12/23/03-Our total assets' net asset value now stands at $628,000, up about 27% since the end of 2002, even though about 25% of our nest egg is in non-equities, such as illiquid real estate assets, money market accounts, or bond holdings. We have achieved our earlier set year-end target of $500,000 in equities, quite substantially up from the portfolio's equity level in the fall of 2002.
Our margin debt now stands at only about 3%, down from about 4% at the end of 2002.
The most successful strategy used to achieve our objectives over the last couple years has been the focus on small- and micro-cap securities meeting at least two Ben Graham value criteria and one safety criterion and, in addition, with maximum price to book .59 and maximum debt to equity .33. If there is a dividend, the payout ratio must be .5 or below. Assets meeting these overall criteria have as a group gone up over 54% since purchase, with an average holding period of less than a year. Annualized gains are thus over 60%.
Certainly there is no expectation this level of performance would be sustained significantly into the future. Nonetheless, the impression now is that a relatively mechanical approach to stock selection, using a refinement of Benjamin Graham criteria and information readily available for free or through AAII (with an annual membership of just $49), can be worthwhile and deserves a commitment of funds, along with other useful strategies, such as Benchmark Investing.
The Essential Value Portfolio is up since the last entry, though it still lags the S & P 500 for roughly the same period. More detail on its performance will come closer to the very end of the year. There have been no further sales or purchases in the EVP since the previous entry.
12/30/03-My year-end summary for 2003 will be in two parts. First, today, I'll focus on the Essential Value Portfolio (EVP). Tomorrow, I'll do the final evaluation of our nest egg's performance for the current year.
Since, the prior EVP evaluation, on 11/25/03, there have been no new purchases or sales in the portfolio.
The total invested in the EVP since its 8/18/03 inception has been $53,970, for an average purchase amount of $2570 (21 separate purchases).
There have been 3 sales (all on 11/25/03). The average sale price was $2043, hence a net loss for each closed position averaging 20.5%.
The net proceeds of these 11/25/03 sales, plus new dividends since then, give us an EVP current cash balance of $6049.
The year-end EVP open positions, representing 18 separate purchases (sometimes in the same asset more than once) are as follows:
The initial open positions' total investment was $46,260. Since then they are up 8.7%, to $50,285. (The 11/25/03 market value of the open equity positions was $47,802. They're up 5.2%.)
The 12/30/03 total portfolio value ($56,334), however, since the 8/18/03 inception and including both dividends and closed position losses, is up just 4.4%. (The average holding period is several weeks, rather than the entire duration since inception. The annualized return would of course be greater, estimated at 11-12%.)
The Standard and Poors 500 Index stood at 1000 on 8/18/03 and was 1110 (an 11% gain) as of close of business trading on 12/30/03.
For purposes of determining a portfolio buy vs. sell signal, requiring at least $2500 below/above a 5% threshold under or over (respectively) a target set by adding 1% monthly to the 11/25/03 equity value of $47,802, I note that the end of 2003 target for the EVP was $48,280 and that the current market value of its open positions is gratifyingly above this but only by 4.2%. Thus, the requisite threshold is not sufficiently exceeded and no sell (or buy) signal is indicated at this time.
12/31/03-As has been true for so many, 2003 was a great year for our retirement nest egg, after several distressing ones.
Following the last few transactions and profitable trading sessions, we end with zero investment debt (compared with a 4% margin level at the end of 2002).
Our total and net current assets' present value, at the close of business today, is $637,700. This is a 24% increase over our total assets on 12/31/02 and a 29.2% improvement in our 12/31/02 net asset value. The performance is despite approximately one fourth of our total holdings being in non-equities, such as bonds, money market accounts, or illiquid real estate.
Our best buying strategy was to purchase selected micro-cap stocks meeting Benjamin Graham value and safety criteria when the market was down. As a group, these selections are up 61.8%, with an average holding period of significantly less than a year. Their annualized total return would thus probably have been closer to 80%. While I'd expect this to be our top performing year and approach well into the future, unlikely in fact to be repeated, the long-term record of such a method is superior to that of the Standard and Poors 500, and with no greater risk, so I intend to continue it from now on with 50% of our new investments. (Such holdings are generally held until at a price to book value of about 1.2, everything else being equal, or until two years from purchase, whichever first.)
As indicated on 12/30/02, late last year I invested $25,000 in the "Unemotional Value Two" approach, a variation on the "Dogs of the Dow" method. The stocks selected by this technique were Honeywell and J.P. Morgan Chase. After the first year, this technique has proved its mettle, with a 51.5% return, not even counting the very healthy dividends HON and JPM were paying over the past twelve months. We'll be still using this strategy too, reinvesting the $37,884, to which our investment on 12/30/02 has now risen, equally in the new "Unemotional Value Two" selections: AT&T (T) ($20.30) and SBC Communications (SBC) ($26.07).
Surprisingly, perhaps, our worst performing category has been Benchmark Investing (BI), an approach not really begun until the last half of the year. Our BI holdings are only up 6.6%. But this strategy is notably contrarian and therefore often does not track well the rest of the averages, a factor that can prove quite beneficial in a bear market. BI's long-term total return is substantially better than that of the Standard & Poor's 500 or Wilshire 5000 indexes. Indeed, the return obtained, as above, given that it represents an average holding period of just a few months, would be considered rather good most of the time. I'll try to refine this method, for instance picking BI stocks with better than average price to net cash flow, lower debt, higher dividends, and/or having risen above their 13/50 EMA, and will definitely continue to employ it through 2004.
As established as a goal over a year ago, our total equities (stocks plus stock mutual funds) now stand at half-a-million dollars (in fact a little above that level), though we've had minimal earnings since starting toward this target, my retirement annuity covers less than half of our expenses and, at the worst of the recent bear market (October, 2002), our equities stood at only $260,000.
Moving ahead, we'll keep our lifestyle modest, try to still be smart about avoiding unnecessary taxes, maintain low or no debt, and place most of our personal finance emphasis on picking stocks (such as T-3 Energy Services [TTES] [$5.80]) that are highly attractive contrarian or value asset candidates.
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