Mike, you took the words out of my mouth. I am testing a theory too, and so far I am two for two within a year of purchase. Not conclusive by any means, but I only wish I could find more of these. And Mike, don't tell me we're not following Graham. Sure, he advocated buying a bunch of net-nets in good businesses. We clearly can't do that today. But when the alternative is buying systematically overvalued stocks or parking in cash, at my age, I will try to do the best Graham act I can. Buy what undervalued stocks I can find, stay at over 50% in cash or uncorrelated stocks (Asia or high dividend REITS). And pick off relatively good net-nets whenever I can find one. Something tells me Graham would have done the same thing in this kind of market. Its a matter of keeping powder dry for the inevitable time in the next 10 years when value investors can do their thing while everybody else is licking their wounds. So what you look for is first LOW RISK, and only secondarily return. If the market were to drop 50%, would PSO trade at 1/3 of its net-net value? I don't think so.
The criticisms of PSO have deepened my conviction, though I do commend the thought process. That's the reason why I take the time to post on this thread. But this business trades at below the value of its net current assets! And its got another $2 a share in real estate. And it pays a dividend twice the market rate. OK, there are warts, significant warts. I feel like I am being pushed to respond to these, and assure those who invested that PSO is the next Microsoft. Its not! I respond, look at the valuation. You should not expect perfection when you buy a dollar bill for 60 cents. Part of their product line, boots, has an inventory problem. OK. Management is less than stellar. OK, but I have no reason to believe they are dishonest. There is no reason for the stock to break out of its history of similar valuation. That's a tougher one, and that's where you have to step back and say, what is the risk/reward? Maybe the stock stays at 6 for two years. So I collect the dividend and sell. But if it gets discovered, or God forbid does something to enhance value, I make 40% or more. I am not speculating on a move before the market corrects. I am investing in real "stuff" worth $8 a share at the very least, and which is still going to be there no matter what the market does. If I could find that in a better quality company, I would. But I can't. |
