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GuruFocus Value Investing Contest - Update After Two and a Half Years: Part 1

graemew

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The first GuruFocus Value Investing Contest took place in February 2011, more than two and a half years ago. I entered the first contest and went on to enter the following two contests. This was the first time that I had published any analysis of a stock, and I found it to be a great learning process. My first entry, Reckitt & Benckiser PLC (RBGPY), received the lowest rating by readers at the time of only 3.2 and looking back, I think this is all I deserved based on the paucity of information I included in my analysis. I still hold Reckitt & Benckiser, and it is still my largest holding.

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.



Company


Price at 2/2011


Price at 11/01/13


Dividends paid


Total return


Boston Beer Company


$91.00


$232.56


Nil


155.56%


Reckitt Benckiser PLC


34.99 pounds


47.80 pounds


3.84 pounds


49%


Pepsico


$64.15


$84.56


$5.825


40.89%


De La Rue PLC


6.70 pounds


8.425 pounds


0.846 pounds


38.37%


Vivendi


20.78 euros


18.615 euros


3.00 euros


4.00%


MakeMusic


$4.85


$4.85**


nil


0.00%


** 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.

About the author:

graemew
Interested in European, US and Asian markets.

Rating: 3.8/5 (13 votes)

Comments

Adib Motiwala
Adib Motiwala - 5 months ago
thanks for this article
TannorP
TannorP premium member - 5 months ago
Thanks,

I love the reflection articles that have been posted recently. Great write up!
Bill.Smith
Bill.Smith premium member - 5 months ago


Graemew: it's hard to believe it's been that long already. Thanks for the shout out and kind words.

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