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Cornelius Chan Blog

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Bargain Bin Blue Chips Update Q2 Week 2

Pop1397 views  2012-04-15 17:01   Tagsblue  chip  dividend  bargain  bin 

The DJI closed at 12,849.59 on Friday, down -1.61% from last week's close on the Thursday before Good Friday. The Dow is up +93.90% from March 6, 2009.

Since I am now reading Intelligent Investor and Security Analysis for the first time, I am doing more homework on my watchlist stocks. I am adding book value figures to all my stocks as a way to more reasonably preset the buy prices. I have discovered quite a few interesting details about my bargain bin stocks in this process - like the fact that Veolia Environnement has negative book value for instance. Therefore, I have struck VE from my bargain bin and will no longer consider the #2 French utility as an investment grade stock. I think 99% of value investors would agree with me on this one. I have to thank Chandan Dubey at Gurufocus for his warning on this stock. As an inconsequential piece of investing luck, I actually made money on VE as I had bought shares at $12+ and sold them all at $14+. For this "investment" I would say the following: good initiative, poor judgement.

Another revelation I've had this past week is the fact that Nokia ADR has a book value of 4.14. Since I understand a stock should be trading at half of book to be considered a bargain, I have changed my preset buy price for this stock down from $5 to $2.50. I still believe in the Nokia/Microsoft joint venture, but am a lot more conservative now than I was just last week. I have to thank Geoff Gannon at Gurufocus for writing a sensible piece on Nokia. Thanks to his reasoning, I decided to revise my buy price. He says he will not consider NOK until it falls below tangible book value, which is 1.50. I feel very comfortable buying Nokia at $2.50 as a long term holding. I have already bought 1,500 shares at $4.96 that I am forced to now hold onto as I will lose too much money if I sell them for a loss. Anyways, the upshot of all this is that investing is never easy and one can never do too much homework. Besides, there are so many stocks that I can wait to purchase cheap and I take comfort in that my value investing career stretches out ahead of me for at least another 4 decades - depending on my longevity.  I can still afford to make a few "mistakes" in my learning curve.

As far as my underwater Nokia shares, I am prepared to hold these for a decade or longer so it is no big deal. The worst case scenario is they go bankrupt and I lost all my money. The second worst case scenario is they get bought out for a low share price. I think these two possibilities are so remote as to be virtually nonexistent from a reality-based viewpoint.

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