I have finally realized that I have become an investment fossil.
I don't know where I went, or why I have not noticed before now, but after all of this time I am finally starting to understand that investing these days is not about investing at all, it is about trading, about holding a stock from one afternoon to the next, about knowing nothing of the company behind the stock, which I guess is fine if you happen to be clairvoyant. But how in the world can the average investor make any money constantly trading stocks?
Having had this epiphany that I am an investment fossil, I admit to being fearful, knowing now that my investing philosophy has seemingly become older than time.
So hat in hand, off I went to stand before the investing gods, not to repent for my hubris, but just to see how far behind the rest of the investing world I had allowed the Wax Ink Portfolio to become.
What I found was simply ... confusing.
Of the 33 stocks in the Wax Ink portfolio, the average hold period is 6.2 years, with the oldest one, AAR Corporation (NYSE:AIR), held for 3,372 days, and the newest one, General Electric (NYSE:GE) held for 121 days.
The average investment gain of those 33 stocks is 80%, with our investment in USG Corporation (USG), held for 3,069 days, leading the way with a 288% gain, and our investment in USEC Inc. (USU) held for 1597 days, dragging up the rear with a (31%) gain.
How could this be? How is it that the portfolio had managed an average 80% gain when all it did was sit there?
Certainly I had put some cash to work last year. Why wouldn't I? The price to value ratios were just too good to pass up. But the vast majority of stocks had been in the portfolio for years, not just for a few afternoons. Yet, in spite of that, the average stock had an 80% gain. As I said, how could this be?
It was a piece on NPR Radio that answered my question. According to a newly released book titled, The Investment Answer, I was a passive value investor, content to determine a reasonable value for a stock, buy it at some discount to that reasonable value, and then hold it for a very long period of time, seldom even checking to see how the stock was performing.
Who knew? I just thought I was acting in the best interest of those who had entrusted me to provide reasonable investment suggestions.
The valuation work of Wax Ink is based on audited or annual financial information as taken from a company's most recent SEC Form 10-K filing. Unaudited, or quarterly financial information as taken from a company's SEC Form 10-Q filing, is not used unless otherwise noted.
Three Random Companies
Administaff (ASF): The company provides various personnel management services in the United States including payroll administration, health and workers' compensation insurance programs, personnel records management, employer liability management, employee recruiting and selection, employee performance management, and employee training and development.
For the short-term investor, the stock closed recently at $29.67, with resistance at $30.42, First Support at $29.25 and Second Support at $26.24. Should the stock price fall below second resistance, the next stopping point would be at the 52-week low of $16.45. We think the stock is currently overbought and expect a retraction in the stock price after the company announces earnings this week, expected to be $0.29, $0.14 better than one year ago.
For the long-term investor, our Reasonable Value Estimate for the stock at this time is $31.00, with a Buy Target of $18.50, a First Sell Target of $36.00, and a Close Target of $38.00, based on a minimum five-year hold. The stock currently has a trailing PE of 64.5 and forward PE of 24, and at roughly 3.5 times Tangible Book Value, we think a highly anticipatory market has driven the price way ahead of fair value.
Curtiss-Wright Corporation (NYSE:CW): The company designs, manufacturers and overhauls precision components and systems for the Flow Control, Motion Control, and Metal Treatment industries, marketing its products and services to the aerospace, defense, automotive, shipbuilding, processing, oil, petrochemical, agricultural equipment, railroad, power generation, security, and metalworking industries.
For the short-term investor, the stock closed recently at $36.02, with resistance at $37.54, First Support at $34.13 and Second Support at $31.48. Should the stock price fall below second resistance, the next stopping point would be at the 52 week low of $26.11. We think the stock is overbought and expect a retraction in the stock price after the company announces earnings this week, expected to be $0.74, $0.02 worse than one year ago.
For the long-term investor, our Reasonable Value Estimate for the stock at this time is $43.00, with a Buy Target of $25.80, a First Sell Target of $50.50, and a Close Target of $53.00, based on a minimum five year hold. The stock currently has a trailing PE of 16 and forward PE of 14.5, and at roughly 12 times Tangible Book Value, we think either the company's assets consist mainly of goodwill and intangibles. And while we like what the company does, we would have to spend quite a bit of time understanding just where management is attempting to take the company before we considered the stock investment quality.
Abercrombie and Fitch Company (ANF): The company operates as a specialty retailer of casual apparel for men, women and kids, selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories.
For the short-term investor, the stock closed recently at $54.89, with resistance at $58.50, First Support at $53.90 and Second Support at $42.61. Should the stock price fall below second resistance, the next stopping point would be at the 52-week low of $29.94. We think the stock is currently overbought, with stock price trending downward, a direction we anticipate will continue until after the company announces earnings later this week that are expected to be $1.32, $0.40 better than one year ago.
For the long-term investor, our Reasonable Value Estimate for the stock at this time is $44.00, with a Buy Target of $26.50, a First Sell Target of $51.75, and a Close Target of $54.50, based on a minimum five year hold. The stock currently has a trailing PE of 41 and forward PE of 19.5, and at roughly 2.5 times Tangible Book Value. We think the markets have allowed the stock to become extremely overvalued.
As many investors have come to realize over the past several years, the number of investment vehicles intended to be held for one year seemingly compounds annually. Certainly I have no idea if those new investment vehicles are actually building wealth for those who use them, but it goes without saying that indeed I hope they are.
For my money, however, it has long been my position that there is no investment offering the potential for building true wealth like an investment in individual equities. Where I differ from current market thinking, of course, is that just as I believe price determines return, I also believe that the longer an investment is held, the greater the investment return.
Perhaps instead of buying on the rumor and selling on the news, or hanging on every word from CNBC and Jim Cramer, equity investors should take the time to ask themselves the simplest of all investment questions; when will I need this money?
Disclosure: I am long AAR, GE, USG, USU.
Disclaimer: We have no positions in any other stocks mentioned, and no plans to initiate any positions within the next 72 hours. We receive no compensation to write about any specific stock, sector or theme.