Beating the Market

Investment Analysis Clubs Saul’s Investing Discussions
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There was some discussion on the board just over a year ago about whether it was possible / easy / difficult to consistently beat the market.

At some point I suggested that it was easy to beat the market by simply choosing a portfolio of quality businesses and holding for the long term.

After a while I thought that, having made this suggestion, I should back it up.

I came up with a portfolio of $25,000 that would aim to beat the market over a 5 year timeframe (post 21799).

My last update was in April (post 26855).

The portfolio I proposed was as follows:


                            Value at      %       Value at
                            Sept 2016   Change.   Sept 2017

Adobe Systems (ADBE)         962.19      38.90     1,336.48
Amazon (AMZN)              2,405.40      19.12     2,865.31
Bank of Internet (BOFI)    1,006.65      21.01	   1,218.15
Broadridge Financials (BR) 1,024.50	 20.75     1,237.08
Casey's Gen. Stores (CASY) 1,054.89	 -7.14       979.57
Chipotle (CMG)               825.46     -23.85       628.59
Disney (DIS)               1,017.17       8.25     1,101.09
Facebook (FB)              1,018.96	 33.89     1,364.29
Google (GOOGL)             1,619.64      16.48     1,886.56
Mastercard (MA)            1,008.20      41.82     1,429.83
Middleby (MIDD)            1,496.28      -2.53     1,458.42
Mitek (MITK)                 994.48      20.32     1,196.56
Markel (MKL)               1,845.04      14.49     2,112.39
Universal Display (OLED)   1,000.96	125.56     2,257.77
Starbucks (STBX)             977.04       3.30     1,009.28
Shake Shak (SHAK)            987.00	 -5.62       931.53
Shopify (SHOP)               991.76	178.92     2,766.22
Transdigm (TDG)            1,724.40	  7.63     1,855.97
Tesla (TSLA)               1,032.50      70.02     1,755.46
Under Armour (UA)          1,019.20     -58.14       426.64
Visa (V)                     985.80      29.45     1,276.12

Totals                   $24,997.52      24.39%  $31,093.31

S&P Gain                                 16.01%

Difference                                8.38%

Although a 24% annual return is rather humble compared to some of the results reported on this board - I’m quite satisfied. Especially so, because
I didn’t have a great start. The portfolio trailed the S&P by 2.17% after one month and then 7.22% after two months. But it has gradually made ground from there to be 8% ahead of the S&P today.

This is a long term buy and hold portfolio. I have not made any sales or additions since inception and it is unlikely that I will do so in the foreseeable future unless something extraordinary happens.

The portfolio is ‘real money’ in the sense that I do hold all of the stocks in my own portfolio to at least the value shown. But my holdings are not in the same proportion as in the example portfolio. I have much heavier weightings for BOFI and TSLA, for example. In my own portfolio I trimmed CMG when Monty Moran left, but I have since added back most of what I trimmed.

I also hold stocks and some option positions that are not in the portfolio. Over the last year I have started positions in BABA, CGNX, MELI, SQ, NVDA and ANET. I have some UK and European stocks, some ETFs, odd small holdings, and rump positions that serve as a reminder of past mistakes.

If you are curious about any of my picks, please feel free to fire away and I will answer as best I can.

Ian

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Ian

Nice job.

Wow - UA down 58%? They don’t print that on their t-shirts!
Respect on the BABA - I’m all in but I appreciate many will not stand for it.
Good find on Universal Displays.

I’m interested in your UK picks from my UK portfolio perspective so please share.
I’m interested in Middleby and Transdigm - I know they have been promoted on TMF but I never entered. What were your investment theses there?

Cheers
Ant

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Ant,

Wow - UA down 58%?

That’s why we diversify :slight_smile:

Both UA and CMG have been a bit of a disaster, but Kevin PlanK and Steve Ells have both shown to be very talented managers in the past with impressive growth records (lots of interesting comments along these lines by TMF1000 in Rule Breakers on CMG where there is a bit of a bull/bear contest). Sometimes the best returns come from these positions and I’m prepared to be patient.

Respect on the BABA

I’m suspicious about Chinese stocks, but I don’t have any other than BABA - and that via LEAP calls - so I’m prepared to take the risk of a wash out in order to gain exposure to a big potential upside.

Good find on Universal Displays

A TMF service pick that has been languishing for years before eventually taking off. A lesson in patience.

I’m interested in your UK picks from my UK portfolio perspective so please share.

I’ve actually cut back a bit on my UK stocks. I did have Diageo, Whitbread, Unilever, GSK - but sold out in order to find funds for faster growers such as ANET and the other stocks I mentioned. I currently have small positions in Reckitt Benckiser and Judges Scientific (growth), and AstraZeneca, HSBC, Legal and General and National Grid (dividends). I can’t get as excited about UK stocks as I can about silicon valley growth stocks so I mainly invest in the U.S. even though I am a UK citizen.

I seem to recall that you have some UK tech/growers and I did look into one at one point but for some reason didn’t start a position.

I’m interested in Middleby and Transdigm - I know they have been promoted on TMF but I never entered. What were your investment theses there?

Middleby is run by a master, with a massively successful track record. Selim is highly customer-focussed with a great knack for making bolt-on acquisitions and making them efficient. Listen to the conference calls or dig out some of the podcasts made over the years by Tom Gardner. Middleby has had some teething troubles with its Viking acquisition that have depressed the stock price. But there are no long term issues and it should bounce back strongly. I added recently to take advantage of the depressed price.

Transdigm is run by a master capital allocator - and has been cited as a modern equivalent of one of ‘The Outsiders’. (Then again so was Valeant!). Aside from the aggressive financing approach Transdigm has another red flag in that some manufacturers like Boeing and Airbus are looking at bringing parts manufacture in-house. But for the moment I’m content to stick with a company that has produced 20% plus CAGR for many years.

My overall approach is to look at companies that have proven that they can perform over extended periods. You can look at a 10-year chart for most of the companies in the portfolio and find evidence of this. Quality of management is very important.

Hope this helps.

Ian

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On “Beating the Market,” Eddy Elfenbein has done a nice job over the past 11 years. He has beat the market 8 of the last 11 years. His 11-Year Compounded Gain is 169.39% vs the S&P 500 126.63%

http://www.crossingwallstreet.com/buylist

DHeavy

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