You can find the detailed performance numbers in the value strategies page.
Since inception in 2009, the Buffett-Munger Top 25 and Top 25 Undervalued Predictable Companies have outperformed the market cumulatively by 25.9% and 49.8%, respectively. The low P/S and low P/B portfolios have outperformed 9.9% and 7.3% cumulatively since 2010.
Among the four value strategies, the Buffett-Munger top 25 idea portfolio has shown the lowest volatility and the most consistent performance. It has outperformed the S&P 500 every single year since inception in 2009. The other three portfolios underperformed slightly in 2011. They have more than made up their 2011 underperformance this year.
All of these portfolios are rebalanced just once a year. During the January 2012 rebalance, 13 out of the 25 stocks in the Buffett-Munger portfolio were replaced. Therefore the annual turnover is slightly above 50%. Among the best performers this year are BioReference Laboratories Inc. (NASDAQ:BRLI), which gained 21.6%, and Express Scripts Inc. (NASDAQ:ESRX), which gained 16.2%.
The outperformance of these strategies is achieved by focusing on high-quality companies that are traded at fair or undervalued prices. Thus we believe that the portfolios also carry smaller risk than the general market.
Among all these strategies, we like the Buffett-Munger portfolio the most. As mentioned above, this portfolio invests in the top 25 stocks in the Buffett-Munger screener and is rebalanced once a year. The reasons are:
1. These companies are of high quality. They can grow their revenues and profits consistently.
2. These companies can maintain and even grow their profit margins over time. They have the “moat” that prevents others from entering their market.
3. They incur little debt while growing business.
4. They are at the low end of their historical valuations.
They may not have the market momentum with them, and they may face headwinds which bring the valuations low. But if business continues to grow, we believe it is safer to invest in these companies. Indeed, these companies have outperformed the market every year since inception.
These companies also outperformed the market by wide margins over a long period of time in our backtesting. For details, go to: What Worked in the Market From 1998-2008? Part II. Undervalued Predictable Companies and Buffett-Munger Screener.
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