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December, 2012

THIRTEEN FOR '13
by LARRY

A principle of value investing is not to lose principal. Each year at about this time I focus on a number of assets which in my opinion appear more likely, as a group, to retain good value than is true for the stock market as a whole. If one is fortunate, they may also provide nice returns, but the idea is that if one can avoid significant losses then the gains will take care of themselves. According to Benjamin Graham and Warren Buffett, much of the secret of value investing is assuring sufficient margin of safety. For instance, if a share of stock has little debt, high earnings, low price, and a net asset value that is actually greater than what one must pay for that NAV, it would be unlikely the quote would for long stay dismal, even if the market in general were to nosedive temporarily.


With such considerations in mind, the lucky 13 assets suggested this time all have one or more safety aspects in their favor in addition to possessing, in my view, good profit potential. For those who want to place fewer eggs in the investment basket, these 7 are my personal favorites: EMF; HDNG; PFIN; QCCO; TDF; THG; TOT. For lower volatility, though, the odds are better if invested in all 13. (In any case, as usual investors are urged to do their own due diligence and/or to rely on the counsel of well trusted financial advisors.)

Since I am no specialist in international stocks, I rely for this genre mostly on the expertise of Franklin Templeton, a firm that follows the value orientation espoused by both Benjamin Graham and John Templeton. Three of their funds, EMF, TDF, and TRF, have done well over the years and probably will continue to do so; hence their inclusion in the recommendations below. The remaining 10 spots were filled with 5 each of a. assets that have excellent dividends in relation to their prices, earnings, and prospects; and b. assets with low prices in relation to their book values (net asset values).



In alphabetical order, here then is the resulting assortment:

Recommended Low Price to Value Stocks for 2013

Company NameStock
Symbol		Recent
Price		Price to
Earnings		Annual
Dividend		Price
to Net
Asset
Value		Debt to
Equity
Axis Capital HoldingsAXS$35.137.762.70%0.790.17
CA TechnologiesCA$22.4011.364.50%1.870.27
Freeport-McMoran Copper and Gold, Inc.FCX$33.9911.003.50%1.860.17
Hardinge, Inc.HDNG$10.178.920.80%0.760.14
Microsoft CorporationMSFT$27.5614.903.10%3.320.18
P&F Industries, Inc.PFIN$6.134.470.00%0.650.32
QC Holdings, Inc.QCCO$3.204.816.10%0.660.48
Schnitzer Steel Industries, Inc.SCHN$31.2531.571.90%0.720.30
The Hanover Insurance Group, Inc.THG$38.3110.903.20%0.620.34
Total, S.A.TOT$51.638.525.10%1.230.48
(Data effective 12/18/12)



Suggested International Closed-End Equity Funds

NameStock
Symbol		Recent
Price		Price
to Net
Asset
Value		Annual
Dividend		Net
Asset
Value		10-Yr
Annual
Return
Templeton Dragon FundTDF$27.320.881.57%$31.0718.87%
Templeton Emerging Markets FundEMF$19.300.911.42%$21.1117.31%
Templeton Russia and East European FundTRF$14.260.900.19%$15.8013.47%
(Data effective 12/18/12)



Once having acquired at reasonable cost a fine collection of equities, more than half the battle has been won. Other questions arise, however, such as when to sell or what to do if, as is not unlikely, the stock market falls during 2013. It is usually key not to sell when stocks on the whole are down. A lot of people tend to panic at such times, resulting in their less than average returns. To buy high and sell low is a great temptation for many. Instead, having the courage of one's convictions is important. If one chose well at the outset, it is wise to hold with those choices through thin and thick, at least till the potential of a portfolio is being happily realized. For me, I would prefer to hold EMF, TDF, and TRF "forever" unless there is evidence that these closed end funds' managements have adversely altered their investment philosophies. For the others, a convenient rule of thumb is to reevaluate after the price has gone up 50% or more or after two years, whichever first. If the values which made the asset attractive at the time of purchase are no longer there, sell and buy more stocks that do have good prices to their values. (For those with taxable account concerns about more frequent trading, holding price to value stocks and closed-end funds for four or five years can also be rewarding. Though there are no guarantees, a 3-5 year doubling of this overall 13-asset portfolio looks reasonable to me at this time, if the assets are acquired close to their recent per share costs and the portfolio is left untouched.)


Meanwhile, if markets fall next year, consider buying more of the securities one already owns. By doing so, there will probably be lower average share prices and thus greater chances for superior gains once a bullish phase in the markets returns.

We wish everyone investing success and a Happy New Year in 2013!



DISCLAIMER

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.)



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