Getting rich in the security industry

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02/24/2010
Martha and I both like to talk stocks. We look at the Stock Watch in the back of our book every month and say things like, "Damn. Broadview's debuting at thirteen bucks? People are going to make a killing on that!" But we don't buy stocks in the companies we cover. That would be more than just a little unethical, for some pretty obvious reasons ("What? GVI's down? Get a story on the cover about a potential acquisition!"). That being said, it's hard not to look at the back of the book and be a little wistful at what might have been. At the bottom of the market, we sat there and looked at companies like Honeywell, UTC, GE, Ingersoll Rand, and Stanley Works and thought, "there's no way in hell those companies aren't worth more than that." So, here's a rough little study of what would have happened if we had acted on those urges, buying $100 worth of each stock listed in our Stock Watch on Dec. 12, 2008 (a randomly chosen day when we gathered numbers for our Jan. 2009 paper) and selling those shares on Feb. 10, 2010 (when we picked numbers for our March paper): Alarm Force - 25 shares bought at $3.89, sold at $7.13 = $178.25 Axcess Inc. - 256 shares bought at $.39, sold at $.32 = $81.92 Brink's Home Security - 4 shares bought at $20.68, sold at $40.63 = $162.52 Cantronic - 454 shares bought at $.22, sold at $.30 = $136.20 Checkpoint - 9 shares bought at $10.36, sold at $15.44 = $138.96 Cogent Systems - 7 shares bought at $13.15, sold at $10.10 = $70.70 Cooper Industries - 3 shares bought at $27.70, sold at $42.45 = $127.35 Diebold - 3 shares bought at $27.65, sold at $27.51 = $82.53 General Electric - 5 shares bought at $17.11, sold at $15.69 = $78.45 Gentex - 11 shares bought at $8.93, sold at $18.53 = $203.83 Henry Bros. - 16 shares bought at $6, sold at $4.11 = $65.76 Honeywell - 3 shares bought at $28.95, sold at $37.32 = $111.96 ImageWare Systems - 416 shares bought at $.24, sold at $.21 = $87.36 Ingersoll Rand - 6 shares bought at $15.63, sold at $33.69 = $200.34 Johnson Controls - 5 shares bought at $18.22, sold at $27.89 = $139.45 L1 Identity - 16 shares bought at $6.07, sold at $8.15 = $130.40 Mace Security - 117 shares bought at $.85, sold at $.97 = $113.49 March Networks - 59 shares bought at $1.69, sold at $4.30 = $253.70 Napco - 71 shares bought at $1.39, sold at $2.12 = $150.52 Optelecom-NKF - 20 shares bought at $4.92, sold at $2.73 = $54.60 Protection One - 19 shares bought at $5.06, sold at $8.90 = $169.10 Richardson Electronics - 36 shares bought at $2.73, sold at $7.50 = $270 ScanSource - 5 shares bought at $18.36, sold at $25.77 = $128.85 StanleyWorks - 3 shares bought at $31.40, sold at $53.77 = $161.31 Tyco - 4 shares bought at $20.72, sold at $34.58 = $138.32 United Protection - 769 shares bought at $.13, sold at $.08 = $61.52 UTC - 2 shares bought at $48.82, sold at $66.64 = $133.28 Verint - 13 shares bought at $7.60, sold at $22.50 = $292.50 Vicon - 16 shares bought at $5.90, sold at $5.30 = $84.80 Viscount - 1428 shares bought at $.07, sold at $.14 = $199.92 Since we had to buy round shares, we had $170 left over from our $3,000 initial investment pool. We'll just put that in a savings account for now. So...., how did we do? Well, we turned our $2,830 invested into $4,207.89, which equals a 48.7 percent return on our investment, or $1,377.89 in hard cash. Not too shabby. The Dow as a whole went from $8,629.68 to $10,038.39, which equals a 16.32 percent rate of return. NASDAQ? It went from $1,540.72 to $2,147.87, a 39.4 percent rate of return. So, the lesson is that the Stock Watch in the back of Security Systems News has out-performed the market significantly, right? I'm not sophisticated enough to do the full analysis here. Is it because of the mix of blue chips and penny stocks our list represents? Is it the security market as a whole outperforming the rest of the economy? I think that last is part of it (with the caveat that I understand GE, Honeywell, UTC, etc., are much, much more than security companies). We've heard that security isn't recession proof, it's "recession resistant." Maybe we're seeing some of that here? Yes, these stocks fell, but they quickly jumped back up, most of them, and I wasn't even going by the 52-week lows (not that anyone is a good enough stock analyst to have accurately predicted each stock's low, of course). I just picked a random day when everyone here in the office knew it was damn close to the bottom (I mean, it had to be, by our way of thinking, but theoretically we could have spiraled further into a full-scale, Russian-style, everybody's taking their money to the store in wheel-barrows depression), and then a random day here when things seem to be coming back around. And I made $1,377.89 in imaginary money. Anybody actually do this in real life? Want to buy me a whiskey at ISC West?