First Quarter Comes To An End- Two Sides To The Story

The market had a nice rally these past couple of weeks to end the quarter on a positive note. As stated in earlier posts, I was not as active as I thought I would be as I witnessed first hand how bad things deteriorated. I made it a goal in 2008 to become more transparent and upload my portfolio onto Covestor.com but most likely that will come in the upcoming quarters. For those not familiar with Covestor.com, its almost like an independent websites that lets you upload your broker statements. Almost like an “unofficial” was to verify your trades. So considering I am putting that aside for now, I will talk about what I bought, what I didn’t buy, and what I expect for the rest of the year.

What I bought

• Vaalco Energy (EGY)- A Magic Formula Veteran I purchased in at $5.05 (+4.7%). I became interested in the stock as it continued to move in and out of the magic formula. I knew the stock from reading Dave’s commentary and eventually pulled the trigger as I thought it represented great value. It has great reserves off the Western part of Africa (Gabon) and is currently expanding into Angola and the United Kingdom. This is the types of companies I am looking for, small with room to grow, cash flow positive and most importantly no debt.
• Autodesk (ADSK) at $12.02 (+39.85%)- Another magic formula veteran. Basically, Autodesk has become the premier software for engineering universities. This has a moat in the lines of Adobe or Microsoft in which users of the software learn it at school and pretty much revolve their lives (business and personal) around that software. For example, although OpenOffice might be catching up with Microsoft’s Office, I have used Microsoft Office products (mainly Word and Excel) that there is 0.1% of me switching. Again, another company with little debt and positive free cash flow.
• Defense basket (LMT,GD,NOC)(+15-23%)- A handful of defense stocks appeared on the magic formula and instead of trying to purchase one, I bought 3 of them (4 if you include my averaging down on BA).  I hate to say this, but I honestly do not see the our government spending less on defense. On the contrary, they might be spending more to upgrade old tankers, invest in new technology,etc. How can you not love this GD chart from 1994-Present.



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What I didn’t buy

• Financials- While I continued to add to my WFC and USB, I finally decided that enough is enough. If it wasnt for these two bad boys, my portfolio would be kicking some serious butt. I was tempted to buy GS at $60 ish but didn’t get around to read its 10-K.
• Dow Chemical (DOW) I literally had the order filled in but pulled out at the last minute. I remember DOW hitting $18 and thought it was a heck of a bargain. I knew Walter Schloss mentioned it in his last Forbes interview. As I was going to press the “order” button, I had a bad feeling about it. Eventually, I took a step back and decided the legal risks were simply not worth it. I also knew from the family business that the chemical industry was struggling badly. Finally, I knew in this type of market I could purchase securities without the lgegal risks. Eventualy, DOW would drop to $5. Close Call

What I expect for the rest of the year

More bad news to come. While I have written things are getting better, we are still a long way from a true recovery. I expect inflation to eventually catch up to us. I don’t expect oil to stay at these levels and hopefully Vaalco will move up as I expect it to. A couple of things I am looking forward to is how value investors have been performing.

Apologies

I know this blog has suffered due to me being busy. I started an online business a couple of months ago to create extra income and it has double in the past month. I am also working on an investment program based on the magic formula. Basically, every note I have taken will be available to the world at an affordable price.  I took a deep look at my portfolio (really 5 minutes!) and one thing popped up. I am a freakin great magic formula investor. The bad part? I continue to hold financials. DOH!