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November, 2004: 1 7 11 18 24

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.

Currently my top five Classic Value picks are: BKRS, CHMD, HICKA, MVAC, and TBAC.

My favorite among these (shares of which will be added at tomorrow's trading price to the Classic Value tracking portfolio) is Chronimed, Inc. (CHMD) (recent price $5.88). This security's price to net working capital (if my calculations and the financial site's info are accurate) is 1.37. CHMD is a nano-cap (with market capitalization of $75 million), has a reasonable P/E (12), a bargain price to book value ratio (.79), a quite low price to sales ratio (.13), a price to free cash flow of 8, a return on equity of 7%, no dividend but a high current ratio of 4.05, and a long-term debt to equity ratio of 0.0.

Among other winning strategies we have used are to buy carefully selected stocks recommended in Outstanding Investor Digest and then hold them till they appear to have reached or exceeded contributors' estimates of per share intrinsic value. I won't abuse that service's copyright by citing specific examples, but wish to stress that a subscription to OID seems worth the price. However, be forewarned that this publication does not arrive on any regular schedule. Many months may pass before a new issue is received.

11/7/04-Effective with the market close on 11/5, stocks generally were up once again, no doubt still consistent with relief over a relatively prompt outcome for the 11/2 presidential election. Our tracked portfolios are both higher since inception (10/4). The Leapin' Lizards assets have a plus 3.96% appreciation overall, while the Classic Value assets are up only slightly less, at 3.53%. Meanwhile, the S & P 500 Index is ahead 2.7% since 10/4/04.

For the next Leapin' Lizards purchase, I first narrowed the field to five top candidates: BKR, HOC, MSHI, USG, and ZONS.

My favorite among these is Holly Corp. (HOC) (recent price $24.90). HOC has a low P/E (about 9), small-cap size ($792 million market capitalization), a price to sales ratio of 0.45, at least a below average price to book value ratio (2.37), a price to free cash flow of only 2.57, a return on equity of around 28%, a small dividend (0.65%) that has been paid each year since 1988, and a low payout ratio (roughly 9%). The current ratio is just 1.17, but HOC's debt to equity ratio is quite low (long-term debt to equity 0.03). Holly Corp. is up 101.8% from its 52-week low and 82.5%, relative to the S & P 500 Index, in the last 52 weeks.

11/11/04-I'm back with the next competition review and new purchase info a little early as I'll be away over the long weekend of 11/12-11/15.

As of the close of domestic trading on 11/10, our tracked portfolios are both still higher since inception (10/4). The Leapin' Lizards assets have a plus 4.79% appreciation overall, while the Classic Value holdings are up plus 4.10% on average. Meanwhile, the S & P 500 Index is ahead 2.5% since 10/4/04.

For the next Classic Value purchase, the candidates were initially reduced to these five: HGGR; HICKA; KILN; MAXF; and OUTL.

My choice among these for current addition (at the market price this morning) to the Classic Value tracking portfolio is Maxcor Financial Group (MAXF) (recent price $8.88). If my info and calculations are right (as always recommending readers double-check with their own research), MAXF has a low P/E (about 5), nano-cap size ($62 million market capitalization), a price to sales ratio of 0.35, a relatively low price to book value ratio (1.02), a price to free cash flow of only 1.71, a return on equity of around 23%, an above average dividend (2.78%), and a low payout ratio (roughly 13%). MAXF's debt to equity ratio is low (0.10). Maxcor Financial Group is currently recommended by a few investment rating services for purchase. According to my figures, the price to net working capital for MAXF is a reasonably low 1.5.

11/18/04-The rally since President Bush was reelected has been kind to our nest egg, along with those of most everyone invested in U.S. stocks. Currently we have no margin debt and yet are $8100 ahead of our year-end target. Since my 12/31/01 retirement date, net current assets are up 34.7%, or an average annual compound total return of 10.9%. After expenses of $106,400 have been subtracted, however, the overall holdings are ahead 15.7% (a 5.2% compound return), which remains better than the S&P 500 Index (with dividends) record for the period. Our total portfolio's equity book value year-end target was $304,000, but the total book value of our stocks and equity mutual funds is now actually $331,249.

In the Classic Value vs. Leapin' Lizards portfolio competition, Classic Value is winning to date, up 5.4%. The Leapin' Lizards portfolio has appreciated 3.2%. The S&P 500 Index, since the 10/4/04 inception of this contest, is ahead 4.4%. (Note that the average of the two portfolios is now below the S & P 500 Index. Over the long-term, if I cannot do better than that, I should simply invest in an index mutual fund.)

The current asset addition is to the Leapin' Lizards, presently composed of an essentially equal dollar amount purchase of BAMM, PCR, OMVKY, and HOC shares.

The five finalists for today's selection are: AGYS, BKR, HUBG, MTLM, and ZONS.

Among these, my pick, shares of which are being added to the tracking portfolio for our Leapin' Lizards, is Michael Baker Corp. (BKR) (recent price $19.04). Michael Baker Corp. is a micro-cap asset (market capitalization $160 million) and has a price to net working capital of 3.21, a low price to sales ratio of 0.32, a trailing P/E of about 15 (forward P/E about 10), a price to book value of 1.99, a 14% return on equity, no dividend, but a debt to equity ratio of only 0.01, and a current ratio of 1.51. BKR is up 82% year-to-date and 72%, relative to the S&P 500 Index, in the past 52 weeks.

In the past I have endorsed The Motley Fool as a resource for investors. However, it is troublesome that the site is often dominated by advertising at the expense of substance. On its Discussion Boards (for which an annual fee is charged) there are intrusions of the site's management, with links, pop-up ads, or even self-serving recommendations for their paid services. Yet when the results of all their suggested stocks are considered, in lieu of the cherry-picked best performers, it is unlikely their advice is superior to the records of the major market indexes (with dividends). For my money, the modest dues for membership in the essentially ad-free American Association of Individual Investors offers more real value.

11/24/04-I'm giving an update a little early this week due to the Thanksgiving holidays plus a moderate family emergency, that together will keep me busy and/or out of town over the next several days.

Since 10/4/04, when I began the Leapin' Lizards vs. Classic Value portfolio competition, the S & P 500 Index has appreciated 3.7% (through close of business 11/23). Meanwhile, the Leapin' Lizards assets have averaged a 5.7% gain, and the Classic Value portfolio is up 6.0%.

The final five candidates this time (for the Classic Value portfolio), are: ACGL, INMD, OUTL, TOM, & VUL.

My current favorite (to be added to the C.V. tracking portfolio based on the market price tomorrow morning) is Arch Capital Group, Ltd. (ACGL) (recent price $39.18). ACGL has a (rounded off) P/E of 9, no dividend but a price to net working capital of .93, a $1.3 billion market capitalization, a price to sales ratio of .91, a price to book value of .64, a price to free cash flow of 1.4, a roughly 15% return on equity, positive recommendations from analysts, and a debt to equity ratio of 0.14.

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