No. of Recommendations: 38
This may be a lesson in what to do, or it might show us what not to do. You will be the judge. The subject stock is Halliburton and Mike has a 16-year chart for us to ponder:

http://invest.kleinnet.com/bmw1/stats16/HAL.html

The BMW Method led me to HAL in 2002. Mike's chart shows the low was around $11/share back then, but I bought the majority of my shares at $9.92/share. That is one problem with monthly data. You do not see the actual lows if the stock closed above that low during the month. But, that is not the lesson here...just an observation.

When I did my hand-drawn chart of HAL. I saw that the 30-year CAGR was close to zero. HAL was selling at $10/share in 1972 and it was back at $10/share 30 years later. That is not at all impressive if we look for high CAGR stocks. Then again, Halliburton had been selling for over $60/share in 1997. In 5 years it had dropped 82% in price. That got my attention and sent me scurrying to do some Due Diligence. I ended up buying a little HAL at about $14/share...on the way down. At $11/share I bought lots more and at $9.92 I doubled that order. My average cost was $10.81/share...about what Mike's chart shows.

Just as Mike's chart shows, the average CAGR for HAL on my hand-drawn chart was between 5 and 6% but the shares were selling at a CAGR of zero. That was just not reasonable to me. The dividend was paying 5% and the P/E was 5:1. Halliburton was on everyone's sell list and no one was suggesting that the stock should be purchased. Jim Cramer was writing terrible things about Halliburton because Dick Cheney was the past CEO, as if that was the kiss of death for a business. I thought that fact was interesting but of little consequence. It seemed to me that he had been a good CEO and the business had thrived under his leadership.

Anyway, you can see the chart. Halliburton has slowly climbed out of the tank and passed through the average CAGR in 2004 at $40/share. At the recent BMW Conference I mentioned that I was selling my HAL and I am now completely out. That is unlike me because I make it a habit of holding at least 100 shares of the stock that reward me, but Halliburton is just too pricy for my tastes. I want nothing to do with it at all. And, that is the lesson. We will watch what happenes with HAL to see if the BMW Method led me in the correct direction. So far, it has failed me.

Halliburton has grown from about $60/share to $77/share in the few months since I sold out. I have lost that 28% gain, which is a CAGR of 86%! How stupid could I have been to sell Halliburton at $60/share?

Today, Jim Cramer is hyping HAL because Dick Cheney is the past CEO. The implication is that Cheney is pulling the strings to get HAL all that swell business in Iraq. It's funny, he is using the same story that discouraged people from buying in 2002 when HAL was at an all-time low to get them to buy it in 2006 at an all-time high. And, the stock is proving him right! To make matters worse, it is proving me wrong.

But, look at the BMW HAL chart. I believed in the BMW Method and I still do. I think HAL is due for a severe fall but I left 28% on the table and the stock seems to be going higher. Think about it, I passed up a gain of $17/share on a stock that I owned at $11/share...a loss of 170%!!!

The present dividend pays well under 1% and the P/E is close to 30:1 while the 30-year growth rate is still under 7% on my chart...it is around 9% on Mike's 16-year chart. In either case, I find it really tough to justify a P/E of 30 for HAL. But, what do I know? I just work here.

Let's watch and learn from this stock. That is the lesson and I think it may be a good one for us. I have no idea what is going to happen, but the BMW Method says we should know what to expect. Halliburton will show us the real facts as we watch it.

I am very happy with my HAL investment even though I lost 170% in the last 5 months. My CAGR since early 2002 to late 2005 was 60.9% plus I received a sweet 4.5% dividend the whole time. I really do not care much where Halliburton's price goes in the future. That is, unless I see it back around $25/share. Then, I may be interested again.

I missed the bottom by buying too early, and I have missed the top by selling too soon. But, a 70% per year gain is nothing to be concerned about. If I were a little better I could have beaten that.

So, that is how I use the BMW Method. The key is to tune-out all of the background noise and to trust your own abilities. I think that is the real lesson here.



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