7/1/04-Our emphasis on the purchase of stock in companies with both low price to book value and low debt has worked well, and I've decided to make such assets the cornerstone of our portfolio. No assets shall be purchased with debt to equity (D/E) higher than .33. Ideally, stocks will be bought that also have some dividend, P/S .5 or below, P/BK .59 or below, P/E 15 or below, and payout ratios of .5 or below.
Stocks purchased using other criteria, such as Benchmark Investing equities, may only be added if D/E is .33 or below and P/BK is 2.0 or less.
Everything else being equal, I'll focus as well on stocks that will increase the portfolio's yield, decrease its average P/E, reduce its mean P/S, and lower its overall market-cap.
Industrias Bachoco SA (ADR) (symbol IBA) (recent price $10.00) currently seems attractive. It has a price to book value of 0.55, a P/E of about 4, D/E of 0.02, a good (close to 5%) dividend, and a P/S ratio of just under 0.5. (This security may not do well, but a portfolio of such as this should.)
As of the close of trading today, the equity portion of our Essential Value Portfolio (EVP) was worth $45,233. The cash balance was $14,359, and the resulting total EVP value was $59,592, a 10.4% increase, since the portfolio's 8/18/03 inception, from our $53,970 initial investment.
No new EVP transactions are considered appropriate at this time.
Our overall nest egg is up 6% for the year (vs. 2.6% for the S&P 500 Index). However, once excess expenses (over available income) for the first half of 2004 ($25,000) have been subtracted, the current total portfolio worth is up just 1.9% during the last six months.
Including my retirement annuity and anticipated Social Security payments as principal (the amount, at a conservative 6% annual growth and income rate, needed to generate those checks), our "expanded portfolio" now stands at $1.13 million, of which the equities portion ($458,200) represents 40.5%.
I feel rather uncomfortable with this situation and feel $2,000,000 would be a reasonable minimum "expanded portfolio" for Frances and myself. Its substantially lower present value means we are too vulnerable to any number of potential adverse developments. We can, then, but hope for the best over about the coming decade till a higher reserve of total holdings may be achieved.
7/22/04-Our Essential Value Portfolio (EVP) holding, Imperial Parking Corp. (IPK), has been bought out in a cash merger, at $26/share, with net proceeds of $2548. The 98 shares of this asset have therefore been deleted from the EVP open equity positions, and $2548 has been added to the portfolio's cash reserves. The new equity total is $41,203, and the revised cash amount is $17,007, for a current total of $58,210.
Given that the initial investment in the EVP was $53,970, there has, to date, been a $4240 increase, for a total return of 7.9% after the 8/18/03 portfolio inception.
Since the equity investments were not all made on 8/18/03, but instead many were added with new funds and subsequent purchases (so that the average holding period has been a few months instead of close to a year) and that a significant portion of the portfolio, following the sale of some assets, has been in cash reserves, pending the emergence of more compelling bargains, the portfolio overall has been more conservative than the S&P 500 and, on a risk-adjusted basis, our 7.9% EVP total return compares well with that index's all-equity total return, since 8/18/03, of 9.7%.
Ordinarily, at this point I would be inclined to replace IPK with shares of another value stock. However, there will be no additional transactions for the EVP, and this will be our final EVP report.
Although we have been appreciative of the MSN Money site, software from which has allowed us to easily and without charge track our EVP down to the penny, with dividends added at appropriate times, commissions taken out, archives of our closed positions, displays of open holdings, analyses, etc., MSN Money is now apparently insisting its investment customers upgrade to a new software package, MSN Money Deluxe Tools, which requires Microsoft Internet Explorer Version 6, and that turns out to be incompatible with our computer, as well as with most others (per discussion on various forums). The alternative they offer is to switch to a far less useful basic software package.
It may be I'll need to purchase a subscription to another web site's portfolio tracker, but do not wish to do so impulsively, without careful assessment. A site offering such a service as well as good stock screening, without disabling my computer, would be welcome, and I would gladly accept a reasonable fee. I'll be looking into Yahoo, Quicken, Smart Money, and others, for a good alternative to MSN Money.
Meanwhile, however, I'm suspending the Essential Value Portfolio. It is unworkably complicated to keep up with each change in the portfolio without such ready tracking software, as the holdings are presently in several separate accounts, and the cash reserves pool for each has dividend or other income from a variety of sources, not from the EVP assets alone.
I shall here continue to document, however, our actual nest egg's net asset value, gross and net total returns, and a new analytical feature, the total equities' book value.
The book value and other restrictions indicated in my 7/1/04 entry are, in retrospect, too limiting. Several successful investment techniques give book value only secondary importance, and it would be too handicapping of such strategies' potential to only buy the assets that, besides the method criteria, also meet arbitrary price to book and debt to equity guidelines.
Instead, my approach will be to use winning value strategies and to gradually reduce the overall price to book ratio, while increasing the nest egg's total book value.
The portfolio's total (equity) book value is currently $333,000, while the market value of our equity holdings is $449,000, for an overall price to book ratio of 1.35. (This is considerably better than the market's average stock price to book ratio of about 3.)
As of the close of business today, the cumulative total return of our investment portfolio, since my 12/01 retirement, has been 26.3%. This works out to an annualized return of 9.6%. Net of our $96,803 excess expenses (expenses not offset by retirement income), however, our nest egg's net asset value now stands at $611,900, up 9.1% from its 12/01 level of $561,000, for a net annualized increase of just 3.5%.
Even this compares quite favorably, though, with the S&P 500 Index's cumulative loss since 12/01 of 4.4% or its annualized (post 12/01) total return of -1.8%. (Our portfolio's annualized advantage over the S&P 500 Index has thus averaged 5.3%, after excess expenses.)
Meanwhile, with both the markets and our portfolio recently down, I am now finding a few worthwhile stocks to buy: CREE, CURE, ALL, and BRK/B.
Curative Health Services (CURE) (recent price $6.55) is another classic Benjamin Graham value play. It has a price to book value ratio of 0.58, a price to earnings ratio of 7, a price to sales ratio of 0.4, return on equity of 9%, and a debt to equity ratio of only 0.05.
7/26/04-Effective this morning, I'm purchasing at the market a number of shares each of BOOT and ASHW. These stocks have in common low market-cap, relatively low price to book value, a reasonable price to earnings ratio, low debt, and (not outstanding but) healthy returns on both assets and equity.
LaCrosse Footwear, Inc. (BOOT) (recent price $8.04) has a P/E of 11, market-cap. of $47 M, D/E of 0.12, P/Bk of 1.21, ROE of 12.0%, and ROA of 7.5%.
Ashworth, Inc. (ASHW) (recent price $8.50) has a P/E of 13, market-cap. of $114 M, D/E of 0.20, P/Bk of 1.19, ROE of 9.9%, and ROA of 7.6%.
I think both companies offer good potential.
As always, I encourage the reader to do his or her own research to confirm any stats and the worth of such assets for a portfolio. Nonetheless, I believe a basket of holdings such as these should, over the long-term, perform reasonably well.
Disclaimer and Disclosure Statement
Neither I nor Investor's Journal will be responsible for losses by anyone who obtained ideas from this site.
This diary is intended for personal interest and general information only. You are advised to do your own research (as well as to consult highly compensated professionals) before spending money on anything.
I know of no reason anyone should take my financial musings seriously. At best I am a dedicated amateur providing a bit of investment-related insight and entertainment, at worst an amusing diversion.
My wife, Fran, and I may at times own shares of some of the assets mentioned here. But neither of us receive any benefit from reference to them, unless you count the mutual misery when we get it wrong, or the opportunity to gloat when we get it right.