A DIY Guide on How to Invest Using Guru Strategies


You have seen how our Guru Strategies’ model portfolios outperform the market, and you are thinking of investing using them as a basis. This is a step by step guide on how to invest in the stocks in these portfolios with real money, and achieve similar results.

Four (or three) easy steps:

  • Choose the Gurus you would like to include for your portfolio. (Skip this if you want to use the default List of Gurus.)
  • Go to the Aggregated Portfolio of Gurus, and find out the top 25 stocks in the list. (The first two steps require GuruFocus Premium Membership.)
  • Invest 4% of the fund into each of the top 25 stocks.
  • Repeat this once every 12 months.

 

Who Should Invest in Guru Strategies?

If you have a portion of your portfolio invested in an index fund, or in mutual funds that have performed poorly since 2007, you may consider instead investing with Guru Strategies. Guru Strategies will most likely outperform the market average, and it is more tax efficient.

Compared to investing in an index fund, Guru Strategies' model portfolios are based upon the portfolios of money managers who consistently beat the returns offered by index funds. Unlike investing in mutual funds and hedge funds, you pay absolutely no management fees to invest with Guru Strategies. Typically, these fees consume at least 0.2% of a mutual fund’s portfolio every year.

Compared with actively managed mutual funds, you are likely to beat most of them over a period of 3-5 years, since Guru Strategies portfolios employ the best ideas of the most successful money managers in the industry. You do not need to pay the 1% plus management fees that come with the actively managed mutual funds. You can manage your portfolio’s capital gains according to your own tax situation, and be more tax efficient.

The only cost to you is the GuruFocus Premium Membership fee of $349 a year. Consider all the other features included in your premium membership. (This is the link for the Free Trial)

Decide Which Strategies to Invest with.

Since its inception in 2006, the “Guru Broadest Owned Portfolio” has outperformed the market in six out of the last 7 years. We believe this portfolio will continue to outperform, since this is the portfolio that is based upon the most strongly-held of its Gurus’ convictions. Shown below is the daily updated performance of the portfolio:

Decide How Many Stocks to Hold.

Since we want to concentrate on the Gurus’ best ideas, we do not want our portfolios to be over-diversified. Instead, they should be diversified just enough to reduce the risk associated with individual companies. We choose to have 25 stocks in the “Guru Broadest Owned Portfolio.”

Find Out the Current List of Stocks

If you do not know which gurus to emulate, just use the default List of Gurus. The performances of the model portfolios are for the default List of Gurus.

If you know which gurus you want to include for the “Guru Broadest Owned Portfolio”, go to the Aggregated Portfolio of Gurus, select the gurus you want to include, and find out the top 25 stocks in the list.

Once you are ready, invest 4% of your portfolio’s cash in each of the 25 stocks. If you have new funds coming in, always invest 4% evenly into each of them.

Rebalance

Although Guru portfolios are updated once a quarter, we recommend you rebalance your portfolio once a year. Gurus generally do not change their most strongly-held investment ideas that frequently. It is also more tax efficient to hold the investment for longer than twelve months.

Strategically sell the “losers” before the end of the twelve months but sell the “winners” after the end of the twelve months. In this way you pay capital gains tax at the lower long-term rate instead of the higher short-term rate. We wish you success!

Summary:

  • Choose the Gurus you would like to include for your portfolio. (Skip this if you want to use the default List of Gurus.)
  • Go to the Aggregated Portfolio of Gurus, and find out the top 25 stocks in the list. (The first two steps require GuruFocus Premium Membership.)
  • Invest 4% of the fund into each of the top 25 stocks.
  • Repeat this once every 12 months.

 

These are some FAQs we received from interested users:

1. How many stocks should I invest in GuruFocus Value Stratgies?

We recommend 25 stocks in the portfolio. Twenty-five stocks are reasonably diversified to mitigate business risk of individual stocks, but enough to take advantage of the systematic outperformance of the strategies.

2. What is the recommended minimum investment in USD for Buffet-Munger portfolio?

There is no actual minimum amount required. But we recommend that the portfolio needs to be large enough so that trading cost is less than 1% of the total portfolio.

3. How often are model portfolios rebalanced?

The portfolio is rebalanced once a year, at the beginning of the new year.

4. How much is the portfolio turnover historically?

Historically the portfolio turnover is about 50% per year.

5. The portfolio has been in place for several years. Can I start now?

You can start any time. The way to get started is to buy the top-ranked 25 stocks in the Value Strategies. The positions are equal weighted.

6. Can we apply this strategy to both tax-deferred and taxable accounts? Although it seems to better suit taxable accounts, it is relatively tax efficient as well.

It works for both tax-deferred and taxable accounts. In the taxable accounts, you can sell the losers that are ranked out before the year-end to take the tax loss.

7. How do I adjust weightings of the positions at rebalance?

Don’t trade any of the stocks that are still in the portfolio during rebalance. Sell those that are ranked out. Buy the new stocks equal weighted with the fund that are from the sales.

8. How do I add new money?

Buy the 25 stocks that are in the portfolio and keep the weighting unchanged.

9. Do we need to check for these signals constantly?

No. You are buying good companies at reasonable prices. You can sleep well.

10. If the market crashes, will GuruFocus Value Strategies lose money, too?

Very likely. But we believe that GuruFocus Value Strategies will hold better than the market.

11. Will GuruFocus Value Strategy outperform the market every year?

Unlikely. We don’t believe that any strategy can outperform the market every year. But we do believe that these value strategies will outperform significantly over time. The portfolio carries a smaller risk than the general stock market.

These Value Strategies tend to outperform much more when the market is undervalued.

12. Do people at GuruFocus invest in these model portfolios?

Yes. GuruFocus founder Dr. Charlie Tian puts his own money in Buffett-Munger Strategy. If you want to know how Charlie thinks, read A Message from Charlie.

Again if you want to invest with GuruFocus Value Strategy, now it is the best time. We are getting ready for the rebalance of the portfolios. An email alert will be sent to you on the day of the rebalance.

GuruFocus Premium Membership is required to gain access these strategies. If you are not a Premium Member, we invite you for a 7-day Free Trial.


Portfolio Performances:

(All Numbers do not include dividends, updated daily)
YearS&P 500Broadest Held PortfolioOutperformance
200613.6215.18%1.56%
20074.24-5.47%-9.71%
2008-38.91-29.98%8.93%
200924.7130.7%5.99%
201011.6514.63%2.98%
2011-00.54%0.54%
201331.830.85%-0.95%
20147.919.01%1.1%
Cumulative60.62%63.8%3.18%

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