Monday, August 3, 2009

Stocks to Watch

Here is an update of stocks I like* for my own portfolio at the right price.

The max price noted below is the most I'd pay, but obviously I like to buy them well below, if possible.

After last week's rally half are now selling at prices that are above what I'd pay (that half is shown under the dashed line in the list below). I wouldn't buy them here but they are still excellent businesses at the right price. In contrast, back in February...almost all of the stocks on this list were below (in some cases well below) the highest price I'd be willing to pay.

The stocks in bold have two things in common. They are:

1) currently owned by Berkshire Hathaway (as of 3/31/09) and,
2) selling below the price that Warren Buffett paid in the past few years.

There are several other Berkshire Hathaway holdings on this list but they don't have the 2nd thing going for them.

These are all intended to be long-term investments. A ten year horizon or longer. No trades here.

Stock/Max Price I'd Pay/Recent Price**
JNJ/65.00/60.89 - Buffett paid approx $ 62/share
COP/50.00/43.71 - Buffett paid approx $ 82/share...ouch
KFT/30.00/28.34 - Buffett paid approx $ 33/share
USB/24.00/20.41 - Buffett paid approx $ 31/share
WFC/28.00/24.46 - Buffett paid approx $ 32/share
BNI/80.00/78.59 - Buffett paid approx $ 75/share
KO/55.00/49.84
PG/60.00/55.51
AXP/35.00/28.33
PEP/60.00/56.75
---------------------
ADP/37.00/37.25
DEO/60.00/62.38
PM/45.00/46.60
BRKb/3000/3180
MO/16.00/17.53
LOW/19.00/22.46
MHK/30.00/51.58
HANS/25.00/31.01
PKX/80.00/101.07
RMCF/6.00/8.10
(Splits, spinoffs, and similar actions inevitably will occur going forward. Will adjust as necessary to make meaningful comparisons.)

Tactically, the S&P 500 has moved from a recent low of 872 on 7/10/09 to 987 as of last Friday. Many of the stocks above have rallied 30% or more in the past few months. So 3-5 months ago it was easier to buy almost any of these.

Many stocks have rallied so the risk of paying more than necessary in the short-term is there.

Yet, another risk, of course, is missing a stock entirely because it continues to rally. There is no perfect answer to this. The risk of missing something you like when a fair price is available (error of omission) can be more costly than suffering a short-term paper loss.

Here are some thoughts on errors of omission by Warren Buffett from an article in The Motley Fool.

And also...

"During 2008 I did some dumb things in investments. I made at least one major mistake of commission and several lesser ones that also hurt... Furthermore, I made some errors of omission, sucking my thumb when new facts came in." - Warren Buffett's 2008 Annual Letter to Shareholders

In other words, not buying what's still attractively valued to avoid short-term paper losses is far from perfect with your best long-term investment ideas.

To me, if an investment is initially bought at a fair price, and is likely to increase substantially in intrinsic value over 20 years, it makes no sense to be bothered by a temporary paper loss. Of course, make a misjudgment on the quality of a business and that paper loss becomes real (error of commission).

Bottom line: when highly confident that a great business is available at a fair price it's important to accumulate enough while the window of opportunity exists. Sometimes ignoring the risk of short-term losses is necessary to make sure a meaningful stake is acquired.

Ending up with just the quantity of "an eyedropper" when I'd like a full glass is no fun.

Adam

* This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here are never a recommendation to buy or sell anything and should never be considered specific individualized investment advice. In general, intend to remain long the above stocks (at least those that at some point became cheap enough to buy) unless market prices become significantly higher than intrinsic value, core business economics become materially impaired, prospects turn out to have been misjudged, or opportunity costs become high.
** As of 7/31/09
 
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