Since February 2011, I have continued to learn a great deal, partly from reading books, but also from reading many of the interesting articles published on this website. I also don't mind admitting that I have also learned greatly from my own investing mistakes. one of which was to disregard offhand one of the first submissions of the inaugural February 2011 Value Investing Contest, the one submitted by Bill Smith on Boston Beer Company (SAM).
Recently I decided to go back to find out what had happened to the six different stocks which were entered in the very first contest. I found this procedure quite instructive, so I will share with you the updated information. First of all I would like to point out that I found all of the entries to be interesting and valuable, and I learned from reading all of them. In no way do I intend this article to be critical of any of the entries. Of course all investors, including the greatest investors of our time, do not win with every stock they buy, and often have to concede considerable losses. This is the nature of investing and what makes it so interesting.
Since the date of the announcement of the winners of the February Value Investing Contest on March 1, 2011, the S&P 500 has risen from 1306.33 at this date to 1761.64 on Nov. 1, 2013. The percentage gain, excluding dividends paid is 34.85%
The following table outlines the performance of the different submissions from the time of the submission in February 2011 to Nov. 1, 2013. My thanks go to the other contest entrants, batbeer2, Alex Morris, Adib Motiwala, Henry Schacht and Bill Smith.
Price at 2/2011
Price at 11/01/13
Boston Beer Company
Reckitt Benckiser PLC
De La Rue PLC
** Note that MakeMusic was acquired by LaunchEquity on May 1, 2013, at $4.85 per share, by coincidence at the same price as when the contest submission was made in February 2011.
The most outstanding feature of the above table is the relative performance of Bill Smith's entry of Boston Beer Company which has increased in price by 155.56%. At the time of Bill's submission, I dismissed it out-of-hand purely because at the then price of $91, the stock was trading at a P/E ratio of 28.7 based on 2010 EPS of $3.17 per share. However, Boston Beer Company was a special case: a company with rapidly growing sales and profits, strong brands and a competitive moat, zero debt, a highly competent and dedicated founder/Chairman Jim Koch as well as the future prospect of take-over offers from the larger established U.S. breweries.
I have since learned that it is necessary to keep an open mind and not to focus too much on one ratio, in this case the company's P/E ratio, but rather to look at the business as a whole and its competitive strengths. Bill Smith's write-up was not only highly informative, but it also contains a very insightful outline of his approach to value investing. I highly recommend going back to read his original contest submission: "Boston Beer Company - A Small Brewer Buffett Would Love."
Disclosure: Long Reckitt Benckiser. The article written above is intended for information only. At the currently high market prices I do not specifically recommend the purchase of any of the companies mentioned in this article. Readers should do their own research or seek professional advice before investing in any of the companies discussed.