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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. |
11/1/02-We got a small shock today when we received the estimate on plumbing repairs, to correct damage done this week by municipal employees. (See yesterday's Dove Feathers and Dog Hair entry.) It turned out more work was involved than we'd anticipated. The total bill for two valves, pipes, digging, and the actual plumbing labor was $746. There is no guarantee at all that we'll be compensated by the city, or, if so, when.
After the job was finished, for some reason neither of our toilets worked quite right, filling very slowly and/or leaking a little out of the reservoir into the bowl, the plastic or rubber pad at the bottom of the tank no longer seating just right. The plumber showed us they were getting plenty of water pressure and that the supply into the house was not the difficulty. Before long, both will likely require some additional work as well. Sigh.
On our way to lunch, after a soul-searching discussion about whether we can even afford to go out to eat, we resignedly agreed that we should routinely build into our budget an extra $12,000 a year ($1000 a month) for such unexpected costs.
Since Fran and I had previously determined we can safely live on up to $60,000 a year, this means we must budget for no more than $48,000 in routine expenses, including mortgage, utilities, food, entertainment, taxes, life insurance, gifts, normal automobile maintenance, and everything else. This weekend we'll do a thorough budget analysis and see if this is realistic. If not, we may consider refinancing to lower the monthly allocation for housing. Thanks to high taxes and insurance, plus a fifteen year loan, we currently pay over $1000/month for a modest residence in a declining neighborhood.
Meanwhile, I'm continuing to increase core equity assets. Today I placed the order to purchase $25,000 in Vanguard Health Care Fund. After this transaction, to achieve our target we need to raise other core holdings by just $78,000 by the end of next year. Of course, some of that gain may come from higher share prices.
11/3/02-Fran and I completed our budget analysis for the first ten months of the year. We figured we have to stay within $4000 a month for routine expenses. The actual costs through October were $3547 a month. So, despite how it feels when unexpected charges arise, they are running no more, on average, than $1000 a month, and we are below the maximum limit for regular expenditures. We shall continue to watch our spending and err on the side of forking out too little rather than too much. But we're doing alright!
11/7/02-Our core assets are holding up despite the market drop today. But the other equities are down a little. To help assure they remain at or above targets, I'm purchasing 100 shares of Blair Corp. (BL), which closed today at $21.90.
The information here on BL comes from Schwab, "Value Line," and The American Association of Individual Investors (AAII). Blair is rated "A" for superior performance by Schwab. "Value Line" includes it in its "Bargain Basement" assets, with a price to net working capital less than one and a price to book value below 0.6.
BL has a good dividend (2.7%), with a payout ratio of just 24%. Its debt to equity is only .06. It's a small-cap. The trailing P/E is 8.6.
This asset meets strict Benjamin Graham value plus safety criteria and, for the patient investor, seems likely to outperform the market over the next few years.
11/10/02-Per today's analysis of our assets, equities are right in line with their targets, but bond assets, which have been up significantly in the past week, are $1700 above intended levels. Accordingly, this afternoon I placed an order to sell $1700 worth of our Vanguard Total Bond Market Index Fund shares and exchange this amount to our Vanguard money market account.
It was just like finding a bag of 1700 dollar bills that we'd not had seven days ago! This boon was welcome, for recently I had to write a $2350 check on our Schwab margin credit, to cover new bills that had just come due.
Fran's return yesterday to part-time work, for the Austin Lyric Opera's latest production, is timely too and should help us keep investment debt, through the rest of the year, at about 5% of current assets.
11/11/02-The market having fallen further, our equities are now about $5000 below target, most of this in non-core assets. Accordingly, I have today placed an order to buy 131 shares (approx. $3800 worth) of PMI Group (PMI) (Recent price $28.92).
This stock has a price to earnings ratio of 7.2, giving it an earnings yield of 13.87, more than twice the recent Aaa corporate bond yield of 6.3. Debt to equity is just 0.20. Price to book value is 1.29. The dividend is 0.33%, with a payout ratio of 2.1%. Return on shareholder equity is projected to exceed 17% over the next 3-5 years, per "Value Line." The asset meets strict Benjamin Graham value and safety criteria and appears likely to appreciate faster than the market as a whole in the next several years.
I called Schwab today and gave them my preferences in the current rights offering for shareholders of Liberty Media (L). We'll exercise all our regular rights, which allow for purchase of a share of L per right, for $6, significantly below its recent price of between $8-9. In addition, we are asking for over-subscription purchases of up to 2000 more shares of this stock at that price. If successful, this will take us a long way toward our end of 2003 goal of having $30,000 invested in Liberty Media. At the very least, we'll offset the dilutive aspect of the upcoming sale and expansion of L shares. Based on the current number of common shares, Liberty Media is felt by several key value investors to be worth at least double its recent price.
11/13/02-As a couple of my limit orders have not yet gone through, our equities remain a bit below their targets. Since the last and asked prices on another value asset, CPAC, Inc., are still low enough that this remains a bargain, I have today placed a market order for 400 shares of it.
CPAC, Inc. (CPAK) (Recent price $5.50), besides being a low price to book asset (P/B 0.62), has a significant (5.1%) dividend. The payout ratio is 49.2%. Debt to equity is just 0.18. P/E is 9.6. This stock meets two strict Benjamin Graham value criteria (P/B and high dividend), in addition to meeting his safety criterion, with the low D/E level. The price has recently been heading north. The stock went for $5.09 just a few days ago. I can heartily recommend it!
11/17/02-Our net assets have increased to over $6000 above their target, including $1500 beyond the current goal for misc. bond assets. Accordingly, I've placed an order to exchange that additional amount from our Vanguard Total Bond Index Fund to a money market account.
Today I added two transactions to our financial records on Quicken.
Also came up with the present mathematical bases or criteria for a stock bargain, and for an equity sale (fair value), given the recent AAA corporate bond yield.
11/18/02-The market was down today and the misc. value equities portion of our holdings wound up being a little less than $2500 below target.
I found a Benjamin Graham style asset, American Safety Insurance Group (ASI), which has a price to book value of .46, based on its close today of $6.44. It also has a dividend of 6.2%. The payout ratio is 10.9%. The P/E is 5.5. Debt to equity is 0.23. It's a small-cap. stock, with market value of $269 million. I placed an order for 400 shares. Everything else being equal, it could provide a good profit. The current fair price is $14.03 (based on the book value).
11/21/02-Did our monthly investments analysis today. Total holdings' net asset value is up 10.7% since the October review. The equity-plus-REITs portion of the total is up 32%. Overall, we've already achieved our year-end targets. Will look carefully at our miscellaneous (non-core) equities to see if any meet sell criteria, because, when the market is up significantly, I get nervous and want to reduce risk. Conversely, when markets are way down, I want to be a buyer. It's an approach that has worked well for us.
11/22/02-I selected Liz Claiborne, Inc. (LIZ), for sale and so put in the order today, lowering our margin debt a little over $4400. LIZ may be attractive in other respects, i.e. sector or momentum methods of choosing assets, but from a value standpoint it is no longer a bargain. The price to earnings ratio is now 16.81, based on a recent price of $32.29. Price to book value is 2.69.
11/26/02-Have found another classic value bargain, Edison Control Corp. (EDCO), which I intend to purchase once our equity portfolio gives another "Buy" signal.
EDCO has no dividend, but the price to earnings ratio is 6.6 (based on Multex Investor information and the recent $6.50 price). Price to book value is 0.57. Total debt to total equity is 0.28. It meets strict Benjamin Graham value criteria with both its low P/E and low P/BK. It also meets the strict safety criterion of a reasonably low D/E.
Disclaimer and Disclosure Statement
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.