PebbledsPicks (90.82)

Welcome to Pebbled's Picks!

August 09, 2008 – Comments (0) | RELATED TICKERS: IM , ROCK , SMP

Inspired by the popular Eldrehad's Picks I decided to start my own alter-ego CAPS profile to pick one stock a month and track performance.  PebbledsPicks will focus on a one-year holding period with an orientation toward value investing principles.  I have read many times that the average stock trades within a 50% range within any 12-month rolling time period.  Buying a decent company when the stock price has apparently been unfairly punished for any number of reasons and then selling at a profit within a reasonably short period of time (such as one year) is a formula for building wealth.  No one ever went broke selling stocks for a profit.  In this CAPS portfolio I will pick one stock a month with a modicum of due diligence and based on some simple fundamental analysis.  My theory with this virtual portfolio is similar in philosophy to the BMW Method and Greenblatt's Magic Formula: buy decent companies when they appear to be cheap and then sell when you're up for a targeted CAGR. Try real hard not to sell at a loss if at all possible.

The following is a summary of what precipated my thinking with this CAPS portfolio.

Five months ago I sent an email to a fellow Fool with the subject "looking for limited downside?" bemoaning a beating I had taken in high-flying growth stories taken to the woodshed by the market, namely PRXI & BWLD.  The latter has recovered nicely, the jury is still out on PRXI, though I feel better now that Mark Sellers and company are sticking their noses in Premier's business.  Anyway, I wrote a brief write up on four value stocks back then on March 5th, 2008, one of which was ROCK, which jumped big time yesterday.  This got me to thinking, how did those four stocks do that I "picked?"  Note: I did not buy any of the four stocks.  Here's what I emailed my friend today about what happened to those four stocks.

After seeing ROCK on the CAPS home page as one of yesterday's big winners I decided to revisit these four picks now that five months has passed.  How would I have done?  Well, equal amounts in these four picks, including dividends, would be worth 26% more today as a group than they were when I "picked" them on March 5th.  The interesting thing is buying IM and ROCK back then would have been essentially buying at a bottom, whereas GPI saw 40% more downside and SMP saw 20% more downside.  To date accuracy is 75% and GPI is only down 6.4%.  For comparison the S&P 500 is down about 2.5% in the same period and the Russell 2000 is up about 7.3%.  BTW, my IRA is essentially flat in the same period.

Twenty-six percent in five months?  There's the coveted 50% a year all Buffett afficionados dream of.  Pretty darn good.  Did I get lucky?  Who knows?  Maybe there is something to this value investing thing?

So, what better place to play this game than in CAPS?

I devote this blog and this CAPS portfolio to a simple task.  I will pick one "value" stock a month and report on it at six months and one year, at which time I will "sell" it no matter what. Yes, this is an arbitrary mix of formula, valuation, and intuition, but I assume that's a mix of approach we can all claim as descriptive of our individual investing styles.

This month's pick is GPI, which was one of my "picks" five months ago.  Please don't expect detailed write-ups as part of my philosophy here is that successful investing need not involve tons of time.