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Buffett-Munger Portfolio Gained 6% in 2011; Model Portfolios Rebalanced

January 04, 2012 | About:

All GuruFocus model portfolios have been rebalanced. As always, we rebalance these portfolios once a year during the New Year holidays. The prices that are used for rebalances are the close prices of the stocks on the last trading day of the previous year.

Among all model portfolios, the best performing portfolios are Buffett-Munger portfolio and Top 25 Historical High P/S Ratio Companies, which gained 6% and 9.4% in 2011, respectively, while the market was essentially flat. All numbers do not include dividends.

GuruFocus has two types of value portfolios. One is searching for the companies that have high predictability rank, but traded at low valuations as measured by PE over growth rate, discounted cash flow model, historical low P/S ratio or P/B ratios. The detailed performance numbers are below:

Value Strategies (Undervalued):All numbers do not include dividends.

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
Valuation Factor PE/G DCF Low P/S Low P/B
2009 23.5% 27% 54%
2010 12.8% 21.1% 21.5% 19% 16.4%
2011 -0% 6% -3.3% -2% -1.9%
Outperformance Since Inception 23.7% 41.6% 3.8% 1.4%
Screener Links Screener Here Screener Here Screener Here Screener Here
We can see that during a year of flat market, only the Buffett-Munger portfolio outperformed the market. Other three value strategies underperformed the market slightly.

We are glad that the Buffett-Munger portfolio has outperformed the market average again. It has done so every year since incepted three years ago. We feel that it is understandable that other value strategies may slightly underperform the market average in some years. We are proud of the overall performances of these strategies as all of them have outperformed the market since inceptions.

But we did have a surprise: the portfolio of the companies that are traded at historical high P/S ratios gained 9.4% in 2011. When we created the portfolio, these companies are already traded at historical high price/sales ratios. We thought that these companies should underperform as the valuation may reverse to its means. However, these companies continue to do much better than the market as a whole. These are the list of the companies for 2011 and their performances:

Symbol Original Price Current Price Gain (%)
UHS 43.42 37.71 -13.15
CHRW 80.19 69.84 -12.91
PH 86.3 78.83 -8.66
UTX 78.72 74.66 -5.16
IFF 55.59 52.88 -4.87
SIAL 66.56 63.47 -4.64
SRCL 80.92 77.49 -4.24
DNEX 118.01 118.5 0.42
BRS 47.35 48.73 2.91
UNF 55.05 57.94 5.25
CACI 53.4 56.57 5.94
SHW 83.75 91 8.66
ATR 47.57 52.28 9.9
PX 95.47 107.85 12.97
HRL 25.63 29.18 13.85
BF.B 69.62 80.61 15.79
KOF 82.43 95.98 16.44
AZO 272.59 319.79 17.32
NSC 62.82 73.79 17.46
CNI 66.47 78.93 18.75
WCN 27.53 32.98 19.8
BCPC 33.81 40.62 20.14
ENB 28.2 37.32 32.34
FAST 29.75 43.76 47.09
AIRM 56.27 85.59 52.11

We can see that among the 25 companies that were traded at their historical high P/S on Jan. 2, 2011, 18 of them were positive; only 7 of them had negative returns. Overall the losses were much smaller than the gains. As the group, the portfolio gained 9.4%. The highest gains were achieved by Fastenal Corp. (NASDAQ:FAST) and Air Methods Corp. (NASDAQ:AIRM). They gained 47% and 52% respectively and rose to their historical highs in the year when many companies struggled.

Why the stocks of companies that were traded at historical high level could continue to rise? This question puzzled us. The reason why the stocks continue to do well might be because all of these companies have high predictability rank. Their businesses continue to grow at consistent rate. There were no negative headlines or business development with these companies, and stock prices may carry certain market momentum. But will the valuation continues to rise without limit? We doubt.

Although the companies traded at historical high P/S did better in 2011, we still prefer to invest in Buffett-Munger portfolio, which are the top 25 stocks in the Buffett-Munger screener and rebalanced once a year. The reasons are:

1. These companies are of high quality. They can grow their revenues and profits consistently.

2. These companies 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.

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.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.6/5 (12 votes)


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