The stock market has gained 10.9% as measured by S&P 500,
even after yesterday's big drop. GuruFocus
have mixed performance this year, so far. Since inception, all of
them have outperformed the market.
GuruFocus has four value strategies:
: Invests in predictable companies that have low debt, consistent
profit margin and traded at low P/E to growth ratios.
Undervalued Predictable Companies
: Invests in predictable companies that are undervalued based on
Historical low P/S
: Companies that have high predictability rank, but are traded at
historical low P/S ratios.
4. Historical low P/B: Companies that have high predictability
rank, but are traded at historical low P/B ratios.
The annual performances of these strategies since inception are
||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
Outperforming the S&P
* All numbers do not include dividends.
Historical low P/S and historical low P/B have shown quite
consistent performances. Investing in companies at historical low
valuations is a winning strategy proven by copious academic
research. In GuruFocus' strategies, we added another requirement:
The companies must have consistent business performance. We
believe that if the business is growing consistently, sooner or
later, the stock valuations will revert to the historical means
from low valuations. So far, these two strategies have
outperformed the market by about 2% a year.
Among all strategies, Buffett-Munger portfolio has shown the most
consistent performance. The
is used to find companies with high-quality business at
undervalued or fair-valued prices:
- Companies that have high Predictability Rank, that is,
companies that can consistently grow their revenue and
- Companies that have competitive advantages. They can
maintain or even expand their profit margin while growing their
- Companies that incur little debt while growing business.
- Companies that are fair valued or undervalued. We use PEPG
as indicator. PEPG is the P/E ratio divided by the average
growth rate of EBITDA over the past five years.
This portfolio has shown consistent performance. It has
outperformed the market every year since inception. So far this
year it is underperforming by about 2% because of one
underperformer: ITT Educational Services Inc. (
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
These companies also outperformed the market by wide margins over
a 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.
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