Capital Southwest: Smart Company, Sound Investment (CSWC)

Every year I look forward to reading Bill Thomas' annual letter to shareholders of Capital Southwest Corporation (CSWC), which trades on the NASDAQ. Capital Southwest is a venture capital firm based in Dallas, Texas, with a market cap of $390 million.

Thomas' letters are blunt. He doesn't mince words. He openly admits mistakes. And he runs the company in the interests of shareholders. This year's letter blasts executive pay.

Oh, and Thomas is something of a value investor. I don't know if he calls himself that, but you probably would.

Put simply, these annual letters are a joy to read. Even if you don't agree with some of his opinions.

Foolishly, I've never owned the stock. Several times its shares have traded down. It was in the $70s last year I believe. I almost bought but didn't. I definitely should have taken some opportunities to buy the stock at various points between 2000 and 2003.

If I ever do -- or if you check it out and keep in on your list of stocks to buy -- here's the path to follow:

* Remember Capital Southwest trades VERY THINLY. Less than 4 million shares are outstanding. As I recommend with everything, use limit orders.

* Buy a chunk of the stock, tell your broker to reinvest the dividends, and forget about it for a while.

* Why forget about it? Because this stock is like a closed end fund. It has a lot of individual investments. So it won't "pop" and double in price overnight. You also won't wake up one day and find your holding cut in half.

Anyway, that's how I'd go about investing in Capital Southwest. If I buy the stock you'll read about it here.

In the meantime, be sure to read Bill Thomas.

CSWC since 2000: