As stock market pulls backs from its all time highs, GuruFocus Buffett-Munger model portfolio starts to outperform again for the year. As of market close yesterday, it outperformed the S&P 500 by 0.62% year-to-date. Since inception in Jan. 2009, the portfolio outperformed the S&P 500 by 30.2% cumulatively, which is about 4% a year over the past four years and 8 months. All numbers do not include dividends.
We want to note that Buffett-Munger Strategy does not outperform the market every year. When market is hot and trend dominates, it may underperform. It outperformed the S&P 500 by wide margins from 2009 through 2011, but it underperformed by 1.1% in 2012. In most part of this year, as the market keeps making new highs, Buffett-Munger strategy was underperforming. Only as market pulls back from its all time highs, Buffett-Munger strategy shows stronger resilience and is now ahead of the market for the year.
The performance of GuruFocus Buffett-Munger Strategy is exactly what we expected from “good companies at fair prices.” It outperforms by wide margins when valuations are favorite. It may underperform slightly when market is hot. It does relative better when market is going down.
If you are not familiar with GuruFocus Buffett-Munger strategy, here is how it works. It tries to find high quality business at undervalued or fair-valued prices:
· Companies that have high Predictability Rank, that is, companies that can consistently grow its 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.
The model portfolio of Buffett-Munger Strategy consists of the top 25 stocks in Buffett-Munger Screener as of Jan. 1 of each year. The portfolio is rebalance only once a year. The turnover is about 50% at the time of rebalance. This is the recent performance chart of Buffett-Munger Strategy relative to S&P 500. The prices are calculated daily.
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