Value Investing / Main Index / previous / next

November, 2008


Back in the investment good ol' days, when pioneer value investors like Ben Graham and Sir John Templeton were recommending buying stocks at bargain prices, the majority of solid, salt-of-the-earth stocks could be purchased at prices so low their dividends exceeded the yields of long-term government bonds. Guess what? Those halcyon times are here again.

This is a sampling of high yield, lower risk securities that would make good additions to any Thanksgiving equity cornucopia or collection of Santa's stock stocking stuffers:

Illinois Tool WorksITW$31.849.611.904.000.340.4020.21
Eaton CorporationETN$41.155.661.
Manulife Financial Corp.MFC$18.7610.001.424.560.350.3013.88
Northrop GrummanNOC$40.348.060.793.950.310.239.82
Emerson Electric Co.EMR$33.4010.933.084.220.390.5027.44
Sysco CorporationSYY$22.6812.364.023.870.460.5732.81
Ingersoll-Rand Co.IR$15.111.390.484.850.070.5211.06
Lincoln National Corp.LNC$14.355.570.415.870.640.557.52
Honeywell InternationalHON$27.357.402.194.120.300.9631.18
Kraft Foods, Inc.KFT$27.4412.621.564.290.500.789.49
(All statistics are as of the close of trading on 11/14/08.)

The indicated assets are reasonably stable, secure businesses and have, as a group, an excellent chance to double one's money in the next four years or so. While waiting for that happy outcome, the investor would likely receive an average dividend of 4.47% or more, better than he or she would obtain from 10-year or even 30-year U.S. Treasuries. (If one has reserves only for half of the portfolio, the top five among these stocks, in my view, would be: ITW; ETN; MFC; NOC; and SYY. Their average dividend is 4.28%. As always, we suggest investors check with their financial consultants and/or do their own research before committing funds to any asset mentioned here.)

I am not saying these companies' share prices cannot go down further. In the turbulent tsunami that is the current severe bear market, even good stocks are likely to have repeated wide price swings, that might take them below current levels not once but several times. But trying to time the market's lowest lows is almost always a foolish quest. A better approach is to dollar-cost-average investments in good companies over a period of time. Thus one gradually acquires more shares at lower prices.

So, as Warren Buffett has suggested, this may be the time to begin putting one's investing foot into the water again with good mutual fund or stock purchases, following in each of the next few quarters with additional buys, till, perhaps a year or two down the road, having regained one's preferred maximum level of equity exposure.

You may say that, with so much selling going on, it seems better to stay on the sidelines. But that approach means one will wait till the best bargains have been swept up by others. The idea is to buy low (like now) and sell high. Typically, however, active investors buy once assured by market surges that things are OK once more, then sell after the markets plummet, giving them the dismal results of a buy high, sell low approach. I cannot recommend this strategy!

If one prefers to do one's stock investing using mutual funds, here are a few that look attractive to me now and would appear to lend themselves as well to a dollar-cost-average approach over the next couple years:

Fund NameSymbolRecent
Toll Free No.Minimum
Bridgeway Small-Cap Value NBRSVX$9.290.44%800-661-3550$2000
Family Value Inv.FAMVX$32.291.20%800-932-3271$500
Fidelity ValueFDVLX$39.530.48%800-544-6666$2500
Matrix Advisers ValueMAVFX$29.07-2.53%866-209-1965$1000
Meridian GrowthMERDX$25.751.27%800-446-6662$1000
(*May be lower for IRA investments.)

Alternatively, one could simply follow the AAII Mutual Fund Portfolio. Through 9/30/08, it has had a five-year average annual total return of 9.1%, compared with a 5.9% average annual total return for the Vanguard Total Stock Market Index (VTSMX) during the same period.

However, please note, whichever mutual funds one picks, that for other than tax-deferred accounts, it is best to delay new mutual fund purchases until after their traditional end-of-year dividend and capital gains distributions (which are taxable and also dilute one's shares, so there is often no net gain) to avoid owing extra to Uncle Sam without a real profit to one's portfolio.

In this cyclical realm, what goes down must go up, and Value Line is now projecting the highest average 3-5 year equity returns I have seen. If one has a long-term horizon and funds available, this would seem to be a good time to begin acquiring new or additional stock or stock mutual fund shares.


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

Value Investing / Main Index / previous / next