Among all GuruFocus value strategies, Buffett-Munger portfolio gained 6.3% year to date, outperforming the market by 6.6%. Since incepted in Jan. 2009, this portfolio has outperformed the S&P500 every year. It gained 63.41%, while S&P 500 gained 38.75% in the same period. All numbers do not include dividends. The high quality of this portfolio contributed to the performances. Companies such as First Cash Financial Services Inc. (FCFS), FactSet Research Systems Inc (FDS), Church & Dwight Co. (CHD) have gained more than 50%. World Acceptance (WRLD), one of the most controversial position, gained more than 242%.
Portfolio of Undervalued predictable companies underperformed the market slightly this year. But since incepted in Jan. 2009, this portfolio has gained 79.22%, more than the 63.41% of Buffett-Munger portfolio’s 50.16% and S&P500’s 38.75%. This portfolio models the predictable companies that are sold at the largest discount relative to its intrinsic value. This is the screener for these stocks.
Two model portfolios that performed especially well are the portfolios of Top 25 Historical High P/S Ratio Companies and Top 25 Overvalued Predictable Companies. These are high qualities that are sold at historical high valuations. We thought that these companies would decline more during market corrections. But they actually hold much better than the market average. Therefore, they cannot be used at hedges, as we originally planned.
Among all value strategies, the Buffett-Munger model portfolio has performed the best year to date. "Buffett-Munger Screener" can be used to find companies with high-quality business at undervalued or fair-valued prices:
- Companies that have high Predictability Rank, that is, companies that can consistently grow their revenue and earnings.
- Companies that have competitive advantages. It can maintain or even expand its profit margin while growing its business
- Companies that incur little debt while growing business
- 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 5 years.
From the back testing study from 1998-2008 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.
These are 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 traded at low PE to growth ratios.
2. Undervalued Predictable Companies: Invests in predictable companies that are undervalued based on DCF model.
3. Historical low P/S: Companies that have high predictability rank, but traded at historical low P/S ratios.
4. Historical low P/B: Companies that have high predictability rank, but traded at historical low P/B ratios.
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