For Twenty Years Edward H. Nelson has out-picked the Lipper Average. Bill Miller- Watch out, Ed's column is now exclusive to www.kimeisler.com.

Patience is virtue and stocks fluctuate in price.

My first stock selection W.R. Berkley (BER) is currently trading at $32.72 (at the close of trading today April 24, 2007) down almost 4% since I first suggested it be purchased. Yesterday this superior company reported earnings rose to 91 cents a share for the first quarter of 2007 against earnings of 79 cents a share for the first quarter last year or an increase of over 15%. The combined ratio improved to 87.5% v. 88.2% for the year earlier. A combined ratio of 87.5% means for every premium dollar of insurance this company accepted it only cost the company in payments and administration 87 and a half cents, meaning they kept the remainder as profits for the company.

So other than an excellent earnings report nothing has changed about this company since I first reviewed it several months ago. It still sells insurance every day, it still pays claims every day and it still makes a considerable amount of money at the end of the day. The fact is, stock prices do vary day to day; month to month and year to year and very often not in a consistent or logical manner and when they are "mispriced" they become an opportunity to be purchased at a discounted price to the "true" value of the company. "Companies" unlike the stock that represent ownership in them do not trade every day, they go about their business and if are properly analyzed will in time increase significantly in value beyond the price that was paid for the shares originally. I "revisit" BER today because I believe it is "mispriced" and represents extraordinary value and is very much worth owning. One day it will be worth a whole lot more than the current price per share, or, to paraphrase a favorite song of my daughter's "I may be wrong but I don't think so."

The most important letter in the investing alphabet is “E” (not for

Edward) but for Earnings. If a company does not have earnings that are

growing, sooner or later the investor will own stock in a company that

is worth less than the purchase price or will not perform as well as

the larger market. My goal is not to hit home runs with my

investments, but to hit “clean” singles and hope that from time to time

that my “hits” will roll to the outfield wall for doubles, triples and

that rare inside the park home run. In non-sports terms, I am looking

for companies that have modest risk, but have overall expectation of

price appreciation, especially in the long term.

How do you/we get there?

By finding companies that have:

1) Earnings. I am skeptical of investing in a company that is not

making money, even if they have “the next great idea.” I want to in

invest my money in companies that make money now.

2) Earnings that are increasing at a double-digit annual rate. My rule

of thumb is to review the past three fiscal years, and projections or

estimates into the coming three years.

3) What you deem to be a cheap or modest P/E (price to earnings ratio).

Generally, the lower the P/E, the lower the expectation of growing

earnings, the higher the P/E, the higher the earnings expectations. I

generally look for a P/E of 10-15. By way of comparison, most stock

indexes today trade at P/E’s of 18-19 times earnings.

Here’s the math: If earnings grow at 10% per year, then the stock would

double its earnings in the course of 7 years. Presumably the stock

price would also double, due to the higher earnings. In addition, it

is possible that due to such stellar earnings performance the market

itself would recognize that a P/E of 10 was too modest, and would value

the earnings at a higher P/E. We’ll take 12 as an example. Thus the

share increase in our hypothetical stock would be 140% (12 times our

doubled 7 years earnings). This happens fairly often in the stocks that

I have purchased.

If you can be selective and patient, you too can find stocks that will

increase in value this way.

ED'S 3 Home Run PICK FOR 2006

E-Mail us for ED stock that went from

32-123 in less than year.!

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