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September, 2004: 2 24 29
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.


9/2/04-Perhaps partly because of recent hurricane damage and new hurricane threats in and around Florida, the stock of Everest Re Group, Ltd. (RE) (recent price $72.80), a Bermuda based reinsurance company, is down significantly from its average level in recent years and now looks like a good contrarian play.

Per Google, in June of this year A. M. Best Co. renewed RE's A+ financial strength rating and said it "has positioned itself for superior returns over the mid term." There doesn't appear to have been a significant decline in Everest Re's potential since then. Indeed, per the research department of our primary brokerage, RE has an above average rank also from Standard and Poor's and at least a couple other "outperform" ratings.

This may be a good time to pick up a number of RE's shares, which is what I have done today. Everest Re Group, Ltd., looks to be a better than average company at a below average price. While this stock does not meet some of my strict criteria for more severely depressed stocks, I believe it has excellent price to business value, given its strong financial status.

RE has a reasonable price to earnings ratio (14), an excellent return on equity (19%), at least a small dividend (.57%) with a low (3.5%) payout ratio, a price to book value of just 1.2, and a low debt to equity ratio (0.32).

As indicated for other suggested assets, I think this one has a lot to offer the patient investor. However I caution that anyone considering purchasing this security should thoroughly research it until convinced like me that RE is now a bargain buy.

This will likely be the last entry for a little while. "Investor's Journal" will resume after my vacation to Yellowstone. I expect to return about 9/20 or 9/21.


9/24/04-Along with concerns over recent hurricanes, investors lately have possibly been spooked by large-cap company scandals, high oil prices, continued instability in Iraq, uncertainty over the current election season's outcomes, a weak recovery from recession, and the ongoing potential (of which politicians keep reminding us) of terrorism, so that the major market averages have still been performing poorly. The S&P 500 Index, for instance, is down for the year (- 0.4%), and over the period since 12/31/01 when I had retired (- 3.5%). The latter figure works out to an annualized S&P 500 return of -1.3%.

Meanwhile, before extra expenses (those in excess of our income, hence requiring that we dip into principal), our net assets are up 1.8% to date this year and 28.4% for the post-retirement period. That represents an annualized return of 9.6%. Thus, apart from our budgetary requirements, since I retired our portfolio has had an annualized advantage over the S&P 500 of 10.9%.

But after those excess expenses ($31,967 so far in 2004 and over $101,000 since retirement) have been subtracted from the nest egg, our superior performance is much more modest. Net of all such expenses and debts, the total return to date for the retirement portfolio this year has been -.1%. The net portfolio is up 10.2% since 12/31/01, for an annualized increase of 3.6%.

The comparison is not quite fair since our portfolio is about 25% in stable reserves, bond assets, or non-liquid real estate and incurs such costs as bid-asked spreads, commissions, and having to supplement our other funding sources, none of which considerations significantly if at all affect the S&P 500 Index. Nonetheless, despite that clear initial advantage for the benchmark S&P 500, even after all expenses and debts have been subtracted, our net total current assets have shown a 4.9% annualized advantage over the S&P 500 since 12/31/01, and have achieved this with lower risk (less volatility and hence less chance the portfolio will be significantly lower at any given time).

Although the market has been in a trading range or even down in recent months, our equities are slightly ahead of the current target, as are total assets, so that we do not have any portfolio buy (or sell) signal. (Were they significantly above or below targets, we'd be net sellers or buyers, respectively, of equities.)

If I were a buyer now, however, I'd be most interested in FAF, GVA, HOC, PEP, and STC. The order is simply alphabetical. I cannot tell which of those would perform best (or worst) and like them about equally. All seem to me to be available now at bargain prices in relation to their underlying values. PEP, as a large-cap with great financial strength, may be the lowest risk asset among them, but also probably has less potential for price appreciation from its current level. The others have much going for them too and may perform quite well once they are "discovered." There is, at least, reason to hope.

As usual, though, I caution that readers should do their own homework, not take my word for it, and invest only after assuring themselves any of these shares would be good places to park their likely hard-earned funds.


9/29/04-Portfolio analysis shows, again this week, neither a buy nor a sell signal, as our total assets remain close to their targets.

Based on an individual asset analysis, the following stocks presently appear attractive as value or contrarian equities: BGP, BRK/A (or BRK/B), FAF, MAXF, and STC.

The other four have been mentioned previously, but Borders Group (BGP) is new to this short list.

Borders Group has recently boosted its 2nd quarter and fiscal 2004 full-year earnings expectations.

It has entered into partnership agreements with in-store seller Starbucks' and on-line book advertiser-distributor Amazon.com, the understandings likely to increase Borders Group's bottom line.

BGP currently has a "B" rating (above average) from Charles Schwab. It's cash flows are healthy (price to cash flow: 8, vs. an average P/CF of about 13 for the S&P 500). And the company is enhancing shareholder value by repurchasing its shares.

Borders Group has a reasonable P/E ratio (14), a debt to equity ratio of only 0.17, at least a modest (1.3%) dividend with a low payout ratio (14%), a price to book value ratio of 1.7, a low price to sales ratio (0.5), mid-cap market capitalization ($1.9 billion), and a 12% return on equity.

Over the next few years, BGP's book value should rise sufficiently that, based on the current purchase price of $24.45, the asset will have a P/B ratio of less than 1. We would also anticipate a BGP 3-5 year total return significantly higher than that of the market averages. All in all, then, I think for the long-term investor BGP is a bargain at or below $24.45.

The above are simply my personal conclusions. I encourage readers, prior to purchase, to do their own due diligence, to see if BGP might be a good addition to their holdings as well.


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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