On 5 December 2008, I selected a portfolio of 11 stocks using techniques detailed by Benjamin Graham in his book The Intelligent Investor, (see the original post in my 2008 folder - A Portfolio selected using Graham’s techniques).
The initial portfolio value was $1 million with approximately $90,909 invested in 11 companies (see table).
As can be seen above, as at 18 February 2011 this portfolio had appreciated by 22% (compound) to $1,550,870. The All Ordinaries Index had appreciated by 19% (compound) over the same period. So I’m a bit ahead of the index (and I haven’t included dividends of approximately $70,000 over the two or so years).
An unmanaged index has returned 19% and one selected with some Graham and Dodd metrics has exceeded that. It’s a testament to ignoring so called experts.
When the above portfolio was selected, various “experts” were telling us that the world was about to end (I remember someone sending me some particularly apocalyptic articles that appeared at the time on the aptly named Business Spectator web site. I’ll say it again and again, don’t waste your time reading opinion pieces written by journalists).
Many of the companies in the above portfolio were priced as if this apocalyptic scenario was actually true. Of course smart investors were thinking the exact opposite – it was a magnificent time to invest, perhaps a once in generation time to invest. And invest we did.
When I saw companies of the quality of Soul Pattinson, Sims Metal, Caltex, Austereo and Flight Centre selling for the prices that they were in December 2008, I just knew it would be very hard to go wrong buying these companies at those levels. In other words, the odds were well and truly stacked in my favour.
I did sell WA News from my own portfolio at prices ranging from $6.79 to $8.08 (it closed at $6.34 on 18 February 2011).
Hills Industries was a mistake (although they may bounce back in time). Suffice to say, one mistake out of 11 equally weighted picks is of no consequence at all.
Austereo is now the subject of a takeover offer at $2.00 per share plus an additional 10 cents if the acquirer gains acceptances for 90% of the shares.
I knew that Austereo could not be acquired for less than $2.00 in a takeover and that is one of the reasons that I bought it for $1.11 in late 2008.
Austereo has a dominant market position, has been a very consistent performer, paid a very high (sustainable) dividend, and (in late 2008) was purchased at less than 9 times earnings. There was a very high margin of safety.
The ASX is also subject to a $48 per share takeover offer by the Singapore Stock Exchange, but there are doubts as to whether this takeover will gain government approval.
Most of the companies in the portfolio are no longer undervalued and I would be content to sell some of them at these levels.
Happy investing.
Note: None of the above constitutes financial advice. You need to do your own research and consult appropriately qualified people for advice (where necessary).
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