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The BMW Method
Happy Birthday to Us!

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By BuildMWell
March 28, 2006

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

My first post on the BMW Method Board was on March 26, 2004. I completely overlooked our second birthday on Sunday. But, I thought it was worth noting that we just entered our third year. It took me three years of dedicated investing to really see the beauty of the BMW Method. I mentioned that in my first post even though I had been experimenting with the method since 1995. The things I witnessed with the method from 2000 until 2004 were what sold me on the whole thing and caused me to write about it. I was really not really into the BMW Method 100% until 2001. I guess I am a slow learner.

http://boards.fool.com/Message.asp?mid=20544702

So, here we are two years later with over 12,000 posts! That averages about 17 posts per day, which is impressive. I never thought this thing would generate that sort of interest. But, thanks to all of the fine work by our contributors, you folks have taken the BMW Method far beyond my wildest dreams. And I believe the best is yet to come. You folks give me a gift 17 times a day and I truly appreciate it.

Our little portfolio has been bought over this 24 month period and we have finally gotten the majority of our "make believe" $100,000 invested. We should begin to see the real performance over the next few years. Remember, the BMW Method is not a "get rich quick scheme"...it is a "get rich relatively fast scheme". It is based on maximizing our own personal CAGR over time, which requires dedication to finding the best bargains over and over again. Meanwhile, all of our past work is paying us for our efforts. We do not need a winner every month, but every two or three years we need to find about 10 great stocks that have been under-appreciated by the market.

I noticed that our portfolio has not been updated in some time. That is fine, because nothing is changing real fast, but we do need to keep our eye on the ball. After all, we might need to think about taking a profit sometime to buy something else. I know that I have been doing that personally and this board has not.

Then again, I have been selling things that are not in our portfolio because they were bought back in 2002 and 2003. For instance, I sold the majority of my Halliburton that was bought for under $11/share. It has recently dropped to $70/share from a high of $82/share. I missed the peak but still had a very respectable gain. It is almost impossible to lose money buying at $10/share and selling at over $60/share. Missing the peak doesn't bother me at all. I love to see someone smarter than I am buy at $60 and make another $20/share. They deserve the profit for taking the risk of buying a $35 stock at $60. Then again, I deserve my profit for buying that $35 stock for $11/share, don't I?

That is the beauty of the BMW Method for me. By seeing the low CAGR, I was able to buy HAL at under $11/share. Then, as the share price went above $35/share, I was getting nervous and was getting ready to start selling. However, there were buyers for the shares at $60, $70 and $80. They apparently saw something that eluded me. More power to them.

The folks who bought at $60/share made a swell profit if they sold at $80. In fact, they made a CAGR of 100% because they bought HAL in September 2005 and sold in January 2006...in 5 months they made a 33% gain, but they were only into the shares for 41% of a year...pretty impressive, but very risky in my book.

Conversely, my CAGR in comparison was unimpressive to say the least. I was a buyer in Early 2003 at $11 and a seller in 2005 at an average of $48/share. I had a net gain of 436%, but I had my money tied up for 2.8 years...a CAGR of 69%. The dividend paid me over 5% the whole time, but the speculators still beat me handily. I was outsmarted by the investors who bought at $60/share and sold at $80/share. I like to think that I was investing and they were gambling...that makes me feel better about being out-done.

But, what about the folks who bought at $80/share? How are they doing today? And, where will HAL be priced in a year? I will be interested if it gets to about $35/share once again ($17.50/share after they split their shares 2:1).

I hope this little discussion shows us the beauty of the BMW Method. The same thing we can see with Halliburton happens over and over again in the markets. People who have a shorter-term view can be enticed into doing the wrong things because they fail to see the BMW view. There were sellers of HAL all the way down to $9.80/share and there were buyers at $82/share. Apparently, both extremes had good reason for doing what they were doing. I cannot see their logic, but it happened. I was there to see it in person. But, of course, I was seeing Halliburton from my BMW Perspective.

But, who gives us the BMW perspective? I can find absolutely no "expert" who chooses to see things as I do. That worries me. I am not an expert and what I have written about here for two years still makes perfectly good sense to me. The question is, does it make sense to you? If it does, hang around and add your thoughts to our discussions.

Like I said, the best is yet to come. Time is on our side and the BMW Method shows us how to make growing old worthwhile. It takes a negative and turns it into a positive. Who ever thought growing old could be so much fun and so profitable? So, let me be the first to say, "Happy Birthday BMWers!"


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