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September, 2014: 13

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.

1. Our Low Price to Book Value portfolio stock, CEP, bought on 3/26/12, was sold on 8/19/14 for a net gain (after commissions but not counting any dividends) of 15.60%. The CEP shares have been deleted from our open positions record for Low P/Bk assets, and the closed position info for 3/26/12 through 8/19/14 has been added to our portfolio spreadsheet for low price to book value redemptions and mergers. CEP had been held for over two years and so was simply sold once noted to have become a profitable investment.

2. On 9/2, our Low Price to Book Value portfolio stock, MSN, bought on 8/5/13, was sold for a net gain (after commissions but not counting any dividends) of 24.86%. MSN has been deleted from our open positions record for Low P/Bk assets, and its closed position info for 8/5/13 through 9/2/14 has been added to our portfolio spreadsheet for low price to book value redemptions and mergers. As it had neither been held for two years nor risen in net price by 50% or more, MSN was actually sold in error. I had bought additional shares this year, part of an experiment to see how favorably rated low price to book stocks that are currently without earnings would do over time. When those MSN shares were up about 20%, I sold them, but accidentally redeemed the earlier purchased MSN shares as well.

Alphabetically, my current top-five Low Price to Book Value equities are: ELP; NE; PT; RIG and VOD.

My new featured Low Price to Book Value security is Portugal Telecom (PT) (recent price $2.17). PT meets Benjamin Graham's bargain stock value and safety criteria.

Portugal Telecom will be added to our nest egg at its market price in early morning trading on Monday, 9/15/14.

If all goes according to plan, I shall be leaving on a three-week vacation next Wednesday, and so would not be here to provide my quarterly review at the usual time, normally on 9/30 or 10/1. Who knows what the next couple weeks or so will bring, but for now suffice to say our monitored portfolios are doing reasonably well, overall book value and dividend totals are on target to achieve year-end targets, and my wife's and my nest egg (net asset value) is at record levels. Whenever this occurs, I begin getting more nervous about how much farther up the market can take things before a significant pullback. I have seen assessments by Warren Buffett and others suggesting that when the ratio of total U.S. equity market value to gross national product is significantly above one, equities are likely to be overvalued and vulnerable to a major correction or bear market.

Though I am generally not a market timer - not being that good at it - I think the ratio's current level is about 1.25, the implication being that most of this bull market's profits have already been achieved. My response to this is to sell off some assets on days when our portfolio is up and so raise money market reserves.

I have as well a relatively small investment in TWM, an exchange traded fund (ETF) equivalent to shorting the Russell 2000, but with twice the up and down performance of a Russell 2000 short. This is definitely not an asset, in my view, for long-term hedging. However, while the aforementioned ratio is above 1.2, I think this a reasonably safe security for short-term trades. In any case, we have done fairly well buying TWM when it is down more than 5% since the just previous transaction and then later selling when it is up over 5% from the prior buy transaction. To avoid wash sales, it is best to use this approach only in tax-deferred accounts, I think. On average the round-trip (both buy and sell) trades of this type have occurred about every 6-7 weeks, with typical net gains around 7%, providing a decent annualized return (combined open and closed positions thus far having shown net annualized profits between 30-40%). This sort of strategy is only for about 5% or less of our N.A.V., and is also done only so long as we have plenty of cash reserves and no debt.

I expect to give a more detailed assessment of Low Price to Book Value and Dividend Value portfolio performances after my return in the second week of October.

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