Price Is What You Pay, Value Is What You Get (Warren Buffett)

by: David Crosetti


I have written a number of articles about the different portfolios that I hold. In each of the articles, I try to give an update as to how the individual portfolio is doing and I like to update articles on a fairly regular basis.

Back in June of this year, I did an "update article" about one of my portfolios, The Portfolio For Do It Yourselfers. That particular article was titled: "The Portfolio For Do It Yourselfers: Our Strategy Moving Forward."

The thrust of this article and a subsequent one was that sometimes, thinking outside of the box, is not a bad thing. As a Dividend Growth Investor, I tend to be pretty much focused on DG stocks. However, lately, I have been looking at companies that do not fit the criteria for DG stocks, in the strictest sense.

My focus lately has been more toward "value" and often, you find "value" in places that sometimes you don't spend a lot of time looking for it.

What I Know:

In my article, I hinted at this new shift toward value when I said:

At some point in the future, we will need to address potential new holdings as they become evident. At this point in time, we are beginning to look at a number of companies.

Some of the stocks on our watchlist are: Deere & Company (DE), Holly Frontier (HFC), Capital One Financial (COF), Joy Global (JOY), Questcor Pharmaceuticals (QCOR), Qualcomm (QCOM), F5 Networks (FFIV), Caterpillar (CAT), Cognizant Technical Solutions (CTSH), Oracle (ORCL), and Schlumberger (SLB).

While I believe that dividend growth stocks will remain the core of our portfolio, that does not rule out taking advantage of buying opportunities wherever they might present themselves. That is exactly what we saw in the additions that we made in November of last year and exactly what we will be doing in the future.

What You Should Know:

I like running stock screens. I don't do it very often, but when I do it is because I have either a cash position in my portfolio or I am planning to trim my portfolio in order to create a cash position.

I try to find companies that meet certain metrics and those are relatively consistent within my world, but to find these latest picks, I had to "think a little out of the box."

While I ran my usual criteria for my screen, what was different for me this time was the dividend part of the screen. I didn't focus so much on dividends or yield point. I was just looking to create a list of stocks to investigate further.

Now, my screen produced over 30 companies. That is one of the problems with screens. In and of themselves, screens just match up your particular metrics to a number of companies, but that doesn't separate the good from the bad.

The list of stocks that were produced by the screen became a starting point for further investigation. I have a fondness for reading analyst reports. So, while I often spend some time pouring over those reports, most recently I have become a fan of FAST Graphs, a program provided by Chuck Carnevale.

What FAST Graphs allow me to see is a visual representation of a particular company relative to its price, revenue, and earnings growth in a way that, for me, meets the cliché that "a picture is worth a thousand words."

So out of the initial list of 34 companies produced by my screen, 11 companies stood out from the crowd and those 11 became part of my new target list.

Plan of Attack:

A lesson that I've learned recently is that when a particular company is priced at a value, it often remains priced at a value for a relatively long period of time. Stocks are not a value today and then not a value the next week. It's not a do or die situation. So no need to be in any particular hurry.

On the other hand, I can often find myself getting hung up on a price point. I will decide, for some particular reason, that XYZ stock is a better value at $30 a share than it is at $32. But then a part of me says, "Really?" Does $2 really make a difference in the long haul? Not really. If the stock is a value at $30 it can also be a value at $32 or even $35.

There is more to picking a stock for your portfolio than just the price point. The price point does not represent the "value." It is only the price you pay for ownership of a particular stock. As Warren Buffett said, "Price is what you pay, value is what you get."

What We Did:

Once we had determined that we wanted to own a stake in each of these 11 companies, we placed limit orders/market orders to make a purchase for each of them. By the market close of June 5th, we had taken a position in each of the 11 companies that we had targeted. Here's what our purchases look like:

(Click to enlarge)

Purchasing positions in these particular companies based on my own criteria, suggested that they were priced at a value. While your own criteria might suggest otherwise, the point is that each individual investor who purchases individual stocks is going to have to decide for himself as to the value of a particular company.

I guess that's what makes investing so interesting. Some people see a value and others see a value trap. How things play out is what ultimately determines who was "right" and who was "wrong."

By the same token, you or I might very well be presented with a stock that is a value, but we can overlook that value and decide "that stock is not for me." And guess what? That's OK.

Conclusion And Summary:

While we have different results for each position, overall, the portfolio is up 13% since June 5th. In and of itself, that is relatively unimportant. Next week, the entire portfolio might be down 13%. These are not all low beta companies.

Being invested in my children's portfolio, these companies represent potential for growth, however. I would suggest that the risk in these companies is tempered by their being in that zone of value that we discussed earlier.

As we move forward, I will share our plans for the portfolio and the results of not only these new additions, but the older holdings as well.

Disclosure: I am long CAT, DE, JOY, CTSH, FFIV, ORCL, QCOM, QCOR, HFC, COF, SLB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.