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Model Portfolio Review - June 11, 2013
Posted by: Vera Yuan (IP Logged)
Date: June 12, 2013 05:11PM

In recent five years, the S&P 500 gained 24.71% in 2009, 11.65% in 2010, 0% in 2011, 12.1% in 2012 and 17.14% until now. The market performance looks good. Could investors make more money by investing in GuruFocus Model Portfolios? It is time to check the performances. The following are the details of the performances of the four value strategies:

Value Strategies (Long):

Year S&P 500 Buffett-Munger Screener top 25 Top 25 Undervalued Predictable Companies Top 25 Historical Low P/S Ratio Companies Top 25 Historical Low P/B Ratio Companies
2009 24.71% 28.65% 55.72%
2010 11.65% 19.54% 20.17% 19.05% 16.39%
2011 -0% 6.01% -3.32% -2.01% -1.87%
2012 12.1% 11.01% 3.95% 16.34% 16.45%
2013 17.14% 11.99% 14.62% 17.54% 15.67%
Since Inception 102.68% 115.56% 59.52% 53.84%
Outperforming S&P 500 19.84% 32.72% 12.91% 7.23%
Screener Links Screener Here Screener Here Screener Here Screener Here
* All numbers do not include dividends.

In the first half of 2013, we can see that among the four model portfolios, the portfolio of Buffett-Munger Screener underperformed the S&P 500 by 5.15%, while the other three model portfolios are about even with the S&P 500.

The "Buffett-Munger Screener" can be used to find companies with high-quality business at undervalued or fair-valued prices:
  1. Companies that have high Predictability Rank, that is, companies that can consistently grow their revenue and earnings.
  2. Companies that have competitive advantages. They can maintain or even expand its profit margin while growing its business.
  3. Companies that incur little debt while growing business.
  4. Companies that are fair valued or under-valued. We use PEPG as indicator. PEPG is the P/E ratio divided by the average growth rate of EBITDA over the past five years.
From the back testing study from 1998 to 2008 we have found strong correlations between the predictability of businesses and the long-term return of stocks. The group of undervalued highly predictable companies performed the best. This group had an annualized gain of 20%, while the market just averaged 2.7% a year.

For details, go to: What Worked In The Market From 1998-2008? Part II. Under-Valued Predictable Companies And Buffett-Munger Screener.

Both of the portfolios of Buffett-Munger Screener Top 25 and Top 25 Undervalued Predictable Companies were started in January 2009. Since inception, the Buffett-Munger portfolio gained more than 102.68%, while the S&P 500 gained 82.84%, yet it slightly underperformed for the first half of 2013. The portfolio of Top 25 Undervalued Predictable Companies has gained 115.56% since January 2009, even higher than the returns of the Buffett-Munger portfolio in the same period.

Both the Buffett-Munger Screener and Top 25 Undervalued Predictable Companies select stocks from the companies that have the highest predictability rank. Top 25 Undervalued Predictable Companies Portfolio selects the stocks that are undervalued from DCF calculations. For the current list of undervalued predictable companies, go to the screener.

The other two model portfolios are for predictable companies that are traded at historical low P/S and historical low P/B ratios, respectively. Both of these two portfolios outperformed the market average in 2010, but were about even with the market year-to-date.

Please read Stocks Traded at Historical Low Price/Book Ratios: RGLD, AZN, ABT, JNJ, WMT for some of the stocks in the list. Go to historical low P/B ratios for the complete list.

All the portfolios are rebalanced once a year; therefore, no portfolio changes will be made at this time.

From above analysis, we can see for a single year, the performance of our portfolios may not beat the market, yet in the long run, it is profitable to invest using our model portfolios.

This is the summary of the four value strategies mentioned above:

1. Buffett-Munger screener: Invests in predictable companies that have low debt, consistent profit margin and are traded at low PE to growth ratios.

2. Undervalued Predictable Companies: Invests in predictable companies that are undervalued based on the DCF model.

3. Historical low P/S: Companies that have high predictability rank, but are traded at historical low P/S ratios.

4. Historical low P/B: Companies that have high predictability rank, but are traded at historical low P/B ratios.

GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.


Stocks Discussed: SPY, DJI, QQQ,
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