Dan's retirement plan

As a way of introduction to explain the rationale for my trading methods, I
retired in September of 2000 and currently live from my investments, both
income and capital gains. Other than social security, I have no pension.
I invest and trade, with boundaries somewhat overlapping. The vehicles I use
are stocks, bonds, options, and futures. I do some day trading on rainy
days, otherwise I stay away from extremely short term trading and do no
Forex trading. I believe that trend following, as a means of market timing,
works, but that is not my subject for today.

I am writing today to comment about Value Investing.

There are companies with many years of consistent and growing earnings ,
little debt and in market segments that are expected to grow, but they are
not necessarily "Value" stocks. Why? Simply because the stock price is too
high in proportion to its current earnings and projected future growth.

As value investors we seek to buy stocks with consistent and growing
earnings in strong market segments, companies that have a reasonable debt to
equity ratio, but companies whose stock price does not reflect the potential
for these companies, in other words, undervalued value stocks.

The problem with this approach is that the inherent assumption made is that
the professionals in the market, for one reason or another, have overlooked
the quality of this company. Even assuming that the above is true, that
investment companies employing legions of research analysts have overlooked
this company that we have found, what is the trigger that will make market
participants realize what we have discovered, and equally important, how
long will it take for this to happen.

For my longer term investments, I eschew any company that does not pay
dividends, and dividends at a reasonable level. A dividend of 1% is
meaningless. I look for companies with many of the same characteristics as
used with value stocks, but with the proviso that the dividend stream is
secure, and expected to grow. Today, I will rarely consider anything with a
current yield of less than 6%. At the time of this writing I have found A
rated bonds yielding over 10%. The A rating implies a relatively low level
of risk while the high yield means they are out of favor. Therefore, any
stock purchases made today should be expected to return, between income and
capital gains, at least that much annualized using a reasonable time frame.

Unlike waiting for the market to appreciate the potential of a non dividend
paying value stock, by purchasing out of favor high dividend paying stocks
or high interest paying bonds, I am earning a fair rate of return on
invested funds as well as expecting a capital gain down the road.

Dan (dan2fl)