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Buffett-Munger Strategy: What Worked? What Didn’t
Posted by: GuruFocus (IP Logged)
Date: October 19, 2012 12:27PM

It has been almost 4 years since we started our Buffett-Munger Screener and model portfolio. The portfolio has outperformed the S&P 500 every year and cumulatively it has gained 90% and has 30% of outperformance. The portfolio has low turnovers and we only rebalance once a year. Although almost all companies in the portfolio have had sizeable gains, we do have steep losses with one of them.

These are the details of the performances in Buffett-Munger model portfolio:

Symbol Company # of Shares Bought on Share Cost Current Price Change Value ($)
WRLD World Acceptance Corp. 202 1/1/2009 $19.76 66.49 236.49% 13,431
BRLI Bio-Reference Laboratories Inc 371 1/2/2012 $16.27 31.13 91.33% 11,549
HRL Hormel Foods Corporation 268 1/2/2010 $19.23 29.13 51.52% 7,807
CPRT Copart, Inc. 564 1/2/2010 $18.31 27.3 48.20% 7,656
FCFS First Cash Financial Services, Inc. 194 1/1/2011 $30.99 45.57 47.05% 8,841
WMT Wal-Mart Stores, Inc. 111 1/1/2011 $53.93 76.04 41% 8,440
ESRX Express Scripts Holding Company 135 1/2/2012 $44.69 62.79 40.50% 8,477
FDS FactSet Research Systems Inc. 78 1/2/2010 $65.87 91.43 38.80% 7,132
NEOG Neogen Corporation 197 1/2/2012 $30.64 41.83 36.52% 8,241
ANSS ANSYS, Inc. 115 1/1/2011 $52.07 69.25 32.99% 7,964
NRCI National Research Corporation 155 1/2/2012 $38.81 50 28.83% 7,750
RGLD Royal Gold, Inc. 89 1/2/2012 $67.43 85.7 27.09% 7,627
IDXX IDEXX Laboratories, Inc. 78 1/2/2012 $76.96 96.63 25.56% 7,537
JJSF J&J Snack Foods Corp. 124 1/1/2011 $48.24 56.82 17.79% 7,046
LMT Lockheed Martin Corporation 74 1/2/2012 $80.90 93.18 15.18% 6,895
CHRW C.H. Robinson Worldwide, Inc. 72 1/1/2009 $55.03 60.62 10.16% 4,365
SIAL Sigma-Aldrich Corporation 90 1/1/2011 $66.56 72.67 9.18% 6,540
WAG Walgreen Company 182 1/2/2012 $33.06 35.81 8.32% 6,517
LLTC Linear Technology Corporation 201 1/2/2012 $30.03 31.14 3.70% 6,259
WAT Waters Corporation 77 1/1/2011 $77.71 79.53 2.34% 6,124
GD General Dynamics Corporation 91 1/2/2012 $66.41 67.49 1.63% 6,142
JW.A John Wiley & Sons Inc 136 1/2/2012 $44.40 43.99 -0.92% 5,983
ATRI Atrion Corporation 25 1/2/2012 $240.23 201.5 -16.12% 5,038
TEF Telefonica S.A. (ADR) 360.2313 1/2/2012 $16.75 13.65 -18.50% 4,917
ESI ITT Educational Services, Inc. 94 1/1/2011 $63.69 25.93 -59.29% 2,437

Among the current holdings in the portfolio, World Acceptance Corp (WRLD) has been in the portfolio ever since inception and the stock price has more than tripled. Bio-Reference Laboratories (BRLI) was added this year and it has gained 92%.

Among the current 25 stocks, only 4 stocks have seen losses. As a whole the portfolio has gained 90%, and it has outperformed the S&P 500 every year. The overall outperformance is about 30%.

This is just what we expected when we developed the Concept of Business Predictability. By investing the companies that have consistent and predictable revenue and earnings growth traded at fair prices, we will avoid the losers, and the winners will take care of themselves. Buffett-Munger strategy focuses on high quality predictable companies that are traded at reasonable prices, and

1. They can grow their revenues and profits consistently.
2. They can maintain and even grow their profit margins over time. They have the “moat” that prevents others to enter their market.
3. They incur little debt while growing business
4. They are at the low end of their historical valuations.

But not all companies in the portfolio did well. The worst performer is for-profit education company ITT Educational Services (ESI). We lost almost 60%. The second worst is Spanish telecom Telefonica (TEF). For ITT Educational Services, the business landscape has changed dramatically due to the regulatory changes. The company has dropped out the list of Predictable Companies. The stock will be dropped out in the next rebalance.

As a group, these companies have done well. They may not have the market momentum with them, and they may face headwinds which bring the valuations low. But if business continues to grow, we believe it is safer to invest in these companies. Indeed, these companies have outperformed the market every year since inception.

These companies also outperformed the market by wide margins over long period of time in our backtesting. For details, go to: What Worked In The Market From 1998-2008? Part II. Under-Valued Predictable Companies And Buffett-Munger Screener.

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.

Stocks Discussed: WRLD, ESI, TEF, CPRT, BRLI,
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Re Buffett-Munger Strategy What Worked What Didn t
Posted by: hkneitz (IP Logged)
Date: October 19, 2012 01:49PM

This doesn't include 2 big losers: BBY & CRR.

Stocks Discussed: WRLD, ESI, TEF, CPRT, BRLI,
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Re Buffett-Munger Strategy What Worked What Didn t
Posted by: gurufocus (IP Logged)
Date: October 19, 2012 02:09PM

BBY & CRR was highlighted in the newsletter. But they were not in the model portfolio.

Stocks Discussed: WRLD, ESI, TEF, CPRT, BRLI,
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