July, 2007: 1
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.

7/1/07-Here is the performance summary for the tracked portfolios, through the second quarter of 2007:

Portfolio or BlendAverage Asset
Hold Period
Classic Value*0.80 years+17.34%+22.16%
Leapin' Lizards*0.78 years+9.81%+12.75%
50/50 CV/LL Blend*0.79 years+13.58%+17.46%
SPX* **2.74 years+32.42%+10.81%

(The statistics combine open and closed portfolio position results and cover the period from 10/4/04 through the close of trading on Friday, 6/29/07. Dividend income has not been included in the above portfolio performances. Commissions, though, have been subtracted from the tracked portfolio 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 portfolios so far:

  • The open positions continue to show more up and down volatility than the more numerous and longer-average-hold-period closed positions. Thus, apparently as a result of the recent skittishness in the market as a whole, the more momentum driven performance of the open LL holdings have now shown an annualized loss of almost 6%, while the strictly value oriented open CV holdings are up at an annualized rate of over 29%! Yet the steadier closed position info continues to show the two types of investments to be roughly comparable: 19.18% annualized performance for the LL closed positions vs. 20.64% annualized performance for the CV closed positions.

  • Since the two kinds of investments tend to offset each other under different market conditions, I still suggest the best approach, rather than choosing whichever technique most recently is ahead, is to keep half of one's equity investments in the CV assets and half in the LL assets. Through the most recent quarter, this would have given the investor a before dividends (but after commissions) 17.46% annualized performance (for both open and closed position holdings combined) in the close to three years of this CV vs. LL experiment. If a conservative 1.7% average dividend were included, this strategy would have provided not too shabby estimated total returns averaging 19.2% compounded annually.

  • If only the more dependable closed position performances are considered, adding in the 1.7% conservative estimate of the dividends would have provided the 50/50 CV/LL Blend investor with an estimated annualized total return of 21.6%, results roughly twice those of the major averages in the same period.

  • The 50/50 CV/LL Blend's combined closed positions since inception now number 95. Of these, 32 turned out to be losing stocks in the periods they were held, while there were 63 winners. The win to loss ratio thus remains close to 2 to 1. In other words, just slightly more than 1/3 of the suggested stocks held until bought out or kept for at least a year and a day (my usual sell point) lost the investor money, but nearly 2/3 of the stock purchases would have resulted in net gains.

  • Because there is always the possibility of unforeseen developments spooking the stock market and causing substantial losses in paper value to one's nest egg, I caution that it seems best to maintain a reserve of short-term, cash equivalent assets. The individual may vary the percentage of total financial assets set aside in this way. My own preference is to begin with 1/3 in such reserves and two-thirds in equities, then to rebalance if there is more than a 5% shift in the relative valuations due to market strength or weakness.

  • With careful selection, it should now be possible to obtain a roughly 5% or better combined annual return on relatively safe assets to be held in the overall asset category of certificates of deposit, short-term bonds (or bond mutual funds), money market accounts, or similar relatively liquid reserves.

  • If one's assets of this type average around 1/3 of the portfolio, if 2/3 are devoted to a 50/50 blend of CV and LL holdings, and if the portfolios' performances to date were to prove the norm, the resulting nest egg should be relatively secure, certainly safer than a 100% investment in the S&P 500 Index, for instance, and yet one's total return would be roughly 14-15% a year overall, significantly better than that of the major market averages.

  • I personally like to make more equity purchases when the market has been somewhat down and less when it has been up, so as to assure both a conservative nest egg allocation and an overall annual total return at or above a 15% target.

  • I caution, however, that with so far only about two and three-quarter years' experience, there is as yet too little data to say with assurance that this will be the outcome. It is still true that the best we may definitely say of the above record is that the results are encouraging.

  • Please note that the indicated CV results include a small gain for PWEI, which was bought out for cash effective 6/22/07. The asset had a 5-month holding in the CV portfolio. After an initial commission, the buyout price, $33.50 per share, provided just a 1.43% profit. Still, it is better to see that than a loss. PWEI has now been deleted from the CV open positions portfolio. Its buy and sell info has been added to the closed position records.

Disclaimer and Disclosure Statement
Much as I'd love it to be otherwise, I receive no payment of any kind for disseminating investment information unless, by some fluke, millions of folks, on the strength of these entries, start buying shares of stock I own, a possibility only slightly less likely than our being destroyed by a large meteorite. Do not follow any suggestions made in Investor's Journal as if I were a professional.

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.

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