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|
|Screener||Links||Screener Here||Screener Here||Screener Here||Screener Here|
In the first three quarters of 2013, we can see that the performance of model portfolio of Top 25 Undervalued Predictable Companies is about even with S&P 500. The portfolios of Buffett-Munger Screener Top 25 and historical low P/B ratios outperformed S&P 500, while the portfolio of historical low P/S ratios underperformed S&P 500. We remember up to September 4, 2013, Buffett-Munger Screener was about even with S&P 500. Just in one month, it outperformed the market by 2.45%. Since inception of each model portfolio, they all outperformed the market.
Without any doubt, Warren Buffett’s investment strategy is the most successful ever. He believes that to buy companies with “predictable and proven” earnings can be very profitable in stock market investing. Based on his strategy, GuruFocus develops "Buffett-Munger Screener", which helps 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.
Both of the portfolios of Buffett-Munger Screener Top 25 and Top 25 Undervalued Predictable Companies were started in January 2009. In 2009, Top 25 Undervalued Predictable Companies gained 55.72%, double the return of S&P 500. In 2010, both two models outperformed the market by around 9%. In 2011, the market was even, yet Buffett-Munger Screener top 25 outperformed the market by 6.01%. In 2012, Buffett-Munger Screener top 25 was about even with S&P 500 and in 2013, it outperformed the market by 2.45%, while Top 25 Undervalued Predictable Companies was slightly underperformed the market in 2012. From above performance figure, GuruFocus can be proud to say that Buffett-Munger Screener Top 25 outperformed the market almost every year except in 2012. Even the only underperformance was small compared to the stock market. In all, since inception, Buffett-Munger Screener Top 25 outperformed the S&P 500 for 34.19%. The portfolio of Top 25 Undervalued Predictable Companies outperformed the market for 37.79%, even higher than the Buffett-Munger Screener.
Both 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. For the current list of good companies at fair or undervalued price for Buffett-Munger screener, click here.
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 and 2012, but about even with the market year-to-date. Please go to historical low P/B ratios and historical low P/S ratios for the complete stock lists.
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 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.
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.
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.