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September, 2002: 3 7 10 11 12 16 21

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.

Have submitted four more applications, baited hooks in the water.

In view of the major market declines since early 2000, I've used several retirement calculators available online to review how much we'll need, with a fairly modest average return, to live comfortably the rest of our lives. All the results give assurance that, assuming we manage an 8% cumulative annual total of appreciation plus dividends, we still have more than enough set aside, even if neither of us takes on further work. Still, I'd feel better having a somewhat greater margin for error, and so will continue my job-hunting efforts.

9/7/02-Our assets being down after this past week's market drubbing, I placed orders for about $15,000 in new shares of strong value companies with reasonable prospects, including:

• Scientific Atlanta (SFA);
• RJR Reynolds Tobacco (RJR);
• Stewart Information Services (STC);
• Liberty Media (L);
• Washington Mutual (WM); and
• Berkshire Hathaway, Cl. B (BRK/B).

This should take us back up to the portfolio target level, based on an 8% annual increase goal (prorated for the balance of 2002, from the low in July).

As I am emphasizing traditional value in selecting common stocks, RJR deserves special focus. Its P/E is reasonably low, at 9.4. Total debt to equity is 0.33. At a recent price of $52.58, the price to book is only 63%. Yes, there are current worries about competition from generic cigarette brands and suits brought by former smokers. But it seems unlikely RJR will succumb. I could be wrong, but think it's just temporarily out of favor. While waiting for it to be appreciated again, the investor receives a great yield of 7.2%.

9/10/02-Bear market value investing can be a beautiful thing! Since the low in July, by exchanging high for low price to value and price to dividend stocks and REITs in the portfolio, we've been able to significantly lower the mean P/E, increase the book value of our individual assets by 17½%, and to substantially improve the average yield, all without increasing investment debt, which now stands at 5.7% of the current total.

9/11/02-In brainstorming with Fran at the Laundromat this morning I realized that, though I'd rather work in, for instance, a library or bookstore, even at lower pay, should I need the money and not get another job I'd enjoy in a reasonable period, then I might do that for which I'm clearly most qualified, either working for a private employer or on my own, as a disability representative. If I go into business for myself, Fran and I could run the operation together, she as an admin. assistant, while I would do most of the calling, meeting with folks, staying up on the regulations, case notes, going to hearings with clients, etc. For now it's just a notion. Yet it should be a practical one.

9/12/02-Since several online investment calculators I've used have demonstrated that Fran and I may live comfortably if we obtain an average portfolio total return of 8%, and I've determined that an extra $7500/year (after expenses) would give me a feeling of sufficient margin of safety, I'll evaluate our finances based on a minimum portfolio (and/or other income) increase of 8% + $7500 a year (net of budgetary costs), the achievement of which would free me from the necessity for further employment and allow concentration, instead, on dealing positively with health issues and on meaningful retirement goals.

For the first few months under this approach, our year-end target for total current assets, then, is $545,700. For 2003, the year-end target total becomes: $596,800. (The sum today stands at $523,600.)

"Smart Money" magazine, in the current issue, recommends one of our recent purchases, Allied Capital Management (AC), with a recent price per share of $30. It spiraled down because of earlier big positions in Enron, Tyco International, and WorldCom. Still, currently the asset sports a hefty dividend of about 7 3/4% and very low debt to equity. Earnings growth is seen as about 15% over the next several years. Wish we had at least $50,000 invested in this one! As it is, we'll be buying more during market dips

9/16/02-We're about $7000 over our current 8%-plus-$7500-per-year-portfolio-increase target level, and so today I'm selling off roughly that amount of assets, that now have high price to value ratios, to further reduce debt. If and when investment (or margin) debt is zero, we'll only make adjustments in the portfolio when we fall below or above financial goals by at least 5% or I find a terrific bargain with low debt.

The portfolio allocations will be kept at: 5-10% in reserves, short-term bond assets, or (no load and low fee) TIPS mutual funds; 25-30% in ballast, REIT, preferred stock, or intermediate- to long-term bond assets; and 60-70% in equity assets, up to the first $1,000,000 in current asset value, after which non-equities shall be maintained at $300,000 or 25% of current total assets, whichever greater, with the balance invested exclusively in carefully selected value equity holdings.

9/21/02-The markets having continued to fall over most of this past week, we now find ourselves $16,000 below the current equities target. Accordingly, I have placed orders for purchases totaling this amount, in the following value assets, using a combination of exchange from high yield corporate bond assets, sale of money market funds, and margin credit:

• Clipper Fund (CFIMX)
• Liberty Media (L)
• Longleaf Partners Fund (LLPFX)
• Alliance Capital Management Holdings L.P. (AC)
• Dodge & Cox Stock Fund (DODGX).

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