The model portfolio of Buffett-Munger screener has gained
16.1% until September 4. Focusing on predictable, high-quality
companies, GuruFocus Value Strategies continue to outperform.
As the market approaches rich valuation, a lot of value investors
and value strategies struggle. The portfolio that stands out is
the Buffett-Munger model portfolio. Year to date the S&P 500
has gained 11.7%, Buffett-Munger model portfolio has gained
16.1%. The overall performance since inception in 2009 is 89.3%,
outperforming the S&P 500 by 33.8%.
The strategy for the Buffett-Munger portfolio is what we used in
our backtesting study. This strategy focuses on high-quality
companies traded at reasonable prices. To learn more, please go
What worked in the market? Part I
What worked in the market? Part II
What worked in the market? Part III
Among the four value strategies, the Buffett-Munger top 25 idea
portfolio has shown the lowest volatility and the most consistent
performances. It has outperformed the S&P 500 every single
year since inception in 2009. The other three portfolios
underperformed slightly in 2011. They have more than made up
their underperformances of 2011 this year.
All of these portfolios are rebalanced just once a year. During
the January 2012 rebalance, 13 out of the 25 stocks in
Buffett-Munger portfolio are replaced. So the annual turnover is
slightly above 50%. Among the best performers this year
BioReference Laboratories Inc. (
) gained 68%, and Express Scripts Inc. (
) gained 41%. The 36% gain of Walmart (
) stock has also contributed to the overall performance of the
The outperformance of these strategies is achieved by focusing on
high-quality companies that are traded at fair or undervalued
prices. Thus we believe that the portfolios carry smaller risk
than the general market. This is clearly shown in the performance
of the positions in the portfolio. It is almost always the case
that the outperformance is driven by the universal outperformance
of all the positions. Even for the positions that underperformed,
the underperformances of these positions are usually small.
This is just what we expected when we developed
the Concept of Business Predictability
. By investing in 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
Of all these strategies, we like the Buffett-Munger portfolio the
most. As mentioned above, this portfolio invests in the top 25
stocks in the Buffett-Munger screener and is 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 from
entering 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. Undervalued
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 the
Buffett-Munger Screener. If you are a premium member, you can
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