Saturday, January 5, 2008

patching the burnt hole in my pocket

Thicken My Wallet, drafted a great post this week called Cash is an Investment Category, where he writes of the internal struggle to not be fully invested. This post hit home for me as I have found that once my cash reserves hit a certain level, I start to seriously look for stocks on sale.

Patience is such a huge attribute that a successful investor needs. It is not always easy to allow cash to pile up in your portfolio when you're mind is constantly looking to the next stock that you would like to add to, or start a position in. After all, what am I doing; what have I set out to accomplish long term? I am investing for the long term, not stockpiling cash. That being said it is easy to see that throwing money at stocks whenever you have powder dry is not always the best strategy. There is something to be said for having patience, building cash positions, and attempting to use this cash to invest in beaten down stocks when there is 'blood in the streets'.

That being said, right now I am 3.1% cash so I am getting to the point where I can afford, fee-wise, to buy something. Coincidentally there was a fire sale this week on the markets, but I'm not sure the blood has hit the streets yet. I am not going to be hasty but here are the situations I am monitoring most closely currently:

1. Bank of Nova Scotia (BNS). I opened a position in BNS back in August of 2007. Currently my adjusted cost base on the stock is $48.39. Scotia closed Friday's trading at $48 even.

Yield = 3.9%
Price/Earnings = 11.9
Price / Book = 3.1
Last time stock traded at this level = August 16, 2007, the infamous date

2. Bank of America (BAC). I opened a position in BAC back in November of 2007. BAC announces earnings on January 22, 2008, which by all accounts should be horrendous. I really don't care though. What I do care about is their juicy dividend which they have raised nicely for a long while. Unknowns in investing can be a killer. I really wish I knew what the odds were for a dividend cut. If the odds are extremely low, then I would add to my position. Right now I am paying close attention to analyst, and BAC management comments to try to get a read on this, but I realize that there may not be any assurance.

Yield = 6.4%
Price / Earnings = 9.0
Price / Book = 1.4
Last time stock traded at the level = May of 2004!


FourPillars said...

Yah, patience is something I'm trying to learn..


Anonymous said...

Great article,

Patience takes discipline and courage. If you are patient you will be successful in every aspect of your life (not only investing)It took me a long time to understand and achieve it. I still get the urge to spend my cash pile on stocks that are decent (not great) buys. So its an ongoing battle - I LOVE IT

My suggestion is to have a company watch list that you would like to invest in (based on your thoroughly researched criteria of course), figure out their Intrinsic Value and (your) buy price, wait for the price to get there and bet big.

I have 15 company stock list that took me over a year to create (that was over 2 years ago) and I only have purchased 2 of them so far.

There is one guarantee in investing (at least in my case), right after I purchase the stock, the price goes down. LOL.

As per BNS and BAC: both are on my list but am still waiting to take a bite.

BTW: Love your blog. You write very well.

pitz said...

Walgreens has been pretty bad too. But its pretty hard justifying paying almost twice the multiple for Shoppers Drug Mart.

What to do, what to do?

Dividends4Life said...

My cash reserves during 2007 were higher than they have ever been. Buffet one made the comment that there was nothing out there to buy. This was when I was heavily into growth and tech. I though he was crazy, now I fully understand what he meant.

Best Wishes,

MG said...

anon, I use a watchlist system as well and I find it is the best way to know when you should and should and shouldn't be getting in.

pitz, WAG looks great at these levels IMO. I just don't want to get too overweight in it.

D4L, Do you think there is anything worthwhile right now/

Jake said...

I recently started buying BAC and several other banks. Most are selling very high yields (5%-7%). Will they cut rate? I can't imagine all of them will cut.

When I look at a stock, I look over five years or longer. The recent crisis is just a blip on the screen.

Also, I find dollar cost averaging has served me well through the years. This takes much of the risk out of investing. If you hold strong companies for five years or longer, then you can expect your average cost to average below current valuations.

MG said...

Hi Jake, On a 5 year BAC chart the recent crises looks like much more than a blip. Whether this presents an enourmous opportunity or a value trap remains to be seen I guess. It is hard to imagine that a bank like BAC will languish for years. This all should pass but where the bottom is and whether dividends will be cut seems like a mystery out there...