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Post of the Day - The BMW Method
A Foreign Newbie's Experience with MF

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By pywong8
January 2, 2007

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!

Happy New Year!

As this is my favorite discussion board, I would like to present my experience using the Motley Fool Newsletters here.

JJM Spartan gave a reply  in response to a posting "BMW analysis of my portfolio" by jrice08. He asked:

1) What CAGR have I personally had for my investments over the last few years?

That was a wake-up call. So I went back to my files to review what I have learned and done so far with my US investments.

Background:
I am from South-East Asia, retired, in my mid-fifties. For years, I had wanted to invest in the US market. Two things held me back:
1. My concern about the stability of the USD
2. My lack of knowledge of the US market.

In Jan 2003, I came across the Motley Fool. I immediately subscribed to the Motley Fool Stock Advisor and spent the next year reading. But all the reading was getting me nowhere. So, on Apr 30, 2004, I took the plunge and made my 1st two orders - Chicos (CHS) and Garmin (GRMN). CHS, because I thought they were into baby stuff and babies are being produced all the time. It took me more than a year before I figured out that CHS was into ladies clothing. GRMN, because, as an engineer, I liked the idea of GPS as a survey tool.

After my 1st buy, I promptly lost interest in the market. By a strange coincidence, both stock were near the lowest point for the year. Meanwhile, I continued with my reading and expanded the subscriptions to cover Hidden Gems, Income Investor, Inside Value, Rule Breaker, Rule Your Retirement and Champion Funds. I was not sure what to do so I wanted to learn as much as possible. I dropped Rule Your Retirement and Champion Funds after a couple of months as they did not fit in with my style.

By Mar 2005, I started buying seriously, as I had read enough to give me confidence. Two emotions I had to tackle:
1. Fear - I decided that I would only invest with money I could afford to lose. So that took care of that.
2. Greed - This one is a bit more difficult and I am still working on it. This has caused me to set too low a buy-point and in the process miss out on a number of good buys.

Initially, I was like a boy in a candy store - so many stocks to choose from. I got a bit carried away and bought left, right and center. Meanwhile, I was keeping a close watch on the USD. It was dropping steadily against my base currency, the Singapore Dollar (SGD). So I had to make a return from the market big enough to offset the USD depreciation.

It is now more than 2 1/2 years since my 1st investment. I have treated my experience during this period as a learning process and an experiment with various investment styles. (My favorite investment style is "buy and forget"). The posters to the BMW Method Board have contributed a lot to my education and I thank all of you for it.

Now, I would like to present the results of your teachings, for your kind assessment and advice. I have split the investments into 7 portfolios - BMW, Hidden Gems (HG), Income Investor (II), Rule Breaker (RB), Stock Advisor (SA), Personal picks (U) and Inside Value (IV).

The table below show the stocks bought, those sold, date of 1st purchase, value of the portfolio as a % of the total investment, % gain since the beginning, and the best and worst performers. The effect of uninvested money on the portfolios is not shown. This will be done separately by treating it as a mutual fund as described by Matt Richards.

The objective is to work out my personal CAGR, set a goal to beat the S&P500 by 5% initially and grow from there. I have not figured out how to compute the CAGR for an individual stock and for each portfolio yet. Reading this thread tells me it is too difficult. So I will stick to the NAV method described by Matt Richards.

                                                                                                                       
[See Post for Chart]


Comments:
1st two stocks, CHS & GRMN bought in May 04.
2nd batch of stocks purchased in Mar 05 and continued from there
Inside Value recommend a sell for DRL on 27 Oct 06.
DRL transferred to U Portfolio and additional purchases made from there.

DISCUSSION:
1. Portfolio BMW:
(Blush) I have only 3 stocks here. The CAGR is 13% due to lagging by WMT. I hope to do better this year.

2. Portfolio HG: I dropped my subscription from the Hidden Gems in Dec 2005 because I could not keep up with the newsletters. Also 2 stocks a month was too much too handle. Surprising, this produced the 2nd best CAGR of 25%. The best performing stocks were BWLD, DECK, FARO, FORM and SMSI.

3. Portfolio II: This portfolio is focused on dividend-paying stock. As a non-resident foreigner, the tax on the dividend is 30%, which is not so advantageous. We have a CAGR of 17% here. I find this portfolio quite boring but being the 3rd best performer, I can't really complain.

4. Portfolio RB: This is the worst performer with a CAGR of -10%. Almost every pick is in the red, with TASR being the largest loser. I will need to hang tight and try and average down. I still have confidence in TASR provided the management can get their act together. The stocks here are fairly risky and adds to the excitement of investing.

5. Portfolio SA: The CAGR is 12%, close to the average. Growth looks fairly steady but nothing exciting here.

6. Portfolio U: These are all my personal picks. Luck, rather than skill, contributed to a CAGR of 30%. The 1st 2 picks were GRMN (3-bagger) and CHS (2-bagger). ELN was a 4-bagger. I am back into CHS again but it is now in the red. I should have BUTT on CHS at $17 but as usual, I was too greedy and missed it because I set my buy at $16.

I transferred DRL from the IV Portfolio to this portfolio when TMFAdmiral issued a sell on Oct 27 06. Sad to say, DRL is my absolute worse performer, being down $20k. (Mumble, mumble. I should have listened to the Admiral.) As long as it does not go bust, I should still be ok. For me, this stock is a pure gamble.

7. Portfolio IV: This newsletter uses the discounted intrinsic value method and has the investment style closest to my personality. It has a CAGR of -2%, mainly due to DRL. It doesn't say much for my personality, I am afraid. MSFT and WMT also is recommended here but since the BMW Method led me to it first, I have assigned them to the BMW Portfolio.

The overall CAGR is 13%. This is not enough to compensate for the drop of the USD against my base currency (SGD). So basically, I am underwater with respect to my US investment.

The MF Newsletters generally recommend a stock after it already has a run-up. Eg: I was eyeing BRK.A in 2005 before Katrina and put in an order for $82k. BRK.A dropped to $78k but my order didn't go through. Still couldn't figure out why. The stockbroker gave an excuse about it being too thinly-traded. My daughter got her BRK.B for $2733 and she is pleased as punch. Inside Value only started to recommend BRK.B in Jun 06, after it has gone up more than 10%. In fairness, BRK.B has gone up by another 20% since.

Another thing I notice is whenever the Motley Fool recommends a stock, it will drop shortly after. Eg: PANC in the RB newsletter.(It is almost like the kiss of death). It has happened enough times for me to be very cautious about jumping in to buy immediately after a rec.

CONCLUSION:

The Motley Fool was instrumental in giving me the confidence to invest in the US market. For that, I am grateful.

From my experience with most of the MF Newsletters so far, I would prefer that they make only 1 stock recommendation a month but provide more in-depth analysis. This way, we can learn more and can cope better with the number of stocks to monitor.

I am still learning and exploring different investing techniques. The one that I am most comfortable with right now is the BMW Method. So I intend to focus more on it this year and see whether I can do better.

I intend to dispose off all my stock in the II Portfolio to reduce my holdings and try to trim down the overall no. to about 40 stocks by this year.

I am still concerned with the weakness of the USD. To reduce my USD risk, I will focus more on ADS stock and on those US companies that have a large foreign exposure.

I look forward to your continued guidance.

Thanks for reading.

py


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