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May, 2010: 4 6 18 21

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.

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

My favorite among them is American Oriental Bioengineering (AOB) (recent price $4.03). It meets Benjamin Graham's bargain stock safety and value criteria.

American Oriental Bioengineering will be added to our nest egg at its market price early tomorrow, 5/5/10.

5/6/10-Since the last entry, there have still been no new portfolio sales or stocks ready for sale among assets followed here. So, no redemptions are indicated at this time.

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

My favorite among them is HQ Sustainable Maritime (HQS) (recent price $5.19). It meets Benjamin Graham's bargain stock safety and value criteria.

HQ Sustainable Maritime will be added to our nest egg at its market price early tomorrow, 5/7/10.

The S&P 500 Index is down about 7% in the past 10 calendar days. At one point, the DJIA was down about 9% just in today's trading. Panic selling combined with trading errors and computer effects with thin volume all came into play. When others are selling, as a rule I prefer to be a buyer. If the markets keep heading south, that is when we can deploy reserves to purchase assets at bargain prices. Later, when others are net sellers, there will be plenty of opportunity to sell stocks that no longer look as attractive as when purchased.

5/18/10-Since the last entry, a 5-Star Stock pick, SLI, purchased on 8/5/09, met its sell criteria since, at least briefly, it fell from its previous 5-star status. It was sold on 5/13/10 for a net gain of 77.32%. It has been removed from the 5-Star Stock open positions portfolio, and its closed position info recorded, based on the 8/5/09 to 5/13/10 per share performance.

Also since the last entry, another 5-Star Stock pick, SPAR, purchased on 9/18/09, met its sell criteria since, at least briefly, it too fell from its previous 5-Star status. It was sold on 5/17/10 for a net loss of 7.28%. It has been removed from the 5-Star Stock open positions portfolio, and its closed position info recorded, based on the 9/18/09 to 5/17/10 per share performance.

With only nine 5-Star Stocks having been selected and bought last year, and now seven of them having been sold, their closed positions record continues to be excellent. As a group, they are up 30.14%, with an average hold period of 204 days or 0.63 years, for an annualized gain of 52.14%.

As mentioned previously, while I am not now formally tracking new purchases in a 5-Star Stock portfolio (because it was becoming difficult to reliably find good purchase candidates that met both classic value and 5-Star ratings status), I am taking note of stocks' star ratings when considering ones to buy for the Low P/E or Low P/Bk portfolios. Everything else being equal, I am more likely to choose and buy value stocks that have 5-Star Status, when they are available.

My top-five current low price to earnings stocks are: AOB; ENH; NE; PTP; and VR.

My favorite among them is Validus Holdings, Ltd. (VR) (recent price $24.71). It meets Benjamin Graham's bargain stock safety and value criteria.

Validus Holdings, Ltd. will be added to our nest egg at its market price early tomorrow, 5/19/10.

Recently Jim, one of this journal's regular readers, and I, just for the fun of it, decided to try something entirely at odds with the usual approach here of selecting and investing in value stocks that hopefully may show good potential in a year or two and then be sold and replaced with other stock bargains. Besides this typical value investing mode, we decided to try our hands at investing for the rather long-term. We came up with a list of ten stocks each, that potentially would be held for a decade.

I believe Jim's approach to the game was to look at sectors with good growth prospects and, among them, individual stocks that appear to have value features for the long haul. Here (in the table just below) is the list he came up with plus how it worked out when, again just for fun, I invested in his selections last Friday, 5/14/10, so we can keep track of how his picks are doing over the ten years ahead. (For comparison purposes, relative to both Jim's and my ten stocks to be held up to a decade, we shall use SPX as a proxy for the S&P 500 Index. As of the close of trading on 5/14/10, it stood at 1136.)

In my case, I looked at stocks or exchange traded funds (ETFs) that seem to have good possibilities in the years ahead, but also emphasized in my choices foreign assets. While they certainly may have more risk as a group than domestic equities, it seemed to me they have more upward potential as well. Here, then, are my ten picks.

We are not recommending these purchases for anyone else. It is possible some of them might be of interest for others, but if so it is hoped they will carry out their own due diligence before making any buys for their portfolios.

Jim and I simply felt it might be amusing to attempt something so at variance with the routine emphasis here (that is almost exclusively centered on turnaround situations). Most likely, this exercise will confirm that a more short- to medium-term focus is relatively profitable. However, we went into it with the intention of at least beating the major market averages and, just maybe, of choosing securities that even could do better than the average value bargain targeted for sale (once attaining its value potential) in only several months to a few years, i.e. for low price to book stocks, those likely to be sold after reaching a price to book value of about 1.2 or above.

I shall be tweaking the portfolios a bit, not simply leaving all the assets in each portfolio untouched for the next ten years. Rather, at a convenient time after a year and a day, I shall be selling the one asset from Jim's portfolio and also from mine which has in the interim performed least well and applying the net proceeds to the purchase of more shares of the one from each respective portfolio that has done best. This set of trades will be done again in each of the following four years, leaving a core of five of Jim's stocks and five of mine by about mid-2015. These will then be followed for the balance of the decade ahead to see if one portfolio does significantly better than the other and if each does better than an initial buy-and-hold investment in the S&P 500 Index would have.

From time to time, I shall be noting here how Jim's and my long-term picks are doing. May the best portfolio win!

While it would be ironic and pleasant if either of our decade-long portfolios actually does better than the shorter-term trading I suggest more often, I am not really anticipating that outcome. However, let us see what happens. If this approach does well, and my own longevity permits, it may be repeated in 2020 (when I shall be 76 and Jim, I think, would be 68).

5/21/10-This morning, I purchased about $10,000 in new shares of BRK/B plus $5000 each in LMT, TRH, and CSS, the latter two low price to book value assets. The correction remains intact, but I do not expect a massive plummet such as we saw in late 2008 through early 2009. So, intend gradually increasing our nest egg's book value tally during such good buying opportunities, and then later selling weaker or more fully priced assets once markets are gaining again.

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