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August, 2006: 1 10 18 22 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.


8/1/06-Since the prior entry, our Leapin' Lizards (LL) pick, VLGEA, 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 8/1/05 to early 8/02/06 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), VLGEA has been up just under 13% in the past 12 months.

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

The focus for the current entry is on a new Leapin' Lizards (LL) asset, Valero Energy Corporation (VLO) (recent price $67.03). VLO's trailing price to earnings ratio is 10.98. Its forward P/E estimate is 9.60. This is a large-cap asset with a market capitalization of $41.25 billion. Valero Energy Corp. has a small (0.50%) dividend, with a dividend payout ratio of just 0.03. The price to sales ratio is 0.48. Its price to book value is 2.70. There is positive free cash flow. Return on equity is 31.43%. Debt to equity is 0.33. The current ratio is 1.13. Valero Energy is up 58.65% in the past 12 months relative to the S&P 500 Index. The stock presently has low price to sales, low debt, below average P/E, and good momentum going for it.

Valero Energy Corp. will be added to our LL tracking portfolio at its market price as of early trading tomorrow, 8/2/06.


8/10/06-Since the prior entry, our Classic Value (CV) pick, WLC, has been held over a year, and so it will be sold at the early market price tomorrow morning, removed from the CV open positions portfolio, and its closed position info recorded based on the 8/10/05 to early 8/11/06 per share performance. Through initial trading today, after subtracting a commission (while not counting any dividends), WLC has been down just over 6% in the past 12 months.

My top-ten equities for mention today are: ASH; ESCL; HDL; IPS; LPX; MPAC; NATR; OCAS; PKX; and SEB.

The focus for the current entry is on a new Classic Value (CV) asset, Seaboard Corporation (SEB) (recent price $1390.00). SEB's trailing price to earnings ratio is 7.02. This is a mid-cap asset with a market capitalization of $1.75 billion. Seaboard Corp. has a small (0.20%) dividend, with a dividend payout ratio of just 0.02. The price to sales ratio is below average at 0.66. SEB's price to book value is also below average at 1.68. There is positive free cash flow. Return on equity is 27.89%. Debt to equity is 0.29. The current ratio is 2.96. The stock presently has low price to earnings and low debt going for it. It meets Ben Graham's classic bargain stock value and safety criteria.

Seaboard Corporation will be added to our CV tracking portfolio at its market price as of early trading tomorrow, 8/11/06.


8/18/06-Since the prior entry, none of our current tracked portfolio assets have been held at least a year, so none will be sold at this time.

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

The focus for the current entry is on a new Leapin' Lizards (LL) asset, Books-a-Million, Inc. (BAMM) (recent price $15.15). BAMM's trailing price to earnings ratio is 19.40. This is a micro-cap asset with a market capitalization of $261.80 million. Books-a-Million has a modestly above average dividend (2.08%), with a dividend payout ratio of 0.28. The price to sales ratio is 0.50. BAMM's price to book value is below average at 1.74. There is positive free cash flow. Return on equity is 9.68%. Debt to equity is only 0.05. The current ratio is 1.81. BAMM is up about 58% year-to-date and 50% over the last 52 weeks, relative to the S&P 500 Index. The stock presently has low price to sales, low debt, and high momentum going for it.

Books-a-Million, Inc., will be added to our LL tracking portfolio at its market price as of a little later today.

Please note: When the screening and analyses were done which produced the BAMM pick and its above stats, the price was as indicated there ($15.15). However, since then there has been a surge of buying of Books-a-Million stock. The latest quote I have seen was $15.80, giving it a P/S ratio of 0.51, which is above the LL buy criteria (P/S .50 or below). Nonetheless, our stock selection process, to be consistent, must use the best info available when an analysis is done, even if later price changes take the stock out of the running. In every case, we suggest an asset based on prior info but with no guarantee that the price will remain at the maximum/minimum criteria levels by the time the asset is added to our portfolios, usually later the same day the entries come out or the following trading day morning. Thus there is always the possibility the quote at the time the asset is added will be higher than ideal.

I give this lag to make the tracking portfolios more realistic for a reader receiving this info somewhat later than when the entry is first published, or for someone who must take a short while to do her or his own analysis before placing an order. (Hopefully, on average, there will be enough instances where the lag will result in a lower purchase price to offset the occasional time when it goes the other way and exceeds the criteria by a little.)

However, we have not before today already known by the time of finishing an Investor's Journal entry that an asset had at least temporarily exceeded its proper buy criteria levels. BAMM, despite this change, still looks like the asset with the most going for it among the LL candidates I can find at this time, and which are not already in the LL portfolio. In addition, there is not a lot of leeway in terms of when to add a selection to the LL tracked portfolio. For purposes of this experimental competition between LL and Classic Value (CV), we really need to decide and then make a buy later today or early in the morning on Monday. Thus, I am inclined, and in fact have chosen, to go ahead and treat it as a legitimate LL asset, adding it to the portfolio a little before the closing bell today.

The investor/reader, though, of course has more latitude: as to research other potential picks (perhaps from the current top-ten list); to delay a purchase until the price in question is more favorable; to place a limit order (i.e. for BAMM at $15.15 or below, and hence with a P/S no higher than 0.5); or simply to use another stock-picking approach this time.

While on the subject of perhaps doing different things as a real investor than precisely following the LL or CV approaches shown, and on the rather dubious assumption that anyone is seriously following the suggestions indicated here, it should be noted that the one-year-and-a-day sell policy is somewhat arbitrary. The hold period was set at that minimum duration to assure best tax treatment for what were anticipated, on average, to be net gains over each asset's cost basis. However, there is nothing sacred about holding a stock for exactly 366 (or 367 in the case of Leap Years) days.

Thus, in our own nest egg, whenever an asset still meets minimum buy criteria at the end of the regular hold period, I'll be inclined to continue holding it. Why take a 30% loss on an CV asset after about a year, for example, when its statistics show it is still a Ben Graham bargain, with the odds favoring its eventually going up at least that 30% and indeed often a goodly percentage more? Or why settle for a stock only going up 10% after about a year when it is currently again rising rapidly in price (after being down for awhile since purchase) and when its still (or again) low P/S level make it appear far from overpriced? In some cases, an asset may, in the course of the year holding period, have crossed over to a stock meeting the alternative strategy guidelines, a CV buy having since gained momentum and, by virtue of also having low P/S, become typical of the LL assets. Or, a LL may have provided slightly disappointing quarterly earnings or other reports in the intervening period and so lost favor with the general investing public to the extent that it has now become a CV asset, with a low P/Bk or P/E or a high dividend. Should such attractive assets be sold simply because the minimum number of days has elapsed since they were bought using the other approach?

Overall, then, the sell point for each asset may reasonably be decided on a case-by-case basis. For simplicity of monitoring the relative performance of the two basic strategies, though, we shall continue to sell them from the tracking portfolios, and transfer the cost basis and net proceeds info to the closed positions record, after each asset has been held at least 366 (367) days.

So just when should an asset be sold? Many do recommend a fixed, mechanical sell point, such as after a year, since this is much easier to apply than a host of other potential sell criteria. Again for ease of application, even Ben Graham sometimes recommended, for the not so sophisticated investor, that assets (which had been purchased meeting bargain asset criteria) be sold after two years, or at least by the end of the second calendar year, unless they had already earlier achieved their proper market price to value ratio (at least 1) and been sold before the two-year deadline. This would appear to apply both to LL and CV assets, since both have a significant value investing element to them.

I am quite comfortable selling an asset that has been held a year and gone up 50%, even if its price to value remains less than 1. There is always the possibility the info I have on the company is wrong. Why not take the profit I have rather than waiting to be sure I get every last percentage point of gain from it, which unfortunately may make it vulnerable to later bad news and a drop in the stock price? But if an asset has been held a year plus a day and no longer meets the buy criteria, I'll sell it right away. On the other hand, if I think another asset still has good potential and has not yet provided much profit, or in fact has been a loser, I would tend to keep that one in our nest egg portfolio till the end of the second year, or till it finally surges up closer to its theoretical potential.


8/22/06-Since the prior entry, our Leapin' Lizards (LL) pick, INMD, 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 8/19/05 to early 8/23/06 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), INMD has been down 18.06% in the past 12(+) months.

My top-ten equities for mention today are: AIRT; BRK/A (or BRK/B); CTCI; ESCL; HDL; LPX; MPAC; NATR; SEB; and STC.

The focus for the current entry is on a new Classic Value (CV) asset, Air T, Inc. (AIRT) (recent price $7.95). AIRT's trailing price to earnings ratio is just 8.48. This is a nano-cap asset with a market capitalization of merely $21.23 million. Air T has an above average dividend (3.00%), with a dividend payout ratio of 0.33. The price to sales ratio is only 0.27. AIRT's price to book value is below average at 1.46. There is positive free cash flow. The shareholder equity to total assets ratio is 0.61. Return on equity is 18.33%. Debt to equity is only 0.08. The current ratio is above average at 2.79. The stock presently has low price to earnings, low price to sales, low debt, and a higher than normal dividend going for it. This asset meets Ben Graham value plus safety bargain stock criteria.

Air T, Inc., will be added to our CV tracking portfolio at its market price as of early tomorrow.


8/25/06-Since the prior entry, our Classic Value (CV) pick, MIVA, has been held over a year, and so it will be sold at the market price Monday morning, removed from the CV open positions portfolio, and its closed position info recorded based on the 8/24/05 to early 8/28/06 per share performance. Through the close of trading today, after subtracting a commission (while not counting any dividends), MIVA has been down 57.88% in the past 12(+) months. (Despite this major loser and the generally weak equities market since early May of this year, our CV assets overall [all open and closed positions to date] are up on average at an annualized rate of approximately 16%, not counting dividends of about 2-3% a year.)

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

The focus for the current entry is on a new Leapin' Lizards (LL) asset, ScanSource, Inc. (SCSC) (recent price $29.71). SCSC's trailing price to earnings ratio is 20.70. This is a micro-cap asset with a market capitalization of $762.36 million. ScanSource has no dividend. The price to sales ratio is only 0.48. SCSC's price to book value is 2.80. There is positive free cash flow. Return on equity is 15.70%. Debt to equity is 0.12. The current ratio is 1.95. SCSC is up 33.88% relative to the S&P 500 Index in the past 52 weeks and 9.55% so far in 2006. The stock presently has low price to sales, low debt, and moderate upward momentum in its favor.

Scansource, Inc., will be added to our LL tracking portfolio at its market price as of early Monday, 8/28/06.


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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