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May, 2005: 5 9 19 25

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.

Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are now in the red, down 0.73%, Classic Value (CV) is up just 1.71%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 3.62% (as of the markets' close today), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up a mere 0.49%. The LL portfolio has been particularly volatile and frustrating, rising to a paper profit of over 16%, then falling about 15% from there to its current inauspicious level. (The comparisons are based strictly on price appreciation, which excludes dividends, though commissions have been subtracted from the portfolio gains & not from the S&P 500 Index record.)

As mentioned before, please bear in mind that the average holding period in the tracked portfolios has been about half the 7 month period since the contest inception. It is still quite possible that the portfolios will have redeemed themselves by the time the mean holding duration reaches a full year.

For this week, the new selection will be added (at the market price early on 5/6/05) to the tracking portfolio for the Leapin' Lizards. Besides existing portfolio assets, I can find only one new candidate stock that meets all of our basic buy criteria: HUBG.

Thus, willy-nilly, my choice is The Hub Group (HUBG) (recent price $56.00), which has a market cap of $582.34 million, a relatively high P/E of 28.04, an attractive price to sales ratio of 0.39, a roughly average price to book value ratio of 2.53, positive free cash flow, no dividend, a return on equity of 10.79%, a current ratio of 1.15, and a debt to equity ratio of zero. HUBG has a performance thus far for 2005 of 5.32%, and it is up 59.21% relative to the S&P 500 Index over the past 52 weeks.

If later in some week(s) there are no new qualifying candidates for a tracked portfolio when it is time to add shares to it, but some of the existing portfolio holdings still meet the minimum criteria, I'll select what appears to be the best of those for additional investment.

Although I am finding only a precious few qualifying LL stocks, either new or existing holdings, there are a number of securities in general that have current appeal and which I am buying for our nest egg on significant market dips: AA; ACE; AIG; BER; BRK/B; HD; RE; and RSAS.

5/9/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are ahead just 0.19%, Classic Value (CV) is up a mere 1.43%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 3.53% (as of 10:30 AM today, Central Time), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up only 0.81%. (The comparisons are based strictly on price appreciation, which excludes dividends, though commissions have been subtracted from the portfolio gains & not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been about 110 days (3.6 months) vs. twice that for the S&P 500 Index's hypothetical holding period, since the beginning of the contest. Still, the underperformance of both tracked portfolios is worrisome. Clearly, if it persists, one would do better and with less work to simply put one's hard earned funds into either an ETF or a low cost mutual fund that mirrors the S&P 500.

For this week, the new selection will be added (at the market price late in today's stock trading session) to the Classic Value tracking portfolio. The final candidate assets are: IPS; NUE; PCU; PD, and SCHN.

My choice among them is Schnitzer Steel Industries, Inc. (SCHN) (recent price $25.89), which has a market cap of $788.82 million, a terrific P/E of 5.10, a price to sales ratio of 0.99, an attractive price to book value ratio of 1.54, positive free cash flow, a 0.30% dividend, a payout ratio of only 1.29%, a return on equity of 37.73%, an operating margin of 30.56%, a healthy current ratio of 2.83, and a debt to equity ratio of just 0.09.

5/19/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are once more down, this time by 0.38%, Classic Value (CV) is up 4.03%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 5.04% (as of 9:00 AM today, Central Time), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up only 1.83%. (The comparisons are based strictly on price appreciation, which excludes dividends, though commissions have been subtracted from the portfolio gains & not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been about 115 days (roughly 3.8 months) vs. around twice that for the S&P 500 Index's hypothetical holding period since the beginning of the contest. So to a degree the relative performance of the S&P 500 Index since 10/4/04 vs. our portfolios is a comparison of apples and oranges. Nonetheless, the continued and significant underperformance of the Leapin' Lizards causes me to wonder if investing in them can be worthwhile. While they did exceptionally well in the mainly bullish market during their first few months, subsequently, in a trading range or bear market, they lost all their gains and then continued to go down even as the S&P 500 Index was holding its own. The jury must still be considered to be out on the overall contest, but if this were a cancer study I'd be inclined to cease the use of the LL "therapy" right away, in favor of the CV "treatment."

For this week, the new selection will be added (at the market price late in today's stock trading session) to the Leapin' Lizards tracking portfolio. Just as the last time we were seeking candidate assets for the LL selection, few new assets can be found that meet our criteria: INMD; KND; and SGR.

My choice among them is Kindred Healthcare, Inc. (KND) (recent price $38.70) which has a market cap of $1.49 billion, a fairly average P/E of 17.80, a price to sales ratio of just 0.46, a price to book value ratio of 1.91, positive free cash flow, no dividend, a return on equity of 14.81%, an operating margin of 4.73%, a current ratio of 1.56, and a debt to equity ratio of just 0.08. Despite the negative market generally, KND is up this year 29.42% and is ahead 55.37% in the past 52 weeks, relative to the S&P 500 Index.

As mentioned here before, although there are few good investment options among the Leapin' Lizards, I am still finding attractive stocks overall. Currently, BRKB, CVX, HD, PD, and RDN are among my favorites.

So far this year (again as of 9 AM, Central time today), the S&P 500 Index is down 1.9% (about 1.0% if dividends are included). Meanwhile, before excess expenses, our nest egg's net asset value is down 1.3%. However, after $11,424 in excess expenses over our retirement income, our total portfolio's net asset value is down 3.0%. I'm still hopeful we can once more have a positive year, even after expenses, relative to the S&P 500 Index. We'll see.

5/25/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are up just 0.50%, Classic Value (CV) is up 4.48%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 4.86% (all statistics as of 10:30 AM today, Central Time), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up only 2.49%. (The comparisons are based strictly on price appreciation, which excludes dividends, though commissions have been subtracted from the portfolio gains & not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been about 118 days (roughly 3.9 months) vs. around twice that for the S&P 500 Index's hypothetical holding period since the beginning of the contest, so the apparent outperformance of the S&P 500 Index in the above stats may turn out to be premature.

For this week, the new selection will be added (at the market price late in today's stock trading session) to the Classic Value tracking portfolio. The top candidates are: CI; CLF; CVX; NUE; and OUTL.

My choice among them is Nucor Corp. (NUE) (recent price $50.82) which has a market-cap of $8.14 billion, a quite low P/E of 6.10, a price to sales ratio of 0.66, a price to book value ratio of 2.15, positive free cash flow, a 1.20% dividend (with a dividend payout ratio of 8.92%), a return on equity of 36.00%, an operating margin of 16.96%, a current ratio of 3.00, and a debt to equity ratio of 0.24.

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