hold period, works out to an annualized total return of about 22%. Results from such a short period and small sample of stocks are not statistically significant. On the other hand, they are encouraging.

Concerning the Low Price to Book Value record, while it has been far from dismal, as always I think the closed position outcome is a more reliable measure of a value investment strategy. As indicated before, the day to day or even quarter to quarter fluctuations in a group of open positions can be wide in either direction, but they only become relevant to investment results when equities are sold. Usually one need not accept negative returns but can instead wait for the price one wants before selling.

Through 3/31/12, the Low Price to Book Value closed positions' performances, since the portfolio's 5/14/09 inception, have averaged 31.66%. This works out to 28.56% on an annualized basis. With dividends included, these results would likely be about one percent higher in each case.

I wish everyone a great second quarter!

4/8/12-There have been no assets in our monitored portfolios which have been sold or have had sell signals since the previous entry.

My current top-five low price to book value stocks are: ANAT; HDNG; NWLI; PLFE; and SYA.

My new favorite from among them is American National Insurance Company (ANAT) (recent price $71.77). It meets Benjamin Graham's bargain stock safety and value criteria.

American National Insurance Company will be added to our nest egg at its market price in early trading tomorrow, Monday, 4/9/12.

4/15/12-On 4/12/12, our Low Price to Book Value asset, FDP, purchased on 2/4/10, was sold for a net gain of 8.62%. Though this asset had not achieved a 50% or better gain, it had been held for over two years, and I felt the proceeds could be used for purchase of another asset with greater potential. Info on FDP's cost basis and performance from 2/4/10 through 4/12/12 has been added to the Low P/Bk closed positions spreadsheet, and FDP has been deleted from the record of Low P/Bk open positions.

My current top-five low price to book value stocks are: ANAT; HDNG; NWLI, RGA; and SYA.

My new favorite from among them is Reinsurance Group of America (RGA) (recent price $56.37). It meets Benjamin Graham's bargain stock safety and value criteria.

Reinsurance Group of America will be added to our nest egg at its market price in early trading tomorrow, Monday, 4/16/12.

4/23/12-On 4/16/12, our Low Price to Book Value asset, STC, purchased on 7/5/11, was sold for a net gain of 52.25%. Info on STC's cost basis and performance from 7/5/11 through 4/16/12 has been added to the Low P/Bk closed positions spreadsheet, and STC has been deleted from the record of Low P/Bk open positions.

My current top-five low price to book value stocks are: HMN; JBSS; KCLI; NWLI; and PLFE.

My new favorite from among them is Kansas City Life Insurance Company (KCLI) (recent price $31.62). It meets Benjamin Graham's bargain stock safety and value criteria.

Kansas City Life Insurance Company was added to our nest egg at its market price ($31.62) in late trading today, 4/23/12.

4/29/12-Since the previous entry, there have been no assets sold or which have had sell signals in our monitored portfolios.

My current top-five low price to book value stocks are: AHL; MIG; STC; STM; and STRL.

My new favorite from among them is Sterling Construction Company, Inc. (STRL) (recent price $10.05). It meets Benjamin Graham's bargain stock safety and value criteria.

Sterling Construction Company, Inc. will be added to our nest egg at its market price in early trading tomorrow, Monday, 4/30/12.

Please note that STM (cited above) is not only an appropriate low price to book value asset but also meets the criteria for our Selective Six Percent Plus (SSPP) portfolio. Due to an earlier purchase (9/2011), it is already one of our SSPP holdings. Since I am not particularly keen on prospects for equities' performance going forward, seeing likely greater opportunities for bargain purchases ahead, I shall not add STM shares at this time. For others wishing to participate in the SSPP guidelines and who did not purchase it last year, however, this may be an appropriate new STM entry point.

For various reasons, I believe the higher than typical volatility which markets have experienced recently will probably continue. It would also not surprise me if the average equity return over the next several years is rather low by historical standards. For better or worse, if my estimates of those factors prove accurate, then a buy low, sell high trading approach (such as we attempt with our low price to book value portfolio) may still be rewarding, as may a high yield approach (such as in the SSPP portfolio).

So, in our personal nest egg, we do not feel it necessary to sell off a major proportion of our holdings as a result of a pessimistic outlook for overall stock prices, but instead, so long as there is a nice percentage of one's portfolio currently in reserves or short-term bond assets which may be used to increase total book value during market dips, believe it appropriate to philosophically weather the coming downs and ups of one's holdings, continuing to use them to buy at profitably lower share price levels and sell at profitably higher ones. This does not mean, though, that one will be immune from sometimes gut wrenching pullbacks. On the contrary, they are anticipated but may provide excellent chances for the disciplined investor to pick up new and remarkably favorable deals (steals).

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