Hedged Portfolio - Undervalued vs. Overvalued

If one runs a portfolio by being long on the undervalued stocks and being short the same amount of overvalued stocks, the performance of the portfolio will be decided by the difference in the performances of the undervalued stocks and overvalued stocks. The shorted stocks serve as the market hedge, and the portfolio will be market neutral. The performances of the general market will not affect the returns of the portfolio.

The performance of this hedged portfolio is from the relative performances of the model portfolios of Undervalued Predictable Companies to Overvalued Predictable Companies.

Questions about how the Model Portfolios were constructed, please the articles listed at the left side menu..

Last Portfolio Rebalance: 2015-01-01

As of July 31, 2015 portfolio is 268.26 (+0.77%)
PerformanceDecember 31, 2010
(July 31, 2015)
Last Change
(July 31, 2015)
% Change
Since Inception
% Change
Since Last Rebalance

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User Comments

ReplyJake75 - 3 weeks ago
should you build a portfolio from the list of 25 (as seen above) or from the screener? If from screener, are they listed in order of best valuation based upon the given criteria? Thx
ReplyJonatslim - 3 months ago
ReplyGurufocus - 3 months ago
@Jonatslim: please look at this: [www.gurufocus.com]
ReplyJonatslim - 3 months ago
Good day.
I recently stumbled upon a pile of cash and wants to build a portfolio based on this 25 stocks. how do i go about building it? should i just buy 1 stock of each company round-robin style until i run out of money?

what is this talk about re-balancing? How is it done? why? how often is it needed?
ReplyGurufocus - 4 months ago
hi Jmjan1,

Yes we rebalance once a year and the performance is calculated daily.

Yes we use the same criteria. The portfolio turnover is around 50% to 70%.
ReplyJmjan1 - 4 months ago

Do you rebalance this portfolio once a year and calculate total return based on every year's portfolio performance?
Each time you use same criteria "the most undervalued or peg" to pick up top 25(just over-write the old list)? If so, I guess each
year the list could change a lot, and most companies will be replaced?

ReplyJmjan1 - 4 months ago

Does you rebalance this portfolio once a year and calculate total return based on every year's portfolio performance?
Each time you use same criteria "the most undervalued or peg" to pick up top 25(just over-write the old list)? If so, I guess each
ReplyDrKrullebol - 4 months ago
Respecting Canadian stocks -what currency? US$ or Can$
ReplyBatbeer2 - 6 months ago
Hi Abhunia,

In response to your topic about the less-than-stellar performance of the buffet-munger screener in the last two years.....

I think it is logical that no rational strategy will work in an irrational market or as I sometimes put it:

In a room full of idiots, you will have problems regardless of the level of your own rationality.

Now the question is, are we in a rational environment today? It is a question I'm still trying to figure out but I can tell you that the market today is far less rational than it was in 2008/2009. Back then only value investors would dare to invest and as market participants go, they are a fairly predictable bunch.

Now you have all sorts of investors piling in and as a group the behaviour of the market participants is becoming increasingly unpredictable.

In short,
To me the question is not whether a different strategy would work better under current conditions but whether it likely that any rational strategy would work. If the answer to that question is yes, then it would make sense to put in an effort to figure out which strategy that would be. If not, not.

Of course there are also irrational strategies. I have a friend who has been highly successful with what I would consider irrational market behaviour. I.e, buying stocks that he knows to be terribly expensive and which he believes will become even more expensive. He is very good at that and he has had some very impressive returns in recent years.

I would rather not do that. My sanity is worth more to me than my portfolio.

Just some thoughts.
ReplyYoramhtm - 6 months ago
Thank you
ReplyGurufocus - 6 months ago
P/S portfolio is now rebalanced.

No changes to criteria, just we now have better data coverage to OTC stocks, so some of them may show up.
ReplyAbhunia - 6 months ago
Hi GF and GF community, a topic i wanted to raise to get some feedback and spur some general discussion about this topic. I have noticed that the Y-Y return since Jan 1, 2014 is very marginal and is trailing the S&P. This could reflect that perhaps the buffett-munger screener approach with a 1 year refresh does not work very well in a growth environment (like what we have now in the US markets) as opposed to investing at times when we had more deeper value opportunities (like in 2009, 2010).
ReplyYoramhtm - 6 months ago
I would like to remind that we are still awaiting your reply to our mails regarding the P/S Rebalance 2015-01-01 .
Your early reply will be greatly appreciated.
ReplyJeffm30 - 6 months ago
As Yoramhtm inquired, the Historically Low P/S portfolio has not been rebalanced (shows last rebalance 2014-01-01).

Also, the Hist Low P/S portfolio, the Hist Low P/B portfolio, and the Undervalued Predictable portfolio include several OTC foreign stocks and ADRs that were excluded from prior year portfolios. Is this an error or a change in portfolio criteria?
ReplyYoramhtm - 7 months ago
What about P/S Rebalance 2015-01-01 ??
Thank you/
ReplyJrandall06 - 7 months ago
So just to confirm, this portfolio says "Last Portfolio Rebalance: 2014-01-01." Is this because no changes were made for 2015? Thanks
ReplyGurufocus - 7 months ago
2015 model portfolios ate updated.
ReplyJeffm30 - 7 months ago
Hey GF, are you planning to update this????
ReplyNoonehome - 8 months ago
SYNT shows an overall change of -50.96%. I believe this -50% is actually just a 2-1 split that hasn't been adjusted for.
ReplyGurufocus - 11 months ago
ABBV was a spinoff. The cost was calculated from the spinoff ratios.
ReplyRamos285 - 11 months ago
Reply4r4g0rn - 1 year ago
@Ramos285 Did you get an answer already? I also can't find the price of 19,99 for ABBV on June the 18th?
ReplyRamos285 - 1 year ago
I would like a answer
ReplyRamos285 - 1 year ago
share cost ABT IN 1/1/2014 is not 18.34 you are very wrong and the profit is not 121.05%.Whats happen with you???????????
ReplyMquanbeck - 1 year ago
why is VIFL in ths buffet/munger port....the company has been sold
ReplySweq - 1 year ago
Gurufocus -
can you please answer to my question below whether the price data of the strategies above are downloadable in Excel format to conduct some further analysis. This would be highly appreciated. Many Thanks!
ReplyGurufocus - 1 year ago
Disclosure: GuruFocus founder Charlie Tian has a large portion of his personal investments in this portfolio.
ReplyGurufocus - 1 year ago
"Is this EBITDA per share annualized compound growth rate of last 6 years having the same calculation (except for the number of years) as the EBITDA growth rate of the last 5 and 10 years that are published on this web site?"

ReplyChikstah - 1 year ago
Hi Gurufocus, thanks for your answer.

Is this EBITDA per share annualized compound growth rate of last 6 years having the same calculation (except for the number of years) as the EBITDA growth rate of the last 5 and 10 years that are published on this web site?
ReplyGurufocus - 1 year ago
Sorry for the confusion. Here is some clarifications:

1. Since we started Buffett-Munger model portfolios 5 years ago, we never changed rules.

2. Since in predictability rank, we separate the last 11 years of business into first half and second half, the EBITDA growth rate we use is actually the EBITDA per share annualized compound growth rate of last 6 years. This number is not published anywhere on the website.

3. This growth rate needs to be higher than 10%, and lower than 31%.

Here are the details of the rates:

1 : IPAR: 28.40
2 : WTW: 20.70
3 : GSOL: 14.30
4 : ITUB: 26.10
5 : TGA: 25.20
6 : SNP: 16.80
7 : ARLP: 20.40
8 : DE: 11.70
9 : MTSC: 15.00
10 : NICK: 12.10
11 : PRAA: 20.80
12 : BBBY: 19.10
13 : TLF: 17.00
14 : ROST: 26.60
15 : AZO: 22.50
16 : CCF: 11.50
17 : DLTR: 23.80
18 : NTAP: 20.40
19 : AHGP: 20.50
20 : ORLY: 24.00
21 : GIL: 12.90
22 : SYNT: 21.30
23 : HIBB: 20.70
24 : VIFL: 22.60
25 : TJX: 21.60
26 : ORCL: 15.20
ReplyThomas.motti@google - 1 year ago
Even for the 10Y EBITDA growth rate, the rule seems not to be true:

SNP, 6th position in the screener, has a 9.7% 10Y EBITDA Gr
MTSC, 9th position, has 7.5%
TLF, 13th position, has 8.7%

ReplyChikstah - 1 year ago
Does this rule apply to the 10 years or the 5 years EBITDA growth rate?
ReplyThomas.motti@google - 1 year ago
Hi Gurufocus,

could you please do a double check of the results of the B-M screener because it seems that this rule "The range of EBITDA growth rate is between 10% to 30%" is not true.

IPAR, that is in the 1st position in the screener, has a 40.2% 5Y - EBITDA growth rate
WTW, 2nd, has 30.1%
MTSC, 9th, has 31.4%

ReplyBatbeer2 - 1 year ago
>> In the latter case the performance of the strategy could easily replicated with an index ETF which is slightly levered. But is would not be a superior strategy.

That's just not true. But maybe that's a subject for another thread.
ReplyChikstah - 1 year ago
Dear Gurufocus,

This means that the behaviour of B-M Screener has changed: in my snapshot of 3 January, AAPL was part of the B-M screener results with a 10 years EBITDA growth rate of 60. Or do I miss here something?
ReplyThomas.motti@google - 1 year ago
Hi Gurufocus,

Thanks for the explanation: I was missing this info.

ReplySweq - 1 year ago
Maybe I have not yet seen it, but the performance stats of a strategy vs an index should always include at least some basic rsik measures, i.e. at least standad deviation, beta and correlation to get some insight on risk-adjusted performance.

It is essential to understand whether the superior performance is a result of true excess returns or just because of a beta which higher than 1. In the latter case the performance of the strategy could easily replicated with an index ETF which is slightly levered. But is would not be a superior strategy.

The presentation of results without these risk measures is just not fair (especially for unexperienced users) as it might be misleading and suggest a superior strategy which might not be superior at all.

Is it at least possible to download the chart data to calculate some own stats? Thanks
ReplyGurufocus - 1 year ago
hi Thomas,

they are displayed corrected. Buffett-Munger screener excludes companies that grow too fast, or too slow. The range of EBITDA growth rate is between 10% to 30%.
ReplyThomas.motti@google - 1 year ago
Hi Gurufocus,

thanks for the answers but it seems that the B-M screener is not covering the entire range of stocks.

Example: AAPL
P/E: 13.7
5Ys EBITDA Growth (%): 49.4
PEPG: 0.277

It should be in the 3rd position but it is not displayed in the screener.

P/E: 15.5
5Ys EBITDA Growth (%): 106
PEPG: 0.146

It should be in the 1st position but it is not displayed in the screener.

Could you please do a double check? May be the stock data of the examples above are not displayed correctly in the 10-y financial page.

ReplyChikstah - 1 year ago
I have the same question as Thomas with respect to the Undervalued Predictable Model Portfolio. I took a snapshot at 3 January 2014 of the Undervalued Predictable Screening: WTW was number 10 (currently number 11), CA number 16 (currencly number 18), MDT number 18 (currently number 20), RL number 19, TJX number 20, etc. They are all not part of the current (at 7 January 2014) model portfolio.
ReplyBatbeer2 - 1 year ago

The model portfolio now seems to reflect the screener as it was at the start of the year.
Is it possible to fix the performance too?

It now shows the performance since january 6 so we're missing a few days.
ReplyGurufocus - 1 year ago
Ok. The portfolio is now updated. We had a bug in the data as we switched our data source last year. Sorry for the confusion.
ReplyGurufocus - 1 year ago
We will get back to you on Thomas' questions. Please hold.
ReplyEpsinv - 1 year ago
Same question as Thomas. We need an explanation because real money is on the table.
ReplyBeltrancaceres - 1 year ago
I Am awaiting for answers here as well.
what were the criteria used in choosing from the screener?
ReplyAbhunia - 1 year ago
Gurufocus, your reputation is on the line with your paid subscribers - please clarify Thomas's question below as it is extremely important for subscribers like us who follow this portfolio's rebalancing every year. I need to also know what criteria you have used as i agree with Thomas, it is different from the top 25 PEG undervalued stocks from the BM screener
Reply2008oak - 1 year ago
Thomas's question needs to be answered, besides continuing to hold last years stocks that are in the year end screener what criteria is used to pick the replacement stocks for the Buffett-Munger rebalance since most of the top ranked stocks did not end up in the portfolio. The only explanation to why these highly ranked stocks did not show up in the portfolio is that some other criteria is more important than the rank. Please explain.
ReplyMquanbeck - 1 year ago
ReplyThomas.motti@google - 1 year ago
today 1/1/2014 is the day of rebalance but it seems that you did not add the top 25 most undervalued stocks from the Buffett-Munger screener.
Below the top 25 list:

Pos. Symbol Company PE/5-Year EBITDA Growth Rate
1 TTM Tata Motors, Ltd. 0.15
2 IPAR Inter Parfums, Inc. 0.19
3 GOLD Randgold Resources Ltd 0.19
4 WTW Weight Watchers International, Inc. 0.27
5 AAPL Apple Inc 0.29
6 GSOL Global Sources, Ltd. 0.32
7 ITUB Itau Unibanco Holding SA 0.33
8 TGA TransGlobe Energy Corporation 0.34
9 CACC Credit Acceptance Corporation 0.40
10 ARLP Alliance Resource Partners LP 0.45
11 DE Deere & Co 0.53
12 MED Medifast, Inc. 0.60
13 MTSC MTS Systems Corporation 0.62
14 NICK Nicholas Financial, Inc. 0.64
15 PRAA Portfolio Recovery Associates, Inc. 0.65
16 JOBS 51job, Inc. 0.67
17 BBBY Bed Bath & Beyond, Inc. 0.68
18 TLF Tandy Leather Factory, Inc. 0.70
19 AZO AutoZone Inc 0.73
20 ROST Ross Stores, Inc. 0.73
21 FFIV F5 Networks, Inc. 0.79
22 DLTR Dollar Tree Stores, Inc. 0.79
23 NTAP NetApp, Inc. 0.84
24 ORLY O'Reilly Automotive Inc 0.85
25 AHGP Alliance Holdings GP, L.P. 0.87

Please let me know if I'm wrong.

ReplyPeticolas - 2 years ago
Yes. Back of the envelope calculation shows S&P 500 up 13.25% from Jan 2 to Jul 3. This portfolio was up only 7.28%! And this is before the accounting issues were revealed at WRLD, which really took a beating on 7/5. Yes. Annual and YTD calculations would be useful.
ReplyPeticolas - 2 years ago
It would be helpful if you broke down performance by year. You have tinkered with this tool over time, most recently to include more international stocks. An annual breakdown would help us evaluate whether the changes have affected this tool. It looks to me like the 1/1/13 portfolio has actually lagged badly behind the S&P 500 for the first six months of the year.
ReplyAbhunia - 2 years ago
Thanks for the explanation, it makes complete sense now.
ReplyBatbeer2 - 2 years ago
Hi Aninda,

The model portfolio simply reflects the result of the screener on January 1 of each year. At yearend, the portfolio is liquidated and the money is invested in the a new set of stocks.


A stock that was in the portfolio before and shows up in the screener on January 1, is left untouched. It is left to compound. One example is World Acceptance Corporation (WRLD). This stock was bought in 2009 and has been in the model portfolio ever since. The reason for this is that the screener has consistently "recommended" WRLD on January 1 of each year since 2009.

The newsletter does not generate ideas for the model portfolio. It's the reverse. Any stock in the model portfolio has been consistently profitable over many years. The newsletter is low-level analysis of the drivers of past profitability. This should help to understand the sustainability of profitability going forward.

Hope this helps.

Feel free to drop me a message if you have further questions about the newsletter, the portfolio or the screener. You can find my e-mail adress in the newsletter or on my profile on this site.
ReplyAbhunia - 2 years ago
I am trying to understand how the annual rebalance on the gurufocus model portfolios works. Can you please explain how GuruFocus rebalances at the beginning of the year. For e.g. lets assume we start with 100K and there are 24 stock picks by year end in the Buffett-Munger newletter recommended for 2012, How does Gurufocus determine which stocks to sell from its existing portfolio and which ones to add in Jan?
Thanks for the assistance
Aninda (a premium member)
ReplyCirros - 2 years ago
why is the return for the S&P 500 your showing 6.4% when the index is up according to CNBC and Morning Star is only up 5.2%
ReplyZollaron - 2 years ago
ReplyPort4olios - 2 years ago
Are you comparing total return for the portfolio with the price-only return for the S&P 500 in the performance section?
ReplyGurufocus - 2 years ago
The model portfolios uses the top 25 stocks on the day of rebalances.
ReplyUse13usa - 2 years ago
What are the reasons for not adding TEVA and WDC to the Undervalued-Predictable Companies portfolio?
ReplyUse13usa - 2 years ago
Why was BIG not added to the portfolio even though it has a top three valuation and appeared on the November 2012 issue of the Buffett-Munger Bargain Newsletter?
ReplySupersmatt - 2 years ago
Actually the problem may be that when you click on the excel download icon the data that comes out is different to the above (in fact there are 30 stocks in teh excel file, not 25 as above).
ReplySupersmatt - 2 years ago
Why is the new portfolio above different to the results of the Buffet-Munger screener as of today? The screener currently outputs :
Reply2008oak - 2 years ago
Is there a way to see the holdings of the Buffett-Munger portfolio for each year since it was started? All I see is the portfolio since the beginning of the year.
ReplyGurulands - 2 years ago
The percentage increase for CPRT is not accurate. It should be greater than shown.
ReplyLwelch80 - 3 years ago
When I look at the cost basis of assets in the portfolio, the total adds up to 143783.43 vs. 100,000 reported on the portfolio. Can you help me understand why there is a difference in cost basis on these assets. Given the information provided above there is a 23.31% increase in the value of the portfolio.
ReplyShb600 - 3 years ago
BF.A BF.B are the same company should be only one to be consistent
ReplyGurufocus - 3 years ago

the equal weighting only applies to new stocks at rebalance. if a stock is still in the portfolio at rebalance, its weighting is not changed.
ReplyTradingaccount03 - 3 years ago
just looked at the model portfolios again...I see. Similar to Max 7777's question...for those who wish to know...the portfolio selects the number of shares so that all constituents roughly have the same weightings at the start of each year... rgds
ReplyTradingaccount03 - 3 years ago
Can you explain how you determine the individual weightings (initially and if there are any changes when you do the annual rebalance) for the model portfolio (use any as an example please).
ReplyAspenhawk - 3 years ago
As I Come late to the party, which stocks should I buy now ? Already bought ESI-GD-ITT-WRLD.
ReplyDonale - 3 years ago
John Wiley & Sons, Inc. is displayed in the Buffet-Munger Bargains Newsletter with a current price of $47.12.
In the Portfolio the Stockprice is lower ($44.4)
Same for ITT Educational Services Inc.

Is that becouse of the rebalancing on 1st january?
ReplyJeisen - 4 years ago
June 27, 2011: Am I reading this correctly? - Your "short" strategy is actually up 13+% if you were long? -

Also, Dionex is not valued at $0.... it was purchased at a value of $118.50/share, per WSJ. (deal completed May 17, 2011)...so the short portfolio is even better that +13% YTD
ReplyGurufocus - 4 years ago
Once a year only during the new year holiday.
ReplyAvadhut - 4 years ago
How frequently the stocks in the portfolio are changed?


ReplyL.novak - 4 years ago
do you have a list of stocks selling below tangible book value? [email protected]
ReplyHarney246 - 5 years ago
Please add Excel download option to this portfolio.

ReplyRckymtns - 5 years ago
this chart does not seem to reflect the buffett-munger screener but the midcap s&p 500
ReplySuperguru - 5 years ago

Based on results, guru bargains seem more like guru mistakes. Though some of the stocks here may have strong upside going forward assuming worst is behind us.

I am new. How are other members using this screen?
ReplyGurufocus - 6 years ago
fixed! sorry about that.
ReplyDwiprut - 6 years ago
Gurufocus - Why can't I see the holdings in the model portfolios anymore? I used to be able to see the holdings, but now there is a link telling me to log in. However, I'm already logged in and following the link does nothing but bring me back to the home page.
ReplyGurufocus - 6 years ago
This page has been updated, to add the tabs in charts. Two other model portfolios are added. One is for the Buffett-Munger Screener, the other is for Undervalued Predictable Companies.
ReplyCm1750 - 6 years ago
Can we have a 1 year chart of the most-weighted and broadest held stocks as of 12/31/07 so we can see how guru stocks did over the past year?
ReplyStevehem - 6 years ago
this is the portfolio which has the guru's largest aggregate holdings. The 'broadly held' portfolio is the one where the largest number of gurus have at least one share.
ReplyMax7777 - 6 years ago
Can you expend on how this portfolio was made, how you picked the number of shares and also what is the difference between broadest portfolio and consensus portfolio. (In my mind, the most broadly held 25 stocks should also be the ones with biggest consensus, but I must be wrong)

Since this portfolio did the best, is there any prior data to see how it performed in other years and how it did in up markets vs down markets.
ReplyBmachtig - 6 years ago
how has this list done for 2008? 2007? 2006? YTD2009?

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