 I usually get very excited when I see a stock that is incorrectly priced, this usually indicates a good buying opportunity. Every once in a while a stock comes along that is incorrectly priced the wrong way- namely massively overpriced. So overpriced are these stocks that I am at a complete loss to explain why any investor would buy them. Yahoo in its current state falls firmly in this bucket. In reviewing some of the company’s key stats I was shocked to see the poor condition of the business. Lets look at a few key statistics:
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 For part 3 of our series on Buffett’s investment filters it is time to look at “able and trustworthy managers”. There are two components to able and trustworthy managers, lets examine each individually.
Trustworthy Managers
Managers of public companies come in all sorts, unfortunately they also come with an equally diverse set of ideas as to their job’s purpose. Some understand that they work for the shareholders, others though think that investors are nothing but an inconvenience.
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 Read any investment book, blog, or magazines and you will see a multitude of recommendations related to buying stocks. Unfortunately, little is written about selling the stocks that you already own.
I use three key principals in deciding when to sell a stock:
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- Principal 1: Don’t be greedy.
- Principal 2: Don’t be afraid to admit you were wrong.
- Principal 3: Don’t let your carriage turn into a pumpkin.
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 On Friday February 7th Puget Power announced the closing of the sale of its core business at $30 per share. Regular readers of my blog will recall that I recommended a purchase of PSD in November of last year at $18. If one includes the $.25 dividend payment from Jan 16th, and the pro rata dividend of $.04 this transaction returns $30.29, or a profit of an impressive 68%.
While I am very happy to have a 68% win on a 3 month investment (and hope several of you are also counting your fortunes this weekend) I think this is a good time to turn around and look at the trade again to see if it was a wise trade or a bit of wisdom and a bit of luck.
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Benjamin Graham had a great investment philosophy. Find great companies determine their intrinsic value and then only buy them when they are cheap. Or as Graham puts it:
apply a set of standards to each purchase, to make sure that he obtains (1) a minimum of quality in the past performance and current financial position of the company, and also (2) a minimum of quantity in terms of earnings and assets per dollar of price.
The Intelligent Investor P347-348 Harper Collins Edition 2003
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What I paid for it
$18.00
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What I like about it:
- Fair insulation from credit problems, and recession.
- Good dividend yield at 4.1% (distribution Dec 1).
- Company due to be purchased at $30 pending one final approval (this is the big one).
What I don’t like about it:
- P/E higher than industry, sector, and S&P.
- Price to Sales higher than industry, sector, and S&P.
- Doesn’t really meet any of my traditional Graham investing rules.
- One should never buy into litigation.
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