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Review of Defensive High ROIC Portfolio

This portfolio is made up of the 15 defensive stocks that are trading at the highest Return On Investment Capital (ROIC).  Each month we will review the list, and make any trades necessary to get the portfolio to match the list.  The list of defensive stocks is made by following modernized Benjamin Graham strategies, and ROIC is calculated with a formula based on Warren Buffett’s definition of Owner Earnings and Contributed Capital.

 Since this is the first month of the portfolio, we will start with $100,000 and $10 commissions.  All of the stocks listed were “purchased” using prices from Wednesday’s close.  The current value is calculated using prices near close from Thursday.

The snapshot:

Ticker

Total Cost

Current Value

% Gain/Loss

Neither of us holds a position in any of these stocks.  Please review our disclaimer.

Review of Defensive Low PE Portfolio

This portfolio is made up of the 15 defensive stocks that are trading at the lowest PE Ratio.  Each month we will review the list, and make any trades necessary to get the portfolio to match the list.  The list of defensive stocks is made by following modernized Benjamin Graham strategies, and PE Ratio is calculated using an average of the previous 5 years’ earnings per share (EPS).

 Since this is the first month of the portfolio, we will start with $100,000 and $10 commissions.  All of the stocks listed were “purchased” using prices from Wednesday’s close.  The current value is calculated using prices near close from Thursday.

The snapshot:
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Ticker

Total Cost

Current Value

% Gain/Loss

ASH $6,490.00 $6,433.00 -0.88%
BL $6,479.20 $6,547.50 1.05%
DHI $6,527.35 $6,501.60 -0.39%
FAF $6,420.70 $6,451.50 0.48%
FNF $6,458.10 $6,485.50 0.42%
FRE $6,338.30 $6,447.10 1.72%
KBH $6,577.35 $6,502.25 -1.14%
LEN $6,463.95 $6,426.40 -0.58%
MDC $6,544.00 $6,442.50 -1.55%
MTG $6,523.60 $6,582.00 0.90%
PHM $6,508.00 $6,453.00 -0.85%
RYL $6,435.60 $6,483.20 0.74%
SPF $6,522.25 $6,557.85 0.55%
TMA $6,460.10 $6,307.00 -2.37%
TOL $6,478.80 $6,497.40 0.29%
Cash   $2,772.70  
       
Total $100,000.00 $99,890.50 -0.11%

Neither of us holds a position in any of these stocks.  Please review our disclaimer.

Review of Defensive Value Portfolio

This portfolio is made up of the 15 defensive stocks that are trading at the lowest discount to their intrinsic value.  Each month we will review the list, and make any trades necessary to get the portfolio to match the list.  The list of defensive stocks is made by following modernized Benjamin Graham strategies, and intrinsic value is calculated by a formula based on Graham’s overall philosophy of calculating value with a margin of safety.

 Since this is the first month of the portfolio, we will start with $100,000 and $10 commissions.  All of the stocks listed were “purchased” using prices from Wednesday’s close.  The current value is calculated using prices near close from Thursday.

The snapshot:

Ticker Total Cost Current Value % Gain/Loss
ASH $6,490.00 $6,378.00 -1.73%
BC $6,427.00 $6,390.00 -0.58%
BL $6,479.20 $6,426.00 -0.82%
BPOP $6,506.50 $6,670.45 2.52%
CB $6,419.80 $6,558.30 2.16%
DHI $6,527.35 $6,734.70 3.18%
LEN $6,463.95 $6,521.20 0.89%
LUK $6,505.40 $5,943.15 -8.64%
MDC $6,544.00 $6,376.50 -2.56%
MNI $6,422.50 $6,034.50 -6.04%
NFB $6,524.20 $6,412.06 -1.72%
NYT $6,535.40 $6,563.75 0.43%
PHM $6,508.00 $6,599.25 1.40%
RYL $6,435.60 $6,788.80 5.49%
SPF $6,522.25 $6,540.75 0.28%
Cash $2,688.85
 
Total $100,000.00 $99,626.26 -0.37%

Performance:

Last Week This week Change Overall
S&P 1297.48 1296.06 -0.11% 1.91%
Dow 11334.96 11304.46 -0.27% 1.62%
Portfolio 102025.7 99626.26 -2.35% -0.37%

Neither of us holds a position in any of these stocks.  Please review our disclaimer.

Value Investing Weekly – Issue 1

How relevant is value investing in today’s markets? Is there still legitimacy in the theories and practice of such investing? Welcome to the inaugural issue of ValueInvesting Weekly, where we will explore all of these questions, and generate useful ideas that will be beneficial to the investor in the 21st century. These weekly letters will be constructed on the foundation of Benjamin Graham and his legacy of value investing. We look forward to opening an informed and educational dialogue that will benefit all. We encourage you to participate and ask any questions that might arise, or offer any corrections that we overlooked.

ValueInvesting Weekly
Volume 1

As you flip through the channels on cable television, or read the financial pages of newspapers, it is easy to get caught up in the hype that is investing. “Stock ‘A’ surged from 8 to 13 today”, only to be followed by, “Bear markets are going to bring Wall Street to its knees!”. Where does one find the calm within the storm? This is where the concept of value investing creates stability in the investors mind and allows them to think clearly and accurately. Taking a step back first though, allow us to explain and define value investing in simple terms.

Value investing is simply looking for securities that are undervalued for whatever reason, and are currently being traded at a discount in comparison to its true book value. By book value we mean the value of the company as a whole: buildings, inventories, accounts receivable, etc. Finding these securities is not something that is as easy as turning on Cramer on CNBC and having him inform you of what stocks are selling at a discount. Rather, it requires analysis to determine such intrinsic value. Now there are simple ways to get ideas of which stocks might fit into these criteria, such as looking at a company’s working capital. Working capital is the liquid assets of a company, which can be drawn upon by going to the SEC’s webpage (EDGAR) and downloading filings of financial reports and looking for liquid assets. This essentially describes the analytical side of value investing briefly and without digging deep into the theories, but we will address these techniques in later volumes.

Taking value investing into a more psychological setting, let’s consider the greatest investor, Warren Buffett. Warren Buffett was taught by Ben Graham and learned everything he knows of investing from Graham. Buffett learned that investing is not speculating in a company, but becoming an owner with a vested interest. Speculation is looking at a company and off of a hot tip putting hard earned money into a stock – key word here is stock. Investing is intelligently placing your money into a company that you have done research on and are interested in becoming an owner - key word owner. Do you see the difference between the two? Investing is ownership of a company, and speculation is ownership of stock. Again, we are speaking psychologically here, as the two are the same in the fact that you purchase securities whether you are speculating or investing. Buffett never thought of himself as a speculator, but invested in companies that made sense to him because he now owned a piece of that company. Consider the following example: would you want to buy a laundry business that had four competitors on the same street within one mile just because the current owner assures you his business is through the roof? Of course not, but would you want to buy one that is located in the heart of a major metropolitan neighborhood with no other Laundromats in sight? The same thought process can be implemented into investing. Buying a stock that is hyped up without doing any research is as foolish as buying a Laundromat on the current owner’s assurance that it’s a good business. This is why Warren Buffett never did two things: he never bought a stock without researching it, and never bought a stock that he could not understand the business model of the underlying company.

Next week’s issue will begin to look into the theories of value investing deeper, and produce useful ideas of how to implement these into your personal investing.  

Review of Ben’s Portfolio

This is the first day of this portfolio’s existence, so I researched a few different companies to decide what to purchase.  My goal is obviously to follow Benjamin Graham’s strategy and only buy stocks that I believe to be undervalued and suitable for the enterprising investor – as that is what I am.  The portfolio will have a starting cash value of $100,000 and will face commissions of $10.  Taxes will be ignored.  I am aiming to hold between 10-15 stocks, limited to 1 or 2 per industry.

I looked at Marine Products Corp (MPX) first, which was our company of the week this week. The attractive part of this company was its value, a low PE, high ROIC, and I like their strategy and believe the company will continue to grow into the future.  I “purchased” 765 shares at $8.50 with a $10 commission for a total cost of $6,512.50.

Next, I looked at Dollar General Corporation (DG).  The company has a low PE, high ROIC, and is undervalued by my calculations (seeing a trend here?).  I “purchased” 485 shares at $13.40 with a $10 commission for a total cost of $6,509.00.

Finally, I looked at Intel Corporation (INTC).  Once again, the company has a low PE, high ROIC, and is undervalued.  375 shares at $17.36 with a $10 commission for a total cost of $6,520.00.

Here is a snapshot of the portfolio today:

Ticker Total Cost

Current Value

%Gain/Loss

Company of the Week – Marine Products Corp.

Marine Products Corp (MPX) is a manufacturer of powerboats.  The company was founded in 1965 under the name Chaparral Boats.  In 1986 the company was purchased by RPC Energy Services, from which it was spun-off in 2001.  Marine Products Corp immediately purchased Robalo early in 2001, and continues to operate with subsidiaries called Chaparral and Robalo.  The management is dedicated to “improvements in manufacturing efficiency, customer service, and refinement of product offerings” and has grown the company’s market share from 5.53% in 1999 to 8.7% in 2003 according to their website, http://www.marineproductscorp.com. 

A few tidbits from the company’s financial statements:

  • Total Revenue has more than doubled since 2001.
  • Net Income has nearly tripled since 2001.
  • Company has no long-term debt.
  • 5-year average growth rate in Net Income is 13.44%.
  • Current Ratio is 4.15
  • Has paid a dividend since it was spun-off in 2001.

Basic Stock information:

  • Price:  $8.49
  • PE Ratio:  13.34
  • Price-Book Ratio:  3.5
  • Market Cap:  321.47 Million
  • Dividend Yield:  2.37%

We believe this stock may be a suitable investment for enterprising intelligent investors seeking to follow a value investing strategy.  The stock appears to be undervalued, and we believe it has the potential to reach $11.58/share within the next few years. 

Neither of us holds stock in Marine Products Corp (MPX).  Also, please read our disclaimer. 

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