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September, 2006: 1 7 14 21 28 30

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.

My top-ten equities for mention today are: BRK/A (or BRK/B); ESCL; FNT; IPCC; MPAC; OCAS; RAIL; RCMT; RSC; and STC.

The focus for the current entry is on a new Classic Value (CV) asset, FreightCar America, Inc. (RAIL) (recent price $59.77). RAIL's trailing price to earnings ratio is just 8.24. This is a micro-cap asset with a market capitalization of $742.72 million. FreightCar America has a small (0.20%) dividend, with a dividend payout ratio of 0.02. The price to sales ratio is 0.62. RAIL's price to book value is 4.81. There is positive free cash flow. Return on equity is 87.61%. Debt to equity is 0.00. The current ratio is 1.70. RAIL is up 53% in the past 52 weeks. The stock presently has micro-cap status, low P/E, low price to sales, low debt, and upward momentum in its favor. It also meets Ben Graham value and safety criteria for a bargain asset.

FreightCar America, Inc., will be added to our CV tracking portfolio at its market price as of first thing on Tuesday, 9/5/06.

9/7/06-Since the prior entry, our Classic Value (CV) pick, UNTD, has been held over a year, and so it will be sold at the early market price Friday morning, removed from the CV open positions portfolio, and its closed position info recorded based on the 9/7/05 to early 9/8/06 per share performance. Through close of trading today, after subtracting a commission (while not counting any dividends), UNTD has been down 13.91% in the past 12 months.

Despite this loss and the recent weakness in the market, our overall CV positions (both closed and open) still have an annualized performance of about 17%, not counting dividends and after subtracting commissions. LLs have had an overall annualized performance of about 19%. If dividends were to be included, the two portfolios, CV and LL, would be neck and neck at this time, both having annualized total returns of about 19.5%.

Note that we have two other UNTD positions, but they'll not be sold till after the shares have been held for a year and a day.

My top-ten equities for mention today are: AE; BRK/A (or BRK/B); EME; MRO; NGCN; RAIL; SNFCA; TESS; VLGEA; and ZEUS.

The focus for the current entry is on a new Leapin' Lizards (LL) asset, TESSCO Technologies, Inc. (TESS) (recent price $23.92). TESS's trailing price to earnings ratio is 17.82. This is a nano-cap asset with a market capitalization of $100.30 million. TESSCO Technologies has no dividend. The price to sales ratio is just 0.23. TESS's price to book value is below average at 1.51. There is positive free cash flow. Return on equity is 8.84%. Debt to equity is 0.07. The current ratio is 1.76. TESS' share price is up year-to-date and is 78.51% ahead in the past 52 weeks. The stock presently has nano-cap status, very low price to sales, low debt, and upward momentum in its favor.

TESSCO Technologies, Inc., will be added to our LL tracking portfolio at its market price as of the first thing on Friday, 9/8/06.

9/14/06-Since the prior entry, none of our open position portfolio assets have been held for at least a year, so there will be no sales.

My top-ten equities for mention today are: FNT; FTO; IPCC; KMT; KSW; NSS; NX; OCAS; PALM; and PWEI.

The focus for the current entry is on a new Classic Value (CV) asset, Quanex Corp. (NX) (recent price $31.22). NX's trailing price to earnings ratio is only 8.15. This is a small-cap asset with a market capitalization of $1.15 billion. Quanex Corp. has a 1.60% dividend, with a dividend payout ratio of 0.12. The price to sales ratio is 0.57. NX's price to book value is below average at 1.59. There is positive free cash flow. Return on equity is 24.93%. Debt to equity is 0.19. The current ratio is 1.79. The ratio of shareholder equity to total assets is 0.62. This stock presently has small-cap status, low price to sales, low debt, and a low P/E in its favor. It meets Ben Graham bargain asset value and safety criteria.

Quanex Corp. will be added to our CV tracking portfolio at its market price as of the first thing tomorrow, 9/15/06.

9/21/06-Since the prior entry, once again none of our open position portfolio assets have been held for at least a year, so there will be no new sales. (My wife and I had been on vacation at this time a year ago.)

My top-ten equities for mention today are: AE; BRK/A (or BRK/B); CC; EME; HVT; SHLD; TESS; TLG; VOL; and ZEUS.

The focus for the current entry is on a new Leapin' Lizards (LL) asset, Haverty Furniture Companies, Inc. (HVT) (recent price $16.20). HVT's trailing price to earnings ratio is 22.66. This is a micro-cap asset with a market capitalization of $366.80 million. Haverty Furniture Companies, Inc., has a 1.70% dividend, with a dividend payout ratio of 0.32. The price to sales ratio is just 0.43. HVT's price to book value is below average at 1.27. There is positive free cash flow. Return on equity is modest at 6.85%. Debt to equity is 0.15. The current ratio is 1.82. Haverty Furniture is up 34.55% in the past 52 weeks. The ratio of shareholder equity to total assets is 0.63. This stock presently has micro-cap status, low price to sales, low debt, and moderate momentum in its favor.

Haverty Furniture Companies, Inc., will be added to our LL tracking portfolio at its market price as of early trading tomorrow, 9/22/06.

9/28/06-Since the prior entry, our Classic Value (CV) pick, PKX, 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 9/28/05 to early 9/29/06 per share performance. Through close of trading today, after subtracting a commission (while not counting any dividends), PKX has been up 12.46% in the past 12(+) months.

My top-ten equities for mention today are: ESCL; FNT; FTO; IDCC; KMT; LPX; MPAC; RSC; URGI; and VLO.

The focus for the current entry is on a new Classic Value (CV) asset, Kennametal, Inc. (KMT) (recent price $57.03). KMT's trailing price to earnings ratio is 8.80. This is a mid-cap asset with a market capitalization of $2.21 billion. Kennametal has a modest (1.40%) dividend, with a dividend payout ratio of 0.09. The price to sales ratio is 0.94. KMT's price to book value is below average at 1.68. There is positive free cash flow. Return on equity is 24.01%. Debt to equity is 0.32. The current ratio is 2.35. KMT is up 17.27% in the past 52 weeks. The stock presently has mid-cap status, low P/E, and low debt in its favor. It meets Ben Graham value and safety criteria as a bargain asset.

Kennametal, Inc., will be added to our CV tracking portfolio at its market price as of first thing on Friday, 9/29/06.

9/30/06-Here is the performance summary for the tracked portfolios, through the third quarter of 2006:

(The statistics are as of the close of trading 9/29/06. 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:

• The total return figures, i.e. including dividends, would again show the two main tracked portfolios to be surprisingly comparable in their results. With average at purchase dividend rates of about .5% for the LL assets and about 2.5% for the CV stocks, the annualized LL total return to date would be around 19.7%, and the annualized CV total return to date would average around 18.8%.

• The 50/50 CV/LL Blend's annualized total return is thus estimated, given the figures through 9/06, at about 19.3%, almost twice that of a long-term hold investment in the S&P 500 Index (with dividends) begun on 10/4/04.

• Since both the LL and the CV assets seem to be proving their worth, to lower overall portfolio risk while retaining good average total return potential, I continue to recommend that an investor following this general approach invest half in the LL stocks and half in those chosen using CV criteria.

• 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, 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 return on relatively safe assets to be held in the short-term bond or cash equivalent reserves category of assets. Assuming one's assets of this type average around 1/3 of the portfolio and 2/3 are devoted to a 50/50 blend of CV and LL holdings and the performance 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 14.5% a year overall, significantly better than that of the major market averages.

• I caution, however, that with so far only about two years experience, there is as yet too little data to say with assurance that this will be the probable outcome. The best that may be stated is that the results so far are definitely encouraging.

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  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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