GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Model Portfolio Review – June 5, 2014

June 05, 2014 | About:
Vera Yuan

Vera Yuan

68 followers

In recent five years, the S&P 500 gained 24.71% in 2009, 11.65% in 2010, 0% in 2011, 12.1% in 2012, and 31.8% in 2013. The market performance looks good. Could investors make more money by investing in GuruFocus Model Portfolios? It is time to check the performances. The following are the details of the performances of the four value strategies:

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

2009

24.71%

28.65%

55.72%

   

2010

11.65%

19.54%

20.17%

19.05%

16.39%

2011

-0%

6.01%

-3.32%

-2.01%

-1.87%

2012

12.1%

11.01%

3.95%

16.34%

16.45%

2013

31.8%

30.37%

24.81%

29.60%

33.18%

2014

4.3 %

-1.76%

0.73%

10.76%

10.24%

Since

Inception

131.79%

136.43%

94.82%

95.27%

Outperforming

the S&P

17.22%

21.86%

22.77%

23.22%

Screener

Links

Screener Here

Screener Here

Screener Here

Screener Here

* All numbers do not include dividends.

The U.S. stock market had an excellent 2013. The market benchmark S&P 500 went up 31.8%, which is the highest since the financial crisis. Our portfolio of Top 25 Historical Low P/B Ratio Companies even outperformed the S&P 500 by 1.38%.

In 2014, the portfolio of historical low P/S beat the market benchmark S&P 500 by 6.46%, while the portfolio of historical low P/B ratios beat the market benchmark S&P 500 by 5.94%.

Both of the portfolios of Buffett-Munger Screener Top 25 and Top 25 Undervalued Predictable Companies were started in January 2009. In 2009 and 2010, Buffett-Munger Screener outperformed the market by around 4% and 8%. In 2011, the market was even, yet Buffett-Munger Screener outperformed the market by 6.01%. In 2012 and 2013, Buffett-Munger Screener was about even with the S&P 500. In 2014, it underperformed the market by 6.06%. From the above performance figure, GuruFocus can be proud to say that Buffett-Munger Screener Top 25 outperformed the market almost every year. Regarding to Top 25 Undervalued Predictable Companies, the portfolio gained 55.72% and 20.17%, respectively, in 2009 and 2010, almost double the return of the S&P 500 in that period. However, from 2011 to 2013, the portfolio of Top 25 Undervalued Predictable Companies underperformed the market. In 2014, it underperformed the market by 3.57%. In all, since inception, Buffett-Munger Screener Top 25 outperformed the S&P 500 by 17.22%. The portfolio of Top 25 Undervalued Predictable Companies outperformed the market by 21.86%.

Without any doubt, Warren Buffett (Trades, Portfolio)’s investment strategy is the most successful ever. He believes that buying companies with “predictable and proven” earnings can be very profitable in stock market investing. Based on his strategy, GuruFocus developed "Buffett-Munger Screener," which helps to find companies with high quality business at undervalued or fair-valued prices:

  1. Companies that have high Predictability Rank, that is, companies that can consistently grow their revenue and earnings.
  2. Companies that have competitive advantages. It can maintain or even expand its profit margin while growing its business
  3. Companies that incur little debt while growing business
  4. 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 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 prices 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, 2012 and 2014, but were about even with the market in 2011. The portfolio of historical low P/B ratios outperformed the market by 1.38% in 2013, while the portfolio of historical low P/S ratios slightly underperformed the S&P 500 by 2.2% in 2013. In all, since inception, historical low P/S ratios outperformed the S&P 500 by 22.77%. The portfolio of historical low P/B ratios outperformed the S&P 500 by 23.22%. Please go to historical low P/S ratios and historical low P/B 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 the above analysis, we can see for a 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 summaries of the four value strategies mentioned above:

1. Buffett-Munger screener: Invests in predictable companies that have low debt, consistent profit margin, and trade 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 trade at historical low P/S ratios.
4. Historical low P/B: Companies that have high predictability rank, but trade 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.


Rating: 0.0/5 (0 votes)

Comments

AMAUDHOO
AMAUDHOO premium member - 1 month ago

Are the top 25 stocks the first 25 stocks that appear after you run each of the four screeners mentioned above?

Just to confirm the list of stocks for each of the four screeners is set at the beginning of each calendar year and maintain the same for the entire year or do they change from month to month.

If the portfolio is rebalanced each year does that mean every year I would have to sell and buy new stocks that fit the criteria next year?

Vera
Vera premium member - 1 month ago

The Top 25 Undervalued Predictable Companies can be seen from http://www.gurufocus.com/model_portfolio.php?mp=smallcap

Move your mouse on the Screeners tab, on right you will see a list of model portfolios. Just click on "Undervalued Predictable".

It is rebalanced at the begining of ever year. You will sell the ones that are off the list and buy new ones.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide