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.
9/12/10-Since the last entry, there have been no new portfolio sales or stocks ready for sale among assets followed here. So, no redemptions are indicated at this time.
My top-five current low price to earnings stocks are: AIRT;CEU; FLL; FSIN; and VSEC.
My favorite among them is VSE Corp. (VSEC) (recent price $29.12). It meets Benjamin Graham's bargain stock safety and value criteria.
VSE Corp. will be added to our nest egg at its market price early tomorrow morning, 9/13/10.
9/30/10-Here is the Low Price to Book, Low Price to Earnings, Five-Star Stocks, and S&P 500 Index performance summary, through the third quarter of 2010:
|Portfolio or Blend||Average Asset|
|Low Price to Book Stocks*||0.73 year||<0.16%>||<0.22%>
|Low Price to Earnings Stocks**||0.37 year||3.93%||10.85%
|Five-Star Stocks*||0.75 year||27.30%||37.86%
|SPX (10/8/04-4/29/10)***||5.99 years||0.53%||0.09%
(The statistics combine portfolio open and closed position results and are effective as of the end of trading today, 9/30/10. Dividend income has not been included in the table's performance figures. Commissions, though, have been subtracted from the portfolio asset results, but not from the SPX performance.)
( *since the Five-Star Stocks and Low Price to Book Value Portfolio inceptions, both on 5/14/09)
(**since Low Price to Earnings Portfolio inception, 1/14/10)
(***SPX is used as a proxy for the S&P 500 Index.)
Observations about the portfolios:
- As usual, these results should be viewed with caution. Some believe records of ten years or longer are required to properly establish the efficacy or deficiencies of a particular investment strategy or to compare different approaches with statistical confidence.
- Nonetheless, it is heartening to have seen a substantial improvement in both the Low P/Bk and the Low P/E portfolio records since the end of the last quarter, about a 9% increase for the former and a double-digits one for the latter. Their absolute returns are still not very impressive though. Once an investor adds in a rather conservative 1% estimate of annual average dividends, however, Low P/Bk at least has a positive annualized return of 0.78%, while Low P/E comes in at 11.85% for the annualized return.
- The 5-Star stocks portfolio continues to be noteworthy. These are assets which at the time of purchase possessed both Ben Graham classic value qualities (of low debt plus low P/E and/or P/Bk) and ratings with 5 stars by the MSN/Motley Fool CAPS rating system. The assets' absolute return of 27.30% in 0.75 years is at least encouraging. With the same conservative annual yield estimate of 1%, the 5-Star stocks in this small sample thus would have an absolute return of 28.30% and an annualized total return of 38.86%. In this case especially, though, conclusions cannot correctly be drawn from these figures, first because most of the purchases were while the market was as yet significantly down from the financial meltdown of 2008-2009 and second because just nine 5-Star purchases were made in the period under review.
- It has now been quite awhile since we have seen average results from our Ben Graham type investments on the order of 15% a year or better. This remains a disappointment. It is not clear what is the difficulty other than that we have been during the past decade or so in a series of adverse market conditions unprecedented in overall scope and duration since the Great Depression. Does this mean we shall now or soon see a significant leap ahead by equity prices? Or are we destined to instead witness an ongoing phase of relatively frustrating results, such as Japan has suffered since the 1990s? I have no reliable crystal ball. It may be heartening, however, to note that the kind of market returns we have seen for quite some time now, only about 0.1% on an annualized basis for the S&P 500 Index since early October, 2004, has, after the rare occasions such extended dismal performance has been noted, been followed by quite good results in the succeeding several years.
- Meanwhile, even after the largest September surge in the markets since the 1930s, there remain many great bargains available. Some of the better ones may not meet my strict Ben Graham classic value standards, but are fine, low risk stocks with nice dividends. Here are a few that look pretty good to me: CAG; CVX; INTC; PFE; RDS/A; and T. I would be very surprised if five years from now they have not acquitted themselves well in the marketplace.
For those interested in how the Jim's and Phil's Ten Stocks for a Decade portfolios (begun 5/14/10) have performed since inception, on average they are now up 5.52% in their thus far 0.3 year holding period. This works out to an annualized return, excluding dividends but net of commissions, of 19.87%. In the same period, the S&P 500 Index is up just 0.44%, for an annualized return of 1.49%. And if commissions had been subtracted, the S&P 500 record would of course be even worse.
Our nest egg has struggled but is positive for the year so far and has advanced about 9% since the last quarterly report.
Our total book value is now up to $713,000, with the total equity to total book value P/Bk coming in at 94%. I wish it were lower, but was gratified that part of the reason it is not is due to big market and portfolio surges in September.
Our debt is still limited to a small mortgage balance on our house, less than 1.9% of our net asset value.
I have been quite busy the last few weeks but expect soon to do a fresh review for low price to book value bargains and to post any good results here.
Hope we all have a terrific fourth quarter of 2010!
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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