Note: The numbers below are not the actual numbers but rather a percentage which shows the performance of the mutual funds. This is to protect myself (from what I’m not exactly sure).

The market value as of yesterday (Feb 1st, 2011) the value was $50,217. The book value of the mutual fund is $50,000. This works out to an interest rate of 0.4% over the past 4-5 years. How horrible is that? I realize that it’s been a down market and we are regaining, however, if I could have invested in GIC and had a much higher value.

These are the risks that I accept when investing in a mutual fund and I realize that. However, I wonder what I would have as an interest rate had I committed to rule 1 trading (investing). Luckily, I’m still young and can afford this sort of learning experience.

This provides the ‘kick-in-the-ass’ that I need to get in gear and to find some Rule 1 stocks to start investing and stockpiling. Stay tuned for my analysis and stock-picking ways.

Anyway, he has a really interesting post on October 9th, 2009 named where is the market heading. Basically he’s saying that where at a point right now where the people who were scared of the market aren’t scared anymore and are starting to invest. This means that the market is at the price that it should be… ie: when we should be looking to sell or when WE are fearful.

It’s really an interesting read. Check it out.

I should have already been out!

Looking at the signals of the stock (which I’ve included below) I can see that the MACD says less people are buying then selling on Sept 28th, 2009 (according to Google) and October 16th (according to Yahoo). Then on October 16th the 50 day moving average cuts above the stock price. Those are the two indicators that I’ve been using and really like their pattern. And based on those signals I should have got out on the 16th or 19th of October for around $7.57 for a profit of $41.75. (woulda, shoulda, coulda doesn’t get you very far in the stock market though!)

That all being said, why am I still in Cold Water Creek (CWTR)? Good question. Mainly because I wasn’t monitoring my share / companies properly. It only takes 15 minutes a day which is completely true but I just stopped monitoring. Lesson learned and luckily it’s only a $41.75 lesson (so far). I will onto my stocks for now and wait to see what happens. Now I’m going to be monitoring my AAPL stocks so I don’t make the same mistake twice!

So I put in a limit order at $129.10 and left for work. Got to work and checked to see if it went through and noticed that the price had dropped to 127, doh! oh well!


To summarize my stock purchase. I bought 4 shares (yes, 4 it’s a pathetic number and the broker fees will eat a big chunk out of any profit I make. As a trade a day states, it’s a learning experience and let’s call it “tuition.” )

• 4 shares of AAPL at $129.10 = $516.40

As always I’ll be watching the technical indicators to see when to get back out. Let’s hope that those iPhone 8GB sell good in the next year.

“We’ve been saying for several quarters now that domestic business will be weak until at least late in 2008,” Nichols said. “From what we have seen in the retail environment as of late and order indications, that expectation needs to be extended until 2009.”

He goes on to state that the dramatic decrease in sales is directly related to domestic growth. And a small glimmer of hope can be seen in the international market which had an increase in sales.

“Worldwide revenue and backlog are down overall on continued weakness in the domestic market, while international revenue is up albeit at a slower pace in the fourth quarter than we experienced earlier in the year.”

Anyway, it looks like KSWS has had a tough year. I’m still going to keep my eye on this stock. I don’t expect to purchase anything till the market strengthens.

It’s an interesting point to consider as a Rule One Investor. If the company did worse then last year in the fourth quarter what does that mean?

Well, obviously we need the whole year and the previous 9 years to make an appropriate statement. However, this does show that the growth rate is probably falling. A decreasing growth rate is not something that a rule one investor wants to be concerned with. It makes the business less predictable.

Does it matter that the stock price actually increased? No! It would matter if we were buying or selling the stock, however, I don’t have a position in the stock as discussed when I was selling my Lowes (LOW) stock. The price increase is simply a reajustment because of the undervaluation of the stock.

I am waiting to see the annual report to recalculate the Rule #1 numbers and see if Lowes still qualifies as a rule one stock.

Anyway, in my last few articles I’ve been discussing how I am going about selecting my Rule One stocks. I’ve dealt with purely the rule one numbers, the Moat and in this article I’ll discuss the margin of safety (MOS) of the remaining stocks. Remember, these are simply my margin of safety numbers and could be completely incorrect. You should process the numbers and make your own conclusions.

• Sports
  • Nike (NKE)
    • MOS: $34.07
    • Current Stock Price: $60.59
  • Sketchers (SKX)
    • MOS: $12.15
    • Current Stock Price: $22.24
  • Deckers (DECK)
    • MOS: $92.59
    • Current Stock Price: $120.88
  • KSwiss (KSWS)
    • MOS: $17.72
    • Current Stock Price: $16.73
  • Pool Corporation (POOL)
    • MOS: $12.21
    • Current Stock Price: $19.24
  • Columbia Sports Wear (COLM)
    • MOS: $32.47
    • Current Stock Price: $43.63

As we can see only KSwiss has a margin of saftey under the current stock price.  Therefore, it’s worth taking a more indepth of the company and management of KSwiss.   My next few articles will delve deaper into KSwiss. What’s the market? Who are the consumers? What’s the future outlook?  How’s the management?

• Sports
  • Nike (NKE)
    • Moat – Definitely! Who doesn’t wear Nike nowadays.
  • Sketchers (SKX)
    • Maybe. They provide contemporary footwear for young people. I’d say yes definitely but is Sketches just a fashion trend? That’s what needs to be determined from this company.
  • Deckers (DECK)
    • Yes. They provide designer comfort shoes.
  • KSwiss (KSWS)
    • Yes, a brand moat. Lots of people are getting KSwiss footwear as it’s a good name. Only downfall is they’re competing against Nike though.
  • Pool Corporation (POOL)
    • Yes. One of the leading companies to provide pool supplies and equipment.
  • Jakks Pacific (JAKK)
    • Yes/No/Maybe. I really can’t say whether this has a moat or not. If someone can explain their moat to me I’d be more interested. However, right now I don’t know enough about this company to say yes or no to a moat.
  • Columbia Sports Wear (COLM)
    • Yes. A moat of providing mid-quality outdoor wear for the recreational outdoor enthusiast. Although, North Face and others are starting to breach the moat.
  • Dicks Sporting Goods (DKS)
    • Not really. I’m not based in the states so it’s tough to completely determine if this has a moat. I’m sure there are other stores in the states that sell sporting goods.

Here’s a few tips and tricks to ensure that you don’t give up on the rule one technique.

• Just start by looking at the stock numbers. Ignore, the other three M’s for now. Ensure that the growth rates are appropriate. This will weed out lots of companies. Then you can finish you’re four M analysis.
• Once you’ve assembled your initial stock list. Run the numbers through a Margin of Safety calculator. These calculators normally show the numbers all on a spreadsheet. From the spreadsheet, you can simply see if all the numbers are above 10%. This way you don’t go through all the necessary pages on Yahoo or MSN.
• When assembling a list of potential companies be sure to branch out. This means ensuring that you select all industries that are related. You might not have as much meaning but it should be easier to perform the research necessary later.
• Try looking at stocks that have large moats that you can simply think of a company and crunch numbers. The company might not have meaning for you but it’ll show you that these companies to exist. Coke (KO), Nike (NKE) or Apple (AAPL).

Remember. The reason the requirements for your business are so stringent is so that you don’t get a predictable company without a solid background. You absolutely NEED strong consistent numbers to be able to predict a future stock price, current evaluated stock price and the margin of safety stock price.

Either way. Don’t give up. Continue to search and follow this blog. You’ll eventually find a company worth of rule one status.

In the first part I did the exercise of writing things that I’m passionate about, am good at and spend my money on. From the results I found that companies with meaning would be companies that deal with sports, travel, cooking. In addition, when looking over that article and doing research for this article I found that I missed the technology industry. I am an engineer and spend quite a bit of time on technology related things… So to be fair I’m adding technology to my list.

I now have four main categories (Sports, Travel, Cooking and Technology). Today, I’ll investigate sports a little deeper, one of my greater passions!

So what are some big companies that are related to sports? Nike, Reebok, Under Armour…. If I go to Google and type in NKE I can see that Nike is in the Sector: Consumer Cyclical and Industry: Footwear

Other companies (on the NASDAQ) in the same industry include Timberland, KSwiss, Crocs and Sketchers. I do shop at Eastbay quite often and have different size feet, so, I guess this industry does have meaning to me.

What about actual sports equipment though? Things like Golf, Tennis, Skiing, Soccer, etc… Companies that come to mind are Calaway, Prince, Yonex, Umbro. Let’s type in a few companies and see what we get for an industry. Calaway (ELY), Prince. Similar to Nike Calaway is in the Sector: Consumer Cyclical and Industry: Recreational Products

Looking at companies in this Industry I see Harley Davidson, Brunswick, Polaris, Calaway, Pool Corporation, Jakks Pacific, Head and Artic Cat.

So now I have a list of companies that I can investigate further. I’ve added all these companies to my current Watch List and will update that list as I remove non-Rule #1 companies from the list.

Note: I only mentioned companies that I recognized. My assumption is that if I know the company it will have a greater chance of having a moat.

Neat Google Tip: You can simply type the area of interest in Google Finance and you’ll come up with a list of companies that deal in that industry. For example: Golfing