(GuruFocus, July 2, 2009) Investment Guru John Hussman is not a buy-and-hold type of value investor. He relies on econometric and technical models to long on equity positions and hedge his position accordingly. Last year, we reviewed how he manages his money in general and how he managed to avoid the disastrous 2008.
Year-to-date, through July 1, 2008, Hussman Strategic Growth Fund (HSGFX) returned a total of 6.68%, and since the beginning of of 2Q09, fund NAV actually decreased from $13.09 to $13.01, down less than 1%. The equity portfolio we track here at GuruFocus also heed that of S&P500 Index since the beginning of the quarter, making one wonder whether that effort of hedging the portfolio worth it. Of course, during the past decade, hedging did add more than 4% extra gain to the fund.
John Hussman is a living example of that hedging works if you do it right. He is a Ph.D. from Standford University, so his success shows it pays to go to school.
Asset Allocation
John Hussman typically keeps 100-200 (currently 136) stocks in his portfolio. He is a rather frequent trader, with annual turnover ration sometimes more than 100%. His is a sector selector more than an individual stock selector. As of March 31, 2008, he was heavy on Consumer Services (36.1%), Technology (25.9%), Health Care (18.4%) and Consumer Goods (8.5%). The rest sectors are insignificant. He totally ignored the asset allocation of the general market.
That does not seem to matter as the performance of his portfolio heed that of S&P 500 so well you may mistake him bought a house of SPY’s for his investors.
But that is not true. After the sector decision, when come to selecting individual stocks, Hussman insists the stock price lower than intrinsic value as estimated by discount cash flow. Taking a close look at John Hussman’s portfolio, again, we find a disproportional number of highly predictable companies, and that is what we want to report on today.
Highly Predictable John Hussman Stocks
As we discovered last year, investing in highly predictable companies yield better returns and lower risks. Lately we stated Warren Buffett has a far more shares of predictable companies than the general market. These companies are in John Hussman’s portfolio and they are predictable, companies GuruFocus gives 5-stars for their superior business predictability: Starbucks Corp. (SBUX, Financial), Computer Sciences Corp. (CSC, Financial), Walgreen Company (WAG, Financial), FactSet Research Systems Inc. (FDS, Financial), The Home Depot Inc. (HD, Financial), Paychex Inc. (PAYX, Financial)
1. Starbucks Corp. (SBUX)
Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them along with fresh rich-brewed Italian style espresso beverages a variety of pastries and confections and coffee-related equipments primarily through its company-operated retail stores. In addition to sales through its company-operated retail stores Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary Tazo Tea Company. Starbucks Corp. has a market cap of $10.3 billion; its shares were traded at around $14 with a P/E ratio of 24.6 and P/S ratio of 0.9. Starbucks Corp. had an annual average earning growth of 24.4% over the past 10 years.
Hussman initiated a position of 1.75 million share in 1Q08, and by 1Q09, he held 3.0 million shares.
2. Computer Sciences Corp. (CSC)
Computer Sciences Corp. offers a broad array of professional services to clients in the global commercial and government markets and specializes in the application of advanced and complex I/T to achieve its customers' strategic objectives. Computer Sciences Corp. has a market cap of $6.77 billion; its shares were traded at around $44.7 with a P/E ratio of 11 and P/S ratio of 0.4. Computer Sciences Corp. had an annual average earning growth of 9.1% over the past 10 years.
Hussman initiated a 1.2 million share position in 2Q06 and sold down to 430,600 shares in 1Q07, but he has increased that to 635,000 shares in 1Q09.
3. Walgreen Company (WAG)
Walgreen Co. is a national retail pharmacy chain and considered the leader in innovative drugstore retailing. Walgreen Company has a market cap of $29.1 billion; its shares were traded at around $29.34 with a P/E ratio of 14.5 and P/S ratio of 0.5. The dividend yield of Walgreen Company stocks is 1.5%. Walgreen Company had an annual average earning growth of 15.1% over the past 10 years.
Hussman bought 1.0 million shares in 2Q07 and he sold it down to 600,000 shares in the next quarter. Then in 4Q08, we saw him upped to 1.0 million shares again. He increased his position further in 1Q09 to 1.25 million shares.
4. FactSet Research Systems Inc. (FDS)
FactSet Research Systems Inc. supplies global economic and financial data to analysts investment bankers and other financial professionals. FactSet Research Systems Inc. has a market cap of $2.36 billion; its shares were traded at around $50.35 with a P/E ratio of 17.9 and P/S ratio of 4.1. The dividend yield of FactSet Research Systems Inc. stocks is 1.6%. FactSet Research Systems Inc. had an annual average earning growth of 22.6% over the past 10 years.
Hussman bought his 510,000 share position in 1Q09.
5. The Home Depot Inc. (HD)
Home Depot is the one of world's largest home improvement retailer. The Home Depot Inc. has a market cap of $40.22 billion; its shares were traded at around $23.71 with a P/E ratio of 13.9 and P/S ratio of 0.6. The dividend yield of The Home Depot Inc. stocks is 3.8%. The Home Depot Inc. had an annual average earning growth of 19.5% over the past 10 years.
Hussman initiated a 1.2 million share position in HD in 2Q06, and he has increased the positions since then to 3.0 million shares.
6. Paychex Inc. (PAYX)
Paychex Inc. is a national provider of payroll human resource and employee benefit outsourcing solutions for small-to medium-sized businesses. Paychex Inc. has a market cap of $9.23 billion; its shares were traded at around $25.59 with a P/E ratio of 17.3 and P/S ratio of 4.5. The dividend yield of Paychex Inc. stocks is 4.8%. Paychex Inc. had an annual average earning growth of 17.8% over the past 10 years.
Hussman bought his 425,000 shares in 4Q08.
Conclusion
For the most part of the past decade, Hussman has fully hedged his long positions. When he fully hedges his positions, he anticipates the extra gain of his selected stocks to provide the gain for the portfolio. Of the 136 stocks he held, six of them are 5-star stocks, stocks with the highest predictability, or about 4%. That beats the concentration of the most predictable companies in the general market (about 0.8%).
Gurus are gurus, they do things differently, but we figure they have traces to track, that is why we started GuruFocus.
To make your life easier, GuruFocus has started publishing a news letter based on our Buffett-Munger stock screener. Starting from June 2009, each month, we screens, research and recommend on one or two stocks. The first issue is available through this link.
Year-to-date, through July 1, 2008, Hussman Strategic Growth Fund (HSGFX) returned a total of 6.68%, and since the beginning of of 2Q09, fund NAV actually decreased from $13.09 to $13.01, down less than 1%. The equity portfolio we track here at GuruFocus also heed that of S&P500 Index since the beginning of the quarter, making one wonder whether that effort of hedging the portfolio worth it. Of course, during the past decade, hedging did add more than 4% extra gain to the fund.
John Hussman is a living example of that hedging works if you do it right. He is a Ph.D. from Standford University, so his success shows it pays to go to school.
Asset Allocation
John Hussman typically keeps 100-200 (currently 136) stocks in his portfolio. He is a rather frequent trader, with annual turnover ration sometimes more than 100%. His is a sector selector more than an individual stock selector. As of March 31, 2008, he was heavy on Consumer Services (36.1%), Technology (25.9%), Health Care (18.4%) and Consumer Goods (8.5%). The rest sectors are insignificant. He totally ignored the asset allocation of the general market.
That does not seem to matter as the performance of his portfolio heed that of S&P 500 so well you may mistake him bought a house of SPY’s for his investors.
But that is not true. After the sector decision, when come to selecting individual stocks, Hussman insists the stock price lower than intrinsic value as estimated by discount cash flow. Taking a close look at John Hussman’s portfolio, again, we find a disproportional number of highly predictable companies, and that is what we want to report on today.
Highly Predictable John Hussman Stocks
As we discovered last year, investing in highly predictable companies yield better returns and lower risks. Lately we stated Warren Buffett has a far more shares of predictable companies than the general market. These companies are in John Hussman’s portfolio and they are predictable, companies GuruFocus gives 5-stars for their superior business predictability: Starbucks Corp. (SBUX, Financial), Computer Sciences Corp. (CSC, Financial), Walgreen Company (WAG, Financial), FactSet Research Systems Inc. (FDS, Financial), The Home Depot Inc. (HD, Financial), Paychex Inc. (PAYX, Financial)
1. Starbucks Corp. (SBUX)
Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them along with fresh rich-brewed Italian style espresso beverages a variety of pastries and confections and coffee-related equipments primarily through its company-operated retail stores. In addition to sales through its company-operated retail stores Starbucks sells whole bean coffees through a specialty sales group and supermarkets. Additionally Starbucks produces and sells bottled Frappuccino coffee drink and a line of premium ice creams through its joint venture partnerships and offers a line of innovative premium teas produced by its wholly owned subsidiary Tazo Tea Company. Starbucks Corp. has a market cap of $10.3 billion; its shares were traded at around $14 with a P/E ratio of 24.6 and P/S ratio of 0.9. Starbucks Corp. had an annual average earning growth of 24.4% over the past 10 years.
Hussman initiated a position of 1.75 million share in 1Q08, and by 1Q09, he held 3.0 million shares.
2. Computer Sciences Corp. (CSC)
Computer Sciences Corp. offers a broad array of professional services to clients in the global commercial and government markets and specializes in the application of advanced and complex I/T to achieve its customers' strategic objectives. Computer Sciences Corp. has a market cap of $6.77 billion; its shares were traded at around $44.7 with a P/E ratio of 11 and P/S ratio of 0.4. Computer Sciences Corp. had an annual average earning growth of 9.1% over the past 10 years.
Hussman initiated a 1.2 million share position in 2Q06 and sold down to 430,600 shares in 1Q07, but he has increased that to 635,000 shares in 1Q09.
3. Walgreen Company (WAG)
Walgreen Co. is a national retail pharmacy chain and considered the leader in innovative drugstore retailing. Walgreen Company has a market cap of $29.1 billion; its shares were traded at around $29.34 with a P/E ratio of 14.5 and P/S ratio of 0.5. The dividend yield of Walgreen Company stocks is 1.5%. Walgreen Company had an annual average earning growth of 15.1% over the past 10 years.
Hussman bought 1.0 million shares in 2Q07 and he sold it down to 600,000 shares in the next quarter. Then in 4Q08, we saw him upped to 1.0 million shares again. He increased his position further in 1Q09 to 1.25 million shares.
4. FactSet Research Systems Inc. (FDS)
FactSet Research Systems Inc. supplies global economic and financial data to analysts investment bankers and other financial professionals. FactSet Research Systems Inc. has a market cap of $2.36 billion; its shares were traded at around $50.35 with a P/E ratio of 17.9 and P/S ratio of 4.1. The dividend yield of FactSet Research Systems Inc. stocks is 1.6%. FactSet Research Systems Inc. had an annual average earning growth of 22.6% over the past 10 years.
Hussman bought his 510,000 share position in 1Q09.
5. The Home Depot Inc. (HD)
Home Depot is the one of world's largest home improvement retailer. The Home Depot Inc. has a market cap of $40.22 billion; its shares were traded at around $23.71 with a P/E ratio of 13.9 and P/S ratio of 0.6. The dividend yield of The Home Depot Inc. stocks is 3.8%. The Home Depot Inc. had an annual average earning growth of 19.5% over the past 10 years.
Hussman initiated a 1.2 million share position in HD in 2Q06, and he has increased the positions since then to 3.0 million shares.
6. Paychex Inc. (PAYX)
Paychex Inc. is a national provider of payroll human resource and employee benefit outsourcing solutions for small-to medium-sized businesses. Paychex Inc. has a market cap of $9.23 billion; its shares were traded at around $25.59 with a P/E ratio of 17.3 and P/S ratio of 4.5. The dividend yield of Paychex Inc. stocks is 4.8%. Paychex Inc. had an annual average earning growth of 17.8% over the past 10 years.
Hussman bought his 425,000 shares in 4Q08.
Conclusion
For the most part of the past decade, Hussman has fully hedged his long positions. When he fully hedges his positions, he anticipates the extra gain of his selected stocks to provide the gain for the portfolio. Of the 136 stocks he held, six of them are 5-star stocks, stocks with the highest predictability, or about 4%. That beats the concentration of the most predictable companies in the general market (about 0.8%).
Gurus are gurus, they do things differently, but we figure they have traces to track, that is why we started GuruFocus.
To make your life easier, GuruFocus has started publishing a news letter based on our Buffett-Munger stock screener. Starting from June 2009, each month, we screens, research and recommend on one or two stocks. The first issue is available through this link.
