Boring Portfolio

Keeping Powder Dry
...it is the Warren Buffett way

by Mark Weaver (MWEAV@aol.com)

ANN ARBOR, Mich. (Sept. 17, 1998) -- Investors were dealt another dose of volatility as concerns about Latin American and Asian economies along with weakness in European markets set the stage for a down day on Wall Street. The market was down right out of the gates and stayed down the entire day. Once the initial damage was done the market stayed relatively flat.

For the day the S&P 500 dropped 2.55%, the Nasdaq dipped 2.58%, and the Borefolio slipped 3.24%. The portfolio was 7 for 7 in the loss column today.

In spite of this sell-off, there was no news on any of our holdings. Greg has been reviewing all of the Borefolio holdings in a systematic fashion. Tomorrow he will bring the final installment in the series when he reviews Cisco Systems (Nasdaq: CSCO). If you have not done so already I would encourage you to sift through the past couple of weeks of Borefolio reports. Some of our stocks are compelling values.

I have written in the past about being ready to spot bargains on days like these. Opportunity knocks almost daily. Did you pull the trigger when Borders Group (NYSE: BGP) changed hands for under $20 a mere two weeks ago? If you followed this high quality company you would have known that the stock was trading at the lowest multiple of earnings and sales it had enjoyed in its entire history. This occurred in the absence of earnings warnings, revenue shortfalls and in the face of a decent quarterly earnings report. Opportunity certainly knocked.

How about FelCor Lodging Trust (NYSE: FCH)? Late last week the stock was available for $20. Today you would have a 10% capital gain to go with your greater than 10% dividend yield. Opportunity knocked.

The opportunity du jour may well be Carlisle Companies (NYSE: CSL). The stock was available today for under $37, the lowest point in the past year. What has Carlisle done to deserve this? It has bested estimates for the past 5 straight quarters. And, the company consistently states that earnings are on track. To answer my own question... Carlisle has been guilty of being a mid-cap stock. You might want to read Greg's comments on this high quality company. Opportunity may be knocking again.

The bottom line from this Fool's perspective: This volatile market is giving an investor outstanding opportunities on a daily basis. The best way to take advantage is to know, really know, the companies you like and to recognize historical bargains. A corollary to this is to also recognize when stocks are at historical highs and to save some "powder" to use when opportunity does present itself. While I generally accept the notion of "buy and hold," I would note that this strategy doesn't give an investor an opportunity to take advantage of bargains when they present themselves. I prefer a more dynamic approach to portfolio management.

Mr. Buy and Hold himself, Warren Buffett, announced today that Berkshire Hathaway (NSYE: BRK) was sitting on $9 billion in cash. I guess he has some powder, eh? Needless to say, that implies that Mr. Buffett doesn't have a static "buy and hold" portfolio. A dynamic portfolio doesn't imply a "day-trader's" world view. It does imply that an investor be willing to sell, or perhaps set a stop loss, when a holding reaches a level of unsustainable valuation. A move to a security with a more understandable valuation, or to a temporary cash position, may be the best move to make. Just ask Mr. Buffett.

While this view might differ somewhat from that espoused elsewhere in Fooldom, this Fool believes that a dynamic portfolio leaves the investor with the best chance to answer opportunity's knock. This has two benefits. One, getting bargain prices for great companies, and two, keeping your portfolio free of overvalued stocks which are particularly vulnerable to market drops.

FoolWatch -- It's what's going on at the Fool today.


09/17/98 Close

Stock  Change    Bid 
 ANDW  -  15/16 13.13 
 CGO   -  7/16  23.81 
 BGP   -1       26.88 
 CSL   -1 9/16  37.38 
 CSCO  -3 1/8   61.50 
 FCH   -  1/4   22.25 
 PNR   -  3/8   30.00 
 TBY   -  1/8   6.31 
  
 
                   Day   Month    Year  History 
         BORING   -3.24%  10.41% -14.19%   7.97% 
         S&P:     -2.55%   6.41%   4.99%  63.90% 
         NASDAQ:  -2.58%   9.81%   4.83%  58.15% 
  
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  225 Cisco Syst    23.96     61.50   156.73% 
   2/28/96  400 Borders Gr    11.26     26.88   138.76% 
   8/13/96  200 Carlisle C    26.32     37.38    41.98% 
    3/5/97  150 Atlas Air     23.06     23.81     3.27% 
   4/14/98  100 Pentair       43.74     30.00   -31.42% 
   5/20/98  400 TCBY Enter    10.05      6.31   -37.16% 
   11/6/97  200 FelCor Sui    37.59     22.25   -40.81% 
   1/21/98  200 Andrew Cor    26.09     13.13   -49.69% 
  
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  225 Cisco Syst  5389.99  13837.50  $8447.51 
   2/28/96  400 Borders Gr  4502.49  10750.00  $6247.51 
   8/13/96  200 Carlisle C  5264.99   7475.00  $2210.01 
    3/5/97  150 Atlas Air   3458.74   3571.88   $113.14 
   4/14/98  100 Pentair     4374.25   3000.00 -$1374.25 
   5/20/98  400 TCBY Enter  4018.00   2525.00 -$1493.00 
   1/21/98  200 Andrew Cor  5218.00   2625.00 -$2593.00 
   11/6/97  200 FelCor Sui  7518.00   4450.00 -$3068.00 
  
                              CASH   $5750.59 
                             TOTAL  $53984.97 
 

Spacer