Reviewing the Bargain Basement Portfolio

By Benjamin Clark

sale In this article we review the Bargain Basement Portfolio as of 9/25/2009, which was created on March 27, 2009, and rebalance it to the target allocations. You can view a more detailed description of the portfolio in the Introduction to the Bargain Basement Portfolio. Here’s a review of the rules of the portfolio:

Using the Value Line Bargain Basement Screen, select companies that are priced at 75% or lower of Price-to-”Net” Working Capital and have achieved a positive EPS for at least 5 straight years.
Buy shares when the price is 75% or lower, and hold until the price is 150% or higher of “Net” Working Capital.
Maximum number of companies invested at a given time is 5 (target allocation of 20% of portfolio). If there are more than 5 suitable companies, any purchases will be made in the company with the lowest Price-to-”Net” Working Capital ratio.
Any funds not invested in suitable companies will be invested in the iShares Barclays 10-20 yr Treasury ETF, ticker symbol TLH.
Any dividends received are placed in cash to be reinvested during rebalancing.
Portfolio is rebalanced to target allocations every 3 months.

Since the last update on the portfolio, and prior to the rebalance, there were the following transactions:

8/7/09 – Dividend of $174.49 ($0.303/share) received for TLH.
8/27/09 – Sketchers, USA (SKX) surpassed the target selling price and was subsequently sold for $51,281.44 – a profit of 156%.
8/27/09 – Proceeds from sale of SKX were used to purchase more TLH.
9/8/09 – Dividend of $332.39 ($0.35174/share) received for TLH.

When the time came to rebalance (end of the 3rd quarter), the positions had the following allocations:

Movado Group, Inc (MOV) – 22.07% of the total portfolio
PC Connection (PCCC) – 16.55%
iShares 10-20 yr Treasury ETF (TLH) – 60.97%
Cash – 0.41%

The target allocation is 20% for each equity and the remaining funds in the iShares ETF. As a result, the following transactions were made, bringing the allocations in line with the target.

Sell 15 shares of TLH, proceeds of $1,678.65
Sell 250 shares of MOV, proceeds of $3,580.00
Buy 1039 shares of PCCC, cost of $5,974.25

During the third quarter of 2009 (the period is considered from 7/3/2009 to 9/25/2009), the following performance was observed:

	7/3/09 Value	9/25/09 Value	Quarter Gain/Loss	Overall Gain/Loss
Bargain Basement Portfolio	$132,306.79	173,460.57	31.10%	73.46%
Dow Jones Industrial Average	8,280.74	9,665.19	16.72%	24.29%
S&P 500 Index	896.42	1,044.38	16.47%	28.00%

You can view the current portfolio at the Google Spreadsheet I have set up to track the performance. The spreadsheet provides an overview of the portfolio’s current value, weekly historical value, and a history of the transactions.

Photo by timparkinson.

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Reviewing the Bargain Basement Portfolio