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July, 2005: 5 10 16 23 31

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.

The average holding period in the tracked portfolios has been roughly 139 days vs. around twice that for the S&P 500 Index's hypothetical holding period, since the beginning of the contest. (The significance of the mean holding period difference is more apparent on an annualized performance basis: a 50/50 investment in the LL and CV portfolios since 10/4/04 has had an annualized rise of about 27.7%, while the S&P 500, annualized, would be up roughly 8.44%.)

The new selection this time will be added (at the market price early in tomorrow's stock trading session) to the Classic Value tracking portfolio. The final five candidates this time were: FRD; IPS; PCU; PD; and WLC.

My choice for the week is: Phelps Dodge Corporation (PD) (recent price $93.73). PD has a market-cap of $9.08 billion, a P/E of only 7.50, a price to sales ratio of 1.21, a price to book value ratio of 1.91, positive free cash flow, a 1.60% dividend (with a dividend payout ratio of 6.00%), a return on equity of 26.30%, a current ratio of 2.72, and a debt to equity ratio of 0.22. This is another Benjamin Graham bargain asset.

7/10/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are now up 11.18%, Classic Value (CV) is up almost the same amount, 11.37%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 7.07% (all statistics as of close of trading on 7/8/05), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up 11.27%. (The comparisons are based strictly on price appreciation, which excludes dividends. Commissions have been subtracted from the portfolio results and not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been roughly 142 days vs. around twice that for the S&P 500 Index's hypothetical holding period, since the beginning of the contest. (The significance of the mean holding period difference is more apparent on an annualized performance basis: a 50/50 investment in the LL and CV portfolios since 10/4/04 has had an annualized rise of about 31.6%, while the S&P 500, annualized, would be up roughly 9.2%. Please note, however, that the actual performances will almost certainly differ significantly, plus or minus, from these projections.)

The new selection this time will be added (at the market price early in tomorrow's stock trading session) to the Leapin' Lizards tracking portfolio. Once more, only one new candidate was found for this addition to the portfolio: CMKG.

My choice for the week is: CoActive Marketing Group, Inc. (CMKG) (recent price $3.02). CMKG has a market-cap of $18.76 million, a P/E of 11.04, a price to sales ratio of just 0.22, a price to book value ratio of 1.07, positive free cash flow with a P/FCF ratio of 4.44, no dividend, a return on equity of 10.83%, a current ratio of 0.73, and a debt to equity ratio of 0.30. The asset has a negative record thus far in 2005, down 27.58%, but is up 54.34% relative to the S&P 500 Index over the past 52 weeks.

In addition to CMKG, the following assets look attractive to me at this time: AIG; BRK/A; BRK/B; HD, and RE.

7/16/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are now up 10.47%, Classic Value (CV) is up 12.38%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 8.48% (all statistics as of the close of trading on 7/15/05), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up 11.43%. (The comparisons are based strictly on price appreciation, which excludes dividends. Commissions have been subtracted from the portfolio results and not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been roughly 145 days vs. around twice that for the S&P 500 Index's holding period since the beginning of the contest. Despite the disadvantage the LL and CV portfolios would seem to have relative to the S&P 500 Index, due to their much shorter average holding periods, they are significantly ahead of that S&P comparative standard.

As noted when the LL vs. CV competition began, we are limiting each of our contest portfolios to a maximum of 25 securities (or 25 annual investment dates - purchases of the same asset on two different dates for these purposes counting as two securities). The next purchase due is one for the CV tracking portfolio. However, as we are in the final quarter of the experimental portfolios' first year since inception, and a little ahead of the acquisition schedule, for this coming week we'll omit any new investment.

Were we to add to the portfolio this time, we'd likely be picking from among these low price to earnings stocks: FRD; MRI/A; PKX; TSU; and WLC.

Our overall nest egg is finally again (barely) ahead for the year, even though it has suffered from value investments not being recently so much in favor and from our needing to use $16,396 of it so far in 2005 for an excess of expenses over our retirement income. I remain hopeful that, by year's end, we may once again, even after expenses, have a record superior to that of the major averages.

7/23/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are now up 11.49%, Classic Value (CV) is up 14.89%, an initial buy-and-hold investment in the S&P 500 Index has appreciated 9.01% (all statistics as of the close on 7/22/05), and a 50/50 combination of the LL and CV portfolios (which hypothetically provides both safety and good growth potential) would have gone up 13.19%. (The comparisons are based strictly on price appreciation, which excludes dividends. Commissions have been subtracted from the portfolio results and not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been roughly 149 days vs. around twice that for the S&P 500 Index's holding period since the beginning of the contest. Despite the disadvantage the LL and CV portfolios would seem have relative to the S&P 500 Index (due to their much shorter average holding periods), they are significantly ahead of that S&P standard.

The next contest selection will be added to the CV tracking portfolio at the early trading price on Monday, 7/25. The top candidates this week are: FRD; IPS; MRI/A; SCHN; and TBAC.

My choice among them is IPSCO, Inc. (IPS) (recent price $52.01). IPS has a market capitalization of $2.34 billion, a P/E of only 4.7, a .9% yield, with a dividend payout ratio of 2.00%, a price to sales ratio of 0.93, a return on equity of 36.40%, a price to book of 1.65, a current ratio of 4.06, a debt to equity of just 0.21, and positive free cash flow with a price to cash flow of 4.00.

IPS is another asset that appears to meet strict guidelines for a Benjamin Graham type bargain security. This does not guarantee performance or even that it will not lose all of its market price, but a portfolio of thirty or more such assets will generally tend to outperform the major averages with less downside risk.

7/31/05-Since the 10/4/04 inception of our Leapin' Lizards vs. Classic Value portfolios experiment, the Leapin' Lizards (LL) are now up 12.35%*, Classic Value (CV) is up 14.28%, and an initial buy-and-hold investment in the S&P 500 Index has appreciated 9.01% (all statistics as of the close on 7/29/05). (The comparisons are based strictly on price appreciation, which excludes dividends. Commissions have been subtracted from the portfolio results and not from the S&P 500 Index record.)

The average holding period in the tracked portfolios has been roughly 151 days vs. around twice that for the S&P 500 Index since the beginning of the contest. Despite the disadvantage the LL and CV portfolios would seem have relative to the S&P 500 Index (due to their much shorter average holding periods), they are both ahead of that S&P standard.*

AAII, whose web site I have been using for our contest tracking portfolios, is changing the host it employs to manage such personal portfolios, necessitating a fresh input of the data before the old records are eliminated. This seems a good time to correct an error that was made last October, when I took info on OMVKY from certain domestic investment sites, that appeared to show it was one of the securities meeting our Leapin' Lizards criteria, cited OMVKY as one of the initial selections, and so added it to the LL tracking portfolio. Once the mistake was discovered, thanks to feedback from a helpful reader, I felt it best to keep the holding I'd already suggested, but pointed out it was no longer considered a valid LL, as information from a European web site showed the true figures to be attractive but not the bargain it had seemed.

Now that we have plenty of assets in both the LL and CV portfolios and will in any case be replicating the info due to the AAII site changes, however, it would be more appropriate to do away with the mistaken inclusion of OMVKY and so limit the tracking portfolio to true LL's, particularly as to do otherwise tends to skew the competition results. OMVKY in the interim has gone up over 80%, one of the best performers in the portfolio to date.

I have now therefore deleted it and recommend that anyone following our selections also take profits in OMVKY, or at least do so by one year and a day (for long-term investment treatment under the US tax codes) following purchase. For our own nest egg, we have been pleased to sell it at such a good profit.

*The thus altered LL tracking portfolio shows a reduced overall performance of just 9.03% since 10/4/04, only slightly ahead of the S&P 500 Index, and perhaps a little behind the major index once dividends are included, though the discrepancy in holding periods argues for a possible ultimate win over the S&P standard for the LL, adjusted to compensate for the average duration differences.

All future mentions of the portfolios' relative performances will be based on appreciation (or losses) excluding OMVKY.

The next contest selection will be added to the LL tracking portfolio at the early trading price on Monday, 8/1. The top candidates this week are: GIII; GRIL; SHOE; VLGEA; and VSEC.

My choice among them is Village Super Market, Inc. (VLGEA) (recent price $55.24). VLGEA has a market capitalization of $178.54 million, a P/E of 11.61, a 1.02% yield, with a dividend payout ratio of 9.00%, a price to sales ratio of just 0.18, a return on equity of 12.27%, a price to book of 1.38, a current ratio of 1.49, a debt to equity of 0.32, and positive free cash flow. VLGEA has appreciated 49.16% in 2005 and 60.17% relative to the S&P 500 Index in the past 52 weeks.

In our own total assets, the equities' book value total remains on target and, before extra expenses (those above retirement income), the portfolio would be up 3.71% so far this year. However, after $17,425 of such expenses through July, the nest egg is now up in 2005 just 1.11%. Perhaps we should be glad to have any advance net of expenses, but we are still hoping for a better overall record by year's end.

My early Social Security benefits are due to kick in this coming December. After that, it should be a bit easier for us to see gains, as total expenses should more closely match our income.

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