Cellstar

Here's an interesting one in my portfolio, and an example of why diversification is so important. Cellstar Holdings (CLHI) entered my portfolio in November 2006, under my random method. It has proceeded to lose 28.86% of its value, through 6/15/07. Now, I check the stocks daily to see what they're doing and noticed that this one, after declining, was barely moving at all. So, I started to look into it and determined that this company is in liquidation! This past week, CLHI announced that they had completed selling substantially all their assets and all that was left was the collection of some minor notes receivable, which were expected to be collected by the end of this year. The stock price barely reacted to this news.


Here's the interesting thing. CLHI is still on magicformulainvesting.com . I read recently about the risk, in value investing, of "underpriced" stocks which will remain underpriced. Presumably, the reason CLHI stays at this price is because it's at its liquidation value. However, utilizing the prior year's earnings indicates that the stock still sells at some multiple of earnings that places it high in the mfi universe. However, the price will never increase because it is already at its liquidation value. There is, in actuality, no goodwill to be had.


Now, this news may have already been available when I purchased the stock (although I can see the initial proxy statement proposing dissolution was from 2/07), some might say why didn't I do a little research to determine if this kind of risk was out there? Well, you could just as easily argue, why didn't I do some research on other MFI stocks and not miss a certain winner? That's not the point. I readily acknowledge that I don't have the time or the inclination to research these stocks. I am following the strategy of MFI, not becoming a guru. The MFI strategy struck a chord with me the instant I read about it, and its appeal has not diminished in my eyes, even with CLHI, FORD, and a couple of other "losers." Without it, I would never have even known about PNCL and WNR, which have alone made up for these losses.


MFI Fund price as of 6/15 = $55.09, up 40.41% over 6/15/06 vs. a 22.03% gain for the S&P 500.