Thursday, December 06, 2007

A losing year

2007 will almost certainly be a losing year for me. Here's where I stand as of this morning:

Date       S&P 500   Delta     IRA   Delta   BRK A
12/06/07      5.27% -10.95%  -5.68% -39.97%  34.28%
Total Gain   50.40%  74.55% 124.95%  20.38% 104.57%
Annualized    7.77%   8.25%  16.01%   2.00%  14.01%
Remember that I own Berkshire stock, so part of my portfolio is supported by this year's 34% gain. Berkshire is now well above the "inflation +10%" benchmark since the opening of my IRA. Select Comfort and First Marblehead have cost my portfolio the majority of the underperformance its experienced this year.

Select Comfort has not performed well in over a year in business terms. I think the company has been disproportionally impacted by the housing slump and management has made some disastrous mistakes. At this point, however, the market seriously undervalues the company even after accounting for very real degradation of fundamentals. There's no guarantee management will right the ship, but Wall Street is treating the mattress retailer as if it has no upside. I made a mistake by not selling a year ago, but I would be a buyer at this price if I didn't already own shares.

First Marblehead, which is down another 8% today, has not had any business problems to speak of and has plummeted almost from the moment I bought it. This is pretty clearly a case of Wall Street blinded by the company's association with other, more troubled financial stocks. As I've been pointing out, unless there is fraud we haven't heard about, this stock should not trade less than $30 a share. My hope now is that the low prices stick around until the next few dividends can be reinvested for me.

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