to be one of the great investing minds of our generation (sorry Joel). He wrote a book in the early 1990s called Margin of Safety. I have read it once before, but decided to re-read it. It is a difficult book to find, so I will be sharing some passages from the book in my blog. Some are so stunningly prescient, you would swear they were written right after the meltdown of 2008.
Here are a couple just from the firt two pages of the first chapter (Titled "Speculators and Unsuccessful Investors"):
Mark Twain said there are two times in a man's life when he should not speculate: when he can't afford it and when he can.
Investors make buy and sell decisions on the basis of current prices of securities compared with the perceived value of those securities.
Investors believe that over the long run security prices tend to reflect fundamental developments involving the underlying business.
Speculators, by contrast, buy and sell securities based on whether they believe those securities will next rise or fall in price. Their judgment regarding future price movements is not based on fundamentals, but on a prediction of behavior of others.
This made me think back to a conversation I had with trader (screen name) on Ed's Talking Stock. He had told me not to buy a stock because the price was dropping. I commented that the dropping price made me think it was a better value. He commented that the price is dropping for a reason and that the movement of the price was all that mattered to him. The end of that story was that the price did continue to drop, but that does not mean that I was wrong. Because my approach requires the long term, as I just care about buying a security at a price that is a discount to the actual value.
Speculators buy securities because they "act" well and sell when they don't. Indeed, even if it were certain that the world would end tomorrow, it is likely that some speculators would continue to trade securities based on what they thought the market would do today.
Technical analysis is based on the presumption that past share price meanderings, rather than underlying business value, hold the key to future stock prices. In reality, no one knows what the market will do; trying to predict it is a waste of time, and investing based upon that prediction is a waste of time.
Pretty bold words. I suspect that many do not believe that to be true. But in my heart I do. Whenever I see someone on TV talking about head and shoulders patterns, 50 day moving averages or support levels I think of alchemy. You can pick whatever time periods and averages you want to pick to make your point. And there is no proof it will hold next time even if there is a pattern for the important reason that there is not cause and effect.
I will continue to sprinkle his thoughts through my blog during the next couple of months. The book is making me take a hard look at my approach. I believe I try to buy stocks that I perceive to be lower in price than underlying value, but I have no doubt I could do much better. And I am still too quick to buy and sell. Finally, I probably own too many stocks (we'll get into that later when Klarman talks about waiting for the right pitch).
Interestingly, my best investing has been for my kid's college funds. I buy them 2 to 4 stocks a year. I think very hard about what the best stocks are for them and what are good values. I then transact very rarely. The results are stunning, and it makes me wonder why I do not use a similar approach for my brokerage portfolio, which is larger in size.
College Funds:
| Tranche | Gain |
| 2013 | 20.7% |
| 2012b | 46.1% |
| 2012a | 58.8% |
| 2011 | 47.9% |
| 2010 | 83.5% |
| 2009 | 162.9% |
Wow. Even I am impressed. One might argue I have taken more risk, just going with two to four stocks in each tranche. But if you are buying a dollar for 50 cents; you are taking less risk.
So I am going to try and bring this more to my investing for everything. I will stay with MFI. But my non-MFI portfolio, which (as a reminder) is my dividend portfolio and discretionary portfolio will start to be pared down and I will think about it more.
To start that process, I sold FSYS yesterday. It was an impulse buy of a stock with an interesting story and certainly future potential; but I can not say with any confidence that it is trading below it's intrinsic value. Instead, it is speculation that good things will happen down the road.
Dividend Portfolio Update
| Stock | Shares | Avg Cost | Current Price | Dividends Received | Pct Change | R3K Change | Diff |
| AAPL | 151 | 527.49 | 429.80 | 397.50 | -18.0% | 12.0% | -30.0% |
| ABR | 4,567 | 7.19 | 7.76 | 540.00 | 9.5% | 4.2% | 5.3% |
| AOD | 13,054 | 3.91 | 4.09 | 620.14 | 5.7% | 5.8% | -0.2% |
| BHK | 2,270 | 12.79 | 14.76 | 3,449.62 | 27.3% | 17.7% | 9.6% |
| CIM | 20,000 | 2.77 | 3.30 | 1,800.00 | 22.2% | 7.3% | 14.9% |
| CSCO | 4,326 | 17.25 | 21.54 | 2,743.60 | 28.5% | 19.2% | 9.3% |
| CSQ | 5,593 | 8.32 | 10.47 | 6,771.23 | 40.4% | 35.2% | 5.2% |
| FCX | 1,575 | 32.17 | 31.92 | 831.20 | 0.9% | 10.2% | -9.4% |
| INTC | 1,996 | 20.99 | 21.68 | 2,442.56 | 9.1% | 28.9% | -19.8% |
| JQC | 3,135 | 9.18 | 10.55 | 4,188.67 | 29.5% | 17.5% | 11.9% |
| KMF | 1,873 | 22.08 | 34.65 | 4,453.63 | 67.7% | 31.8% | 35.9% |
| NEM | 1,408 | 39.84 | 36.37 | 340.00 | -8.1% | 3.4% | -11.5% |
| O | 563 | 19.61 | 47.73 | 7,767.11 | 213.7% | 85.3% | 128.4% |
| OIBAX | 3,972 | 4.95 | 6.59 | 7,066.27 | 69.0% | 86.3% | -17.2% |
| PGR | 2,118 | 20.56 | 25.59 | 2,596.23 | 30.4% | 17.3% | 13.1% |
| PRE | 540 | 67.59 | 92.19 | 1,628.69 | 40.9% | 17.5% | 23.3% |
| RIG | 1,250 | 51.79 | 50.51 | - | -2.5% | 1.7% | -4.1% |
| SAI | 4,767 | 12.84 | 13.75 | 2,505.42 | 11.2% | 12.6% | -1.4% |
| STO | 1,040 | 23.82 | 23.97 | 1,121.00 | 5.2% | 34.9% | -29.7% |
| TC-PT | 3,500 | 15.92 | 15.72 | - | -1.3% | 1.1% | -2.4% |
| Total Open | 51,263 | 17.4% | 16.3% | 1.1% | |||
| Closed | 15.3% | 11.0% | 4.3% | ||||
| Combined | 15.9% | 12.4% | 3.4% | ||||
| Annualized IRR Since 12/31/10 | 17.3% | ||||||
| 2013 Gain | 9.4% | ||||||
As you can see, my open positions are beating the indexes based on when they were transacted by 1.1%, but overall in 2013 I am losing ground a bit, up 9.4% versus 11.4% for Russell 3000. Going back to the value theme of this blog, being behind during the year so far is not necessarily "bad". So that in of itself is no reason to make changes. But rather, I need to revisit each stock idea and rank them. Of those 20 positions, I suspect 10 could be weeded as as a bit weaker. And then for a totally new position, I need to clearly state a thesis on this blog on why it is a value stock.
Current Yields
| Stock | Shares | Ann Dividend / Share | Yield | Projected Dividend | Sector |
| AAPL | 151 | $ 10.80 | 2.5% | 1,634 | Consumer |
| ABR | 4,567 | $ 0.48 | 6.2% | 2,192 | Real Estate |
| AOD | 13,054 | $ 0.32 | 7.9% | 4,230 | Hybrid |
| BHK | 2,270 | $ 0.88 | 5.9% | 1,989 | Bond |
| CIM | 20,000 | $ 0.36 | 10.9% | 7,200 | Real Estate |
| CSCO | 4,326 | $ 0.68 | 3.2% | 2,942 | Tech |
| CSQ | 5,593 | $ 0.84 | 8.0% | 4,698 | Hybrid |
| FCX | 1,575 | $ 1.25 | 3.9% | 1,969 | Resources |
| INTC | 1,996 | $ 0.90 | 4.2% | 1,796 | Tech |
| JQC | 3,135 | $ 0.80 | 7.6% | 2,508 | Hybrid |
| KMF | 1,873 | $ 1.80 | 5.2% | 3,372 | Pipelines |
| NEM | 1,408 | $ 1.40 | 3.8% | 1,972 | Resources |
| O | 563 | $ 2.17 | 4.5% | 1,221 | Services |
| OIBAX | 3,972 | $ 0.29 | 4.4% | 1,152 | Bond |
| PGR | 2,118 | $ 0.41 | 1.6% | 869 | Insurance |
| PRE | 540 | $ 2.56 | 2.8% | 1,381 | Insurance |
| RIG | 1,250 | $ 2.24 | 4.4% | 2,800 | Services |
| SAI | 4,767 | $ 0.48 | 3.5% | 2,288 | Services |
| STO | 1,040 | $ 0.98 | 4.1% | 1,019 | Resources |
| TC-PT | 3,500 | $ 1.60 | 10.2% | 5,600 | Resources |
| Total | 5.2% | 52,831 |
The yield has been increasing a bit the past few weeks. Stocks like TC-PT (which I fully believe meet Margin of Safety value criteria) have been bumping it up.
Upcoming Dividends
| Stock | Shares | x Date | Div/Share | Est New Shares | Amount |
| KMF | 1,873 | 4/18/13 | $ 0.45 | 24.0 | 843 |
| AOD | 13,054 | 4/19/13 | $ 0.03 | 86.0 | 352 |
| TC-PT | 3,500 | 4/27/13 | $ 0.40 | 89.0 | 1,400 |
| OIBAX | 3,972 | 4/30/13 | $ 0.02 | 12.0 | 79 |
| O | 563 | 4/30/13 | $ 0.18 | 2.0 | 102 |
| INTC | 1,996 | 5/5/13 | $ 0.23 | 20.0 | 449 |
| AAPL | 232 | 5/7/13 | $ 2.65 | 1.4 | 616 |
| CSQ | 5,593 | 5/8/13 | $ 0.07 | 37.0 | 391 |
| JQC | 3,135 | 5/11/13 | $ 0.07 | 20.0 | 217 |
| BHK | 2,270 | 5/11/13 | $ 0.07 | 11.0 | 166 |
| PRE | 540 | 5/15/13 | $ 0.64 | 3.0 | 345 |
Now note that I show the number of new shares with reinvested dividends. As I have turned off many of my DRIPS, this will be less true.
MFI Tranches
I am actually closing the gap here.
| 8/15/12 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| DLB | $34.43 | $33.01 | $4.00 | 7.5% | 15.0% |
| KFY | $13.98 | $16.68 | $0.00 | 19.3% | 15.0% |
| MSFT | $30.19 | $28.79 | $0.46 | -3.1% | 15.0% |
| NSU | $3.62 | $3.57 | $0.05 | 0.1% | 15.0% |
| UIS | $19.96 | $20.60 | $0.00 | 3.2% | 15.0% |
| Totals | 5.4% | 15.0% | |||
| 11/15/12 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| AAPL | $537.62 | $429.80 | $2.65 | -19.6% | 18.6% |
| ABC | $40.21 | $54.18 | $0.21 | 35.3% | 18.6% |
| LPS | $23.89 | $25.58 | $0.20 | 7.9% | 18.6% |
| VIAB | $49.12 | $66.50 | $0.55 | 36.5% | 18.6% |
| WU | $12.77 | $15.04 | $0.25 | 19.7% | 18.6% |
| Totals | 16.0% | 18.6% | |||
| 2/1/13 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| AAPL | $450.60 | $429.80 | $2.65 | -4.0% | 4.9% |
| GA | $6.10 | $6.92 | $0.00 | 13.5% | 4.9% |
| STRZA | $16.06 | $22.05 | $0.00 | 37.3% | 4.9% |
| CA | $25.07 | $24.93 | $0.25 | 0.4% | 4.9% |
| NUS | $41.94 | $49.78 | $0.30 | 19.4% | 4.9% |
| Totals | 13.3% | 4.9% |
I do have an upcoming tranche that I will add in May. I may have some repeats in the theme of buying stocks that I really think represent a good value and a bit more concentration of my portfolio. Current considerations include: AAPL (yes again - I do have conviction around this name, they are trading at just 3x their current cash, it is stunning), GA, APOL (I think the for profit education stocks have been beaten way below their true value), BPI (same argument) and CA.
More later!
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