Author: mungofitch

Subject: Re: Zero Score and 7 Years Ago

Date: 4/1/2008

Recommendations: 8

Is your $22.12 a typo, or if not, what`s the secret?? :-) Noticed that, didja? : ) No typo. The secret is as explained in the post: - pick anything that you are absolutely sure is below it`s intrinsic value, and whose long-term-estimate intrinsic value is not going to decline meaningfully (you can ignore one-off bad news, and in fact it`s a good thing). The sort of business that, if it dropped by half, you`d be perfectly happy buying twice as much. A good starting point is any of the stocks owned by Berkshire Hathaway for a long time. - Buy a chunk of it, say a given round number of dollars` worth. - From time to time (anywhere from hourly to monthly), check to see the value of your holding is above or below your original value. Buy or sell shares as required to get back to the original value. That`s it. You will vary your stock-to-cash ratio (or stock leverage ratio) on each purchase or sale, in inverse proportion to how good a deal the stock is. It works even better on multiple stocks, since a certain degree of uncorrelation means you`re always moving money from the lesser deal to the better deal. Yesterday I sold some BRKB and moved some money into WFC, for example, since BRKB was up and WFC was down since the last time I traded (last Wed, in this case). For XLF, my buys have been between 22.82 and 26.61. My sells to date have been between 23.22 and 27.27. The sum of the cost of all my purchases less the sum of the proceeds of all my sales gives my cost basis to date. This, divided by the number of shares I currently own, is now $22.12. Since the price is now 24.87, I`m up 12.42%. I entered this position March 17th. I`ve been doing this on about 20 stocks since late last year. The price improvement for that portfolio as a whole has been 5.74% so far. The annualized rate (linearly, not compounded) is around 15%. This is of course an unusually good rate because of the recent volatility. This is calculated as a percentage of the target value of the holding, which does not change, so your cost basis will eventually go negative. This is the case for my Berkshire Hathaway holding, though it took quite a few years. Jim