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July, 2006: 2 6 13 21 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.

(The statistics are as of the close of trading 6/30/06. Dividend income has not been included in the portfolios' performance. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX gains.)

( *since inception, 10/4/04)
(**SPX is used as a proxy for the S&P 500 Index.)

Observations about the portfolio results, and some proposed changes:

• The annualized performance for Momentum Value (MV) is intriguing but statistically not meaningful, involving only three assets (and held on average a mere 40 days).

• Even the performances of the longest held tracked portfolio assets, while apparently promising, are as yet statistically suspect. A decade or, better, several decades of such results would begin to warrant serious interest, particularly if they continue to show substantially better gains than for the major market indexes.

• The Mama's Mix Stock Portfolio (MM) performance is quite disappointing, especially given that it was made up of a roughly equal amount of Yummy Yielders (YY), which did relatively well during the recent downturn, and Classic Value (CV) holdings (those selected since about mid-October, 2005, when the MM portfolio was begun). Thus, it is apparent that, despite their overall results since a 10/04 inception, the Classic Value picks have been significant underperformers from the latter part of 2005 to the present. A question for which I do not have an answer is whether this relatively deficient recent performance, of (generally) small cap value assets with little or no dividend, is just a short term anomaly or is indicative of a new market cycle.

• To restore simplicity, henceforth I'll be incorporating the MV assets and strategy in the LL tracking portfolio, incorporating the YY assets and strategy in the CV tracking portfolio, and deleting the less than inspiring MM portfolio (all the assets of which will now, in any case, be tracked in CV). None of the asset picks themselves will be deleted. Thus the underperformers will continue to have their effect on the outcome of an ongoing LL vs. CV competition.

• From now on, approximately every other week that I'm in town, I'll just pick the best LL or (on alternate weeks) CV asset I can find and keep tabs on the results, both in tracking portfolios (for which the average investment will always be within a few dollars [adjusted for the difference in asset share price, which usually does not permit an exact investment, some necessarily being slightly higher, some lower] of $2500 each, with $10 each assessed as buy and sell commissions) and in our own nest egg (for which the investments chosen will generally be the same as in the tracked portfolios, but in higher dollar amounts).

• It is remarkable that so far the LL and CV results remain, after nearly two years of this experiment, close in performance even though the former is a momentum-plus-value approach while the latter focuses almost exclusively on value criteria. I certainly would not have predicted that at the outset. It will be interesting to see if this persists.

• For those interested in following along with this, roughly one pick a week, CV vs. LL approach to investing, I recommend a 50/50 equity allocation, half in Leapin' Lizards and half in Classic Value. Based on results to date, this seems to smooth out the volatility of either approach by itself, without a significant loss in performance.

• If I had already put the MV assets into the LL portfolio and the YY ones into the CV holdings, then, through 6/30/06, the overall results would be as follows:

Please note that these relative performance stats alone do not fully reflect Classic Value's strength. The CV assets tend to have much larger dividends, on average, than the LL holdings. Thus, Classic Value's total returns will likely be 2-3% higher than the price gain or loss figures by themselves, and this lifts their overall results, even after the recent correction, to be comparable with the LL portfolio's. If our open position dividends in each combined category (CV vs. LL) may be considered typical, for instance, the total returns of CV, LL, and a 50/50 blend of Classic Value and Leapin' Lizards would to date all be within just 0.4% of 25% annually.

7/6/06-Since the prior entry, our Classic Value (CV) pick, PD, has been held over a year, and so it will be sold at the market price tomorrow morning, removed from the CV open positions portfolio, and its closed position info recorded based on the 7/6/05 to early 7/7/06 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), PD has been up 69.26% in the past 12 months.

My top-ten equities for mention today are: BRK/A (or BRK/B); CTGX; FRD; MRO; MTLM; TESS; URGI; VLO; VOL; and ZEUS.

The focus for the current entry is on a new Leapin' Lizard (LL), Metal Management, Incorporated (MTLM) (recent price $30.00). MTLM's trailing price to earnings ratio is a below average 12.78. This is a micro-cap company with a market capitalization of $781.59 million. Metal Management, Inc., has a small (1.00%) dividend, with a dividend payout ratio of 0.13. The price to sales ratio is only 0.50. Its price to book value is 2.07. There is positive free cash flow. Return on equity is 17.31%. Debt to equity is negligible at 0.01. The current ratio is 2.16. The company's stock price has been up 39.08% in the past 52 weeks, 31.64% in 2006, and 32.72%* relative to the S&P 500 Index over the last year. The stock presently has low price to sales, low debt, micro-cap size, and momentum going for it.

Metal management will be added to the LL tracking portfolio at its market price as of the beginning of trading in the morning.

*Please note that, consistent with incorporating and combining the Momentum Value portfolio and strategy into LL, the following are the new minimum purchase criteria for LL: P/S 0.50 or below, D/E .33 or below, and one-year performance of 25% or above relative to the S&P 500 Index.

7/13/06-Since the prior entry, our Leapin' Lizard (LL) pick, CMKG, has been held over a year, and so it will be sold at the market price tomorrow morning, removed from the LL open positions portfolio, and its closed position info recorded based on the 7/11/05 to early 7/13/06 per share performance. Through the close of trading yesterday, after subtracting a commission (while not counting any dividends), CMKG has been down 44.37% in the past 12(+) months.

My top-ten equities for mention today are: BL; BMET; BRK/A (or BRK/B); DG; EMCI; HDL; PFE; STC; UTR; and ZNT.

The focus for the current entry is on a new Classic Value (CV) asset, Pfizer, Inc. (PFE) (recent price $23.18). PFE's trailing price to earnings ratio is 14.37, with a forward P/E of 10.88. This is a large-cap company with a market capitalization of $169.85 billion. Pfizer, Inc., has a quite healthy (4.10%) dividend, with a dividend payout ratio of 0.50. The price to sales ratio is 3.38. Its price to book value is 2.47. There is positive free cash flow. Return on equity is 17.40%. Debt to equity is 0.17. The current ratio is 1.90. The shareholder equity to total assets ratio is 0.62. The stock presently has low price to sales, low debt, and below average P/E (especially for its historical growth record) going for it.

Pfizer, Inc., will be added to the CV tracking portfolio at its market price as of the beginning of trading later this morning.

7/21/06-Since the prior entry, there have been no tracked portfolio assets held at least a year. Accordingly, no sales are in order.

My top-ten equities for mention today are: AE; BAMM; BRK/A (or BRK/B); FRD; INT; JCTCF; MRO; URGI; VLO; and ZEUS.

The focus for the current entry is on a new Leapin' Lizards (LL) asset, Adams Resources and Energy, Inc. (AE) (recent price $35.25). AE's trailing price to earnings ratio is only 8.06. This is a nano-cap asset. Its market capitalization is $148.70 million. Adams Resources and Energy, Inc., has a small (1.00%) dividend, with a dividend payout ratio of 0.09. The price to sales ratio is just 0.07. Its price to book value is 2.37. There is positive free cash flow. Return on equity is 28.76%. Debt to equity is 0.17. The current ratio is 1.19. AE is up 70.32% year-to-date and 86.12% relative to the S&P 500 Index over the past 52 weeks. The stock presently has low price to sales, low debt, good momentum, and a low P/E going for it. It meets both Leapin' Lizards and Classic Value (CV) buy criteria.

Adams Resources and Energy, Inc., will be added to the LL tracking portfolio at its market price as of early trading on Monday morning, 7/24/06.

Recently, thanks to the correction that began in the first half of May, the open positions for both our CV and LL portfolios are on average slightly down. In fact, some of the assets that are now close to a one-year sell point, such as our Leapin' Lizards asset, INT, are again among our best candidates for new purchase. To keep things simple for tracked portfolio records, I'll still be selling them after they have simply been held for at least 366 days. However, anyone following this little experiment may wish instead to hold such assets until they no longer meet minimum buy criteria.

For LL assets, before purchase a stock must have P/S .5 or below, D/E .33 or below, and 25% or better relative performance over the last 52 weeks compared to the S&P 500 Index.

For CV assets to be purchased, they must meet at least one of Ben Graham's strict value criteria, such as quite low P/E (or P/Bk) or a high dividend (with dividend payout ratio .5 or below) and have D/E of no more than .33.

7/25/06-Since the prior entry, our Classic Value (CV) pick, IPS, has been held over a year, and so it will be sold at the market price tomorrow morning, removed from the CV open positions portfolio, and its closed position info recorded based on the 7/25/05 to early 7/26/06 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), IPS has been up 75.40% in the past 12 months.

My top-ten equities for mention today are: AMCP; BL; CINF; FAF; IPCC; OCAS; STC; URGI; UTR; and ZNT.

The focus for the current entry is on a new Classic Value (CV) asset, Blair Corporation (BL) (recent price $25.02). BL's trailing price to earnings ratio is only 5.91. This is a nano-cap asset. Its market capitalization is just $99.65 million. Blair Corp. has a large (4.70%) dividend, with a dividend payout ratio of 0.27. The price to sales ratio is just 0.21. Its price to book value is merely 0.82. There is positive free cash flow. The shareholder equity to total assets ratio is 0.69. Return on equity is 12.93%. Debt to equity is zero. The current ratio is 2.45. The stock presently has low price to sales, low debt, low P/Bk, low P/E, and high yield going for it. It meets Ben Graham value and safety criteria.

Blair Corp. will be added to our CV tracking portfolio at its market price as of early trading tomorrow, 7/26/06.

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