CPI Incorporated (NYSE:CPY) – One year ago

I was the first person to give a buy recommendation of CPY on a public message board (to my knowledge), by I can’t take all the credit because I learned about the company from a well known value investor who purchased the company when it was trading for around $14 per share and sold it at approximately $12 per share when the recession occurred; incidentally, he recently took a position on March of 2010 at $13.xx per share. At that particular time, before my knowledge of that investors position, I was in Wal-Mart doing some shopping and noticed the utterly HUGE line at the photo division. I wanted to know who ran it. Was it Wal-Mart or was it a sub-contractor? I did some investigating and found out the company was called CPI Corp. That evening, I did a scan of the SEC.GOV website to see who owned shares of CPY. I didn’t find much info so I wandered over to GURUFOCUS.COM and typed in the ticker. I found that the renowned, but little known to many, value investor  Arnold Van Den Berg held a position in the company a few months prior but had sold out during the “mid-recession” point. I grabbed a copy of the 10Q and 10K filings and went to work because, in my mind, the company couldn’t be that bad..just look at the huge line at Wal-Mart. I found many things about the company including a very large moat. After my thorough research, I took a position at $1.xx (don’t remember precisely and don’t have time to look it up) and valued the business to be worth at least $25.00 Per share. Today, the stock closed at $26.xx per share so I felt inclined to talk about it here. When I purchased it, it was offering a 50% annual dividend yield that, I found, very few people believed would be sustainable. I’m not writing about this so much as to brag (although I kind of am) but to make the “investor” aware (Benjamin Grahams definition – not Wall Streets) that he will come up against much unfortunate adversity over the internet community but if he adheres to a strict discipline and not allow himself to get confused and second guess himself, he’ll do just fine. 50% of investing is to know what you’re doing and the other 50% is to control what you’re doing. With that, here are excerpts of my conversation with other investors during the time CPY was trading for a little over a buck per share.

November 25th, 2008 ME: “Woops, I almost forgot one of the most important aspects to buying this stock. For the last 28 years CPI has increased its quarterly dividends from $0.10 – $0.12, $0.12 – $0.14, & $0.14 – $0.16 per share. Not once have they stopped paying a dividend nor have they decreased a dividend in the last 28 years. I’m using 28 years because that’s as far back as I have information on the company. The catalyst and the icing on the cake is that you can safeguard your return through their dividend by receiving more than 50% per year on every dollar you invest in this company through their dividend payout. So, if the stock doesn’t go to at least $20 per share like I believe it will, you still wouldn’t lose anything because the dividend pays 50% per year on the dollar. This is not a stock you trade. This is a stock
you hold forever and become very wealthy.“

November 25th, 2008 jimmygoa…: “wow mr., you so smart.  you sell fortune cookies too?  you must be very wealthy with all your wisdom.  i be sure to follow you on all your posts, you so smart”

November 25th, 2008 cfren…: jimmygoa :  “Following him will ultimately lead to being broke!!!
Follow his posts… He has never made a profit ever since I started
posting… He is a wise ass with a quick response to everything.. He
says he is a value investor but only buys stock that are crap… CROX
for example.  I got pretty tired of debating with him .. Read his
posts and then mock him…. I must say however he is pretty funny with
all his virtual millions thinking he is superior to Warren Buffett..”

November 26th, 2008 jimmygoa…: ” Just following you with your witty sacarism.  If you can’t help others, I’ll just follow you where ever you go so others can see you know nothing about nothing!  Not as transparent as you think you are………….  ;-)  BTW, nice info you posted here on CPI this week.  Really kickin tail, huh?  Loser”

November 26th, 2008 ME: “I bought CPY at $1.26 p/s. I’m receiving a 50.79% dividend from a company who has never lowered or not payed a dividend in 28+ years on top of free cash flows that currently are worth $29 per share. I don’t get paid d to give advice to people so the fact that you follow me around does nothing for me. Follow all you like but it says allot about who and what you are.”

The conversation went on for a few more days until I got tired of it and started ignoring them. Shorty after on December 9th, 2008 these two posters left the conversation entirely (due to an “unusual” circumstance in which the stock rose sharply) and other posters came online. This is what one of those posters said and the rest is, as they say, history.

December 9th, 2008 adrian97ma…: “Wow WTF just happen I miss out again! Is there anything in particular that causes this jumps?”

On November 25th, 2008, when the ridicule from these “genius” online investors (day traders) took place, CPY was trading for $1.09 per share. Shortly after, on December 9th, 2008, CPY was trading for $2.65 per share; enough for the day traders to stop posting altogether.

Over a year later, today the stock is trading for $26 per share. If you had invested $10,000 on November 25th, 2008, today it would be worth $243,394.50 + an additional amount of approximately $26,200 in dividend payments for a total of $269,594.50. $41,100 would have made you a Millionaire and $41 Million would have turned you into a Billionaire. I’d put that investment record up against any day trader alive or dead.

Lesson: Don’t be discouraged. The majority knows a lot about lip service and very little about business.