October Trades

October 18 2007
Buy 100 USG Corp. (NYSE: USG) $36.00

Buy 20 Sears Holdings (Nasdaq: SHLD) $132.00

Buy 25 Cadbury Schweppes (NYSE: CSG) $50.80

September Update

For the month of September the Model Portfolio’s return was 0.1% versus S&P 500’s total return of 3.7%. For the Fiscal Year ending September 30^th, the Model Portfolio’s return was 16.9% vs. S&P 500’s total return of 15.6%. Since inception, the Model Portfolio's 2-year return through September 30th, 2007 is 36.2% vs. S&P 500's total return of 24.2%.

We made no changes to the portfolio in September. Meanwhile, housing related stocks including Sears Holdings (Nasdaq: SHLD) were hit hard in September dragging down the Model Portfolio’s performance for the Fiscal Year. Consider that at the end of August the Portfolio was outperforming the S&P 500 by 4.9% for the trailing 11-month period.

Earnings season is right around the corner. Perhaps Mr. Market will be so kind as to provide us with a few fat pitches.

September Trades

NO TRADES

August Update

For the month of August the Model Portfolio’s return was 2.6% versus S&P 500’s total return of 1.5%.

August was turbulent for the markets to put it mildly. The S&P went on a roller coaster ride and based on an intraday low was down to the tune of almost 6% from its July 31^st close. We raised more cash by exiting out of the Tyco spin-off companies and divesting ConocoPhillips (NYSE: COP) and Anheuser-Busch (NYSE: BUD). The Tyco companies should do well in the long run. But our thesis of buying the single stock prior to the spin-off had played out. In hindsight, we should have liquidated our position immediately after the split. Conoco had performed tremendously in the short period of time since we bought it and we will maintain our exposure to oil through Diamond Offshore Drilling (NYSE: DO). Finally, a cash infusion of $50,000 gives us more flexibility in building new positions or adding to existing ones without having to trim or altogether trade out of existing positions on a continued basis. Of course if we are not able to invest this cash, it will hurt the portfolio’s performance going forward. It should be emphasized that the goal of building a concentrated portfolio will preempt us from using this new found capital to add new positions without considering the opportunity cost of holding onto existing positions.

The subprime debacle presented us with great entry points into several stocks on our watch list. Moody’s (NYSE: MCO) was a new addition as well as Lehman Brothers (NYSE: LEH) and Countrywide Financial (NYSE: CFC). Please see Margin of Safety for more comments on these companies. Another new addition is Cadbury Schweppes (NYSE: CSG) which we have written about in the past. Worries about the disappearance of private equity bidders for the drinks division depressed the stock to levels too attractive to pass on. We also continued to add to our positions which have housing exposure in one way or another.

On the earnings front, Morningstar (Nasdaq: MORN) and Expeditors International of Washington (Nasdaq: EXPD) came through with stellar results. Morningstar is trading near all-time highs. Expeditors touched a 52-week high but could not sustain it and was probably caught in the market downdraft. CEO Rose did not disappoint and continued with his colorful commentary in the quarterly press release: "This quarter's results once again illustrate that steady growth is reliant upon both consistent and fundamental execution. We experienced good solid growth in all of our major geographic areas," commented Peter J. Rose, Chairman and Chief Executive Officer. "When Yogi Berra said, 'It ain't like football. You can't make up no trick plays' he was speaking of baseball, but he might just as well have been talking about the global logistics business. Indeed, there are no 'trick plays' or short cuts that can bail you out in this game. When the final box scores are published in this business, those who have attempted to rely on either have typically found themselves thrown out at home. While the spectacular, but intermittent, long-ball game may garner the headlines, it's the more tedious, but consistent, short-ball game that takes home the trophies," Rose said. Our kind of CEO.

August Trades

August 1 2007
Sell 75 ConocoPhillips (NYSE: COP) $81.00

Sell 100 Intel (Nasdaq: INTC) $23.40

Buy 150 Moody's (NYSE: MCO) $52.50

Buy 100 USG Corp. (NYSE: USG) $40.00

Buy 300 Mueller Water Products (NYSE: MWA-B) $13.00

Buy 50 Centex (NYSE: CTX) $35.00

Buy 100 Pulte (NYSE: PHM) $18.00

Buy 50 Home Depot (NYSE: HD) $37.00

August 15 2007
Sell 150 Anheuser-Busch (NYSE: BUD) $48.00

Sell 75 Covidien (NYSE: COV) $38.00

Sell 75 Tyco Electronics (NYSE: TEL) $33.00

Buy 50 USG Corp. (NYSE: USG) $36.50

Buy 50 Centex (NYSE: CTX) $32.50

Buy 100 Pulte (NYSE: PHM) $17.00

August 16 2007
Buy 50 Centex (NYSE: CTX) $29.50

Buy 100 Pulte (NYSE: PHM) $15.75

Buy 200 Mueller Water Products (NYSE: MWA-B) $11.90

Buy 50 Moody's (NYSE: MCO) $45.00

Buy 100 Home Depot (NYSE: HD) $32.5

Buy 50 Expeditors International of Washington (Nasdaq: EXPD) $43.50

Buy 100 Lehman Brothers (NYSE: LEH) $50.00

Buy 125 Cadbury Schweppes (NYSE: CSG) $42.25

Buy 300 Coutrywide Financial (NYSE: CFC) $17.00

Buy 25 Sears Holdings (Nasdaq: SHLD) $129.00

August 31 2007
Buy 200 Mueller Water Products (NYSE: MWA-B) $10.85

July Update

For the month of July the Model Portfolio’s return was -2.8% versus S&P 500’s total return of -3.1%.

It was a tough month for the markets. It was the right time to jettison Chaparral (Nasdaq: CHAP) and CBS (NYSE: CBS) and raise some cash. Chaparral will be taken private and CBS had rewarded us nicely since we purchased it post spin-off from Viacom. Finally, we sold out of Tyco (NYSE: TYC) choosing to hold on to Tyco Electronics (NYSE: TEL) and Covidien (former Tyco Healthcare) (NYSE: COV). Tyco should do well in the long run but with a 14% gain, this was a good chance to raise some cash and let the other Tyco businesses provide us with the upside.

We used a portion of the proceeds to continue to build our positions in USG (NYSE: USG) and Pulte (NYSE: PHM) both of which were dragged lower as a result of the sub-prime and housing jitters. Sears Holdings (Nasdaq: SHLD) lowered its earnings guidance for the second quarter and announced a $1B buyback. The stock's decline from it's high was a good opportunity to add to our position.

Earnings for many of our companies began to trickle in throughout July. No major surprises. the homebuilders continued to struggle and Diamond Offshore's (NYSE: DO) results were stellar. Ebay (Nasdaq: EBAY) tried hard and continued its buyback program but Mr. Market was not impressed. Intel (Nasdaq: INTC) was also shunned as analysts zeroed in on lower than expected margins for the quarter. Still, the company maintained its guidance for the year and is looking for a strong second half. Meanwhile, its rival Advanced Micro Devices (NYSE: AMD) is reeling. Corning (NYSE: GLW) is also worth a mention. Results were just fine but again investors chose to focus on slightly weaker telecom sales and management's reluctance to raise LCD sales guidance for the year. Meanwhile, this is a company executing a beautiful turnaround and rekindling its innovation machine. What we are focusing on is Corning's reinstatemant of its dividend and announcement of a $500m share buyback.

July Trades

July 24 2007
Sell 100 Chaparral (Nasdaq: CHAP) $83.90

Sell 280 CBS (Nasdaq: CBS) $34.75

Sell 75 Tyco(Nasdaq: TYC) $49.50

Buy 60 USG (NYSE: USG) $44.50

Buy 100 Pulte (NYSE: PHM) $20.85

Buy 25 Sears Holdings (Nasdaq: SHLD) $151.00

June Update

For the month of June the Model Portfolio’s return was -1.5% versus S&P 500’s total return of -1.7%.

We made one significant trade in the Model Portfolio and replaced our position in Comcast (Nasdaq: CMCSA) with Ebay (Nasdaq: EBAY). To be sure, Comcast's prospects remain bright and the company should continue to be successful in rolling out its Digital Voice product while generating oodles of cash. Skeptics remain and continue to rumble about the web's competitive threat to Comcast's business model. I believe Comcast will do just fine. The reason for eliminating our position in Comcast and buying Ebay is simple. Comcast had a great run since we bought it and is no longer as cheap. However, it is not overvalued either. Ebay, on the other hand, is a cheaper stock which has been unduly punished as the fear of Google (Nasdaq: GOOG) dominating the world has blinded investors to Ebay's potential. Ebay has a dominant position in online auctions and its PayPal division is growing nicely. Its decision to buy Skype remains a question mark but that is just gravy if it pans out. The company has a squeaky clean balance sheet and is a cash machine. Ebay is also buying back it shares with an additional $2 billion authorized in January. This is growth at a reasonable price.

The end of June also brought with it the end of Tyco as a conglomerate and the creation of three new companies. They began trading on the first day of trading in July. Tyco (NYSE: TYC), Tyco Electronics (NYSE: TEL) and Covidien (NYSE: COV) which was formerly Tyco's healthcare division. You can check on Tyco's web site for more information on how to split your original purchase price among the three stocks. For now, we are staying put and holding all three.

Finally, the stellar performances of our energy holdings in ConocoPhillips (NYSE: COP) and Diamond Offshore (NYSE: DO) were offset by the retreat in the homebuilders. The bad news continued to pile on and they are now trading below book value. On the bright side, Home Depot (NYSE: HD) which certainly has exposure to the housing market, sold its supply business to a private equity group for about $10 billion and announced a massive $22.5 billion share buyback. We will take that.

June Trades

June 8 2007
Sell 25 Chaparral (Nasdaq: CHAP) $68.00

Sell 300 Comcast (Nasdaq: CMCSA) $26.10

Buy 300 Ebay (Nasdaq: EBAY) $30.75

May Update

For the month of May the Model Portfolio’s return was 2.9% versus S&P 500’s total return of 3.5%.

It was a quiet month for the Model Portfolio. We used a persistent drag on USG shares (NYSE: USG) to add to our position. Meanwhile, the market continued to rumble with Dow setting record after record.

Cisco (Nasdaq: CSCO), Electronic Arts (Nasdaq: ERTS) and Tyco (NYSE: TYC) all reported earnings in early May. Cisco’s earnings were stellar but the Street was unimpressed with the company’s guidance. It seems 15% to 16% top-line revenue growth and gross margins north of 60% are not good enough. The stock has dipped back to the mid 20s and has stayed there. We would use further weakness to add to our position. If you want to get a sense of what a networked world will mean for companies like Cisco, you should pick up a copy of Forbes’ 90^th anniversary issue on Networks.

Mr. Market was not too kind to Electronic Arts either. The company’s forecast for its upcoming fiscal year fell short of analysts’ expectations. The transition to the new gaming consoles has not been as swift as anticipated, not to mention the fact that the company has decided to delay Spore, the much anticipated game by the creator of The Sims. But all this should be short term in nature. To be sure, the company has to execute better going forward. Still, with no debt on it balance sheet and a business which is throwing off plenty of cash, there is time to right the ship.

Finally, there is Tyco. Not much surprise in the company’s earnings announcement and the break up into 3 separate entities remains on track. The shares of the 3 companies are expected to trade on a When Issued basis on June 14^th. The spin-off will be completed on June 29^th. Stay tuned.