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July, 2002: 6 12 19 24 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.

7/12/02-AAII has a number of stock screens, updated approximately monthly, with supplementing software that permits an investor to screen stocks oneself in accordance with the same or his/her own criteria. Have decided to use some screening variables from one of their most successful screens, that using the principles of value investor, Joseph Piotroski (up 300% in the last 4½ years), who suggests purchase of stocks with price to book less than one and meeting nine other filters for "solid and improving financials." To these I am adding two more parameters: price to book must be .66 or below and debt to equity must be .33 or below. I shall hold selected Piotrosky stocks for at least one month or till no longer meeting his screen criteria, whichever greater. Just two such stocks have been found so far, Industrias Bachoco ADR (IBA) and Instrumentarium Corp. ADR (INMRY). I do not know, since there is a large spread between bid and asked on both of these, if I'll be successful in purchasing some of each at the requisite level. I have placed limit orders at the current asked prices, since they are within my price to book .66 or below guideline. The intention is to develop a small portfolio of about five such assets, as a starting minimum, worth altogether about $10,000. If the approach continues to be successful, I'll just run with it indefinitely. Because there is quite a bit of potential trading involved in this strategy, I am limiting it so far to a tax deferred account.

7/19/02-Was more successful than I'd hoped with my orders for IBA and INMRY (reference above entry). IBA was purchased at $ 9.40, for a price to book value of 0.595. INMRY was bought at $24.61, giving those shares a P/BK of .58.

I am, in light of the market continuing to plummet, especially in utility, telecommunications, and cable industry sectors, forgoing the intentions to keep 25% of assets in the original four categories of assets and to maintain a rate of growth of equities of 10.25% per year.

Instead, the emphasis will be, first, on increasing the book value of the equity portfolio at least 10% annually and then on gradually increasing Benjamin Graham and other good value bargain asset holdings, on a dollar cost average basis, without specific targets.

Our holdings (the incredibly shrinking portfolio!) are now down almost $100,000, as even the DJIA is significantly below the level of shortly after the September 11, 2001 terrorism. At slightly above 8000, it is where it was almost four years ago. In percentage terms, other major indexes are down much more. Meanwhile, our expenses this year have been, and continue to be, unusually high. We are definitely feeling the pinch.

7/24/02-The markets' drop over the past three weeks or so (till today) has reduced the equity portion of our assets to about 60% of the current total. Rather than "fight the tape" I've decided to maintain an allocation of 60% in stocks or stock mutual funds, 30% in bond, real estate, or collectible assets, and 10% in reserves.

Meanwhile, while prices have been low, I've been picking up some good bargains, including Equity Office Property (EOP), a low-risk REIT with an 8% yield, and Rayonier (RYN) which, with its timber holdings, has an intrinsic value of about $70/share but was selling for about $45.

Have also been adding to our bond holdings, with Vanguard's low fee funds, including its Total Bond Index Fund, High Yield Corporate Bond Fund, GNMA Fund Investor Shares, and Long-Term Corporate Bond Fund. If held a number of years, these are likely to provide average annual returns of 6-8%.

7/29/02-Happily, despite my selling over $8000 in assets, to reduce debt, after an earlier surge in the market, and our currently having only about 60% of our assets in equities, renewed upward movement in stock prices over the last few sessions has raised the current total portfolio 4.2% (6.9% if one considers the equity portion alone), or more than $21,000, just since the previous entry. If there is in the next several trading sessions continued upward pressure on prices, it may be appropriate to reduce debt further, with additional selling of assets that do not have a high dividend, good prospects, or a low price to book ratio. Once debt has been reduced to a very low level, though, it would seem wise to simply allow the stock portfolio to increase substantially, with the hope of regaining some of the portfolio dimensions that prevailed through last year. Certainly, if there remain excellent bargains out there, even though equities are going up, it would be a shame not to use our available other resources to take advantage of them, given that they have implicit "margins of safety" in the bargain levels themselves. Nonetheless, overall and in general, it does seem best now to maintain a roughly 10/30/60% allocation for reserves, non-equity investments, and stocks, respectively, bearing in mind that, by historical standards, the equity markets as a whole are still far from cheap.

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