Benchmark Investing Update Mar 25, 2022

This update is to Kenneth Lee’s Benchmark Investing picks based on the latest Monday’s data release. 
Since our last update, the market took a huge step back with a year opening drop of -6.4%. This period there are three companies in the DJIA 30 
that are below their downside price targets. They are MMM -6%, CRM -32% and WBA -21%. However, MMM and WBA would not qualify as a BI pick because of single-digit 
EPS growth rate. CRM might once their financials are updated. Stay tuned for updates on this candidate. If you are interested in following along with this methodology against 
a broader range of stocks outside of the Dow30, these picks are posted in my Fool CAPS on a regular basis as trades occur.

New this year will be updated returns for the BI Portfolio. I will start the year assuming each holding is in an equal amount beginning Jan 1.

<b>Current BI Portfolio Holdings:
15 Holding in BI Portfolio: EOG, PFE, TAP, DXC, NWL, BEN, FB, AMZN, PXD, DISCA, MS, CAH, IVZ, LKQ, KMI
BI Portfolio Total Return +2.5%
S&P 500 Total Return -6.1%</b>

**Market Valuation (Dow 30):** 
The DOW30 market is still overpriced according to the BI method of valuation by about 21%.
Downside: -36%
Upside:   -6%

**Long Buy Rules:** 
I am using the following TTD rules for Long position considerations:
1. Year-over-Year EPS growth must > 10%, which are the next 4Q / current quarter + previous 3 quarters earnings results
2. VL 3-5 Year price appreciation > average price appreciation of the market
3. When calculating ROE and BV figures, ignore years when they are negative, but must have at least 7+ years of data to be included in final consideration
4. Avoid erratic ROE ratios, that is where they are > 2std deviations = Curr ROE > (10 Year Avg + 2 * Std Dev)
5. ROE and BV current figures must be updated by VL

**Sell Rules:** 
I am using the following TTD rules to Sell Long positions:
Criteria (1 OR 2 OR 5, AND 3 AND 4):
1. Price Appreciation < Market Average Appreciation 
2. Current Price > BI HiPrice
3. Hold time > 365 days per cycle
4. ROE & BV must be current
5. No longer listed as a market average component

**Summary of Results**

	VL	        Current	ROE/BV	Down	Up     %<10Y   %<10Y	EPS	Div     3-5Y   3-5Y   VL3-5Y   VL18mo   ROE	
Ticker	Date	        Price	Updated	Price	Price	Down	Down4Qs	Delta   Yield   VL L$  VL H$   % Chg   % Chg	<2STD    Name
CAT	11-Feb-22	224	FALSE	165	250	35%	64%	15%	 2.1 	220	300	20%	7%	FALSE	Caterpillar Inc.
JNJ	11-Feb-22	176	FALSE	155	198	13%	20%	7%	 2.4 	210	255	33%	9%	FALSE	Johnson & Johnson
MCD	18-Feb-22	237	FALSE					9%	 2.4 	270	330	25%	26%	TRUE	McDonald's Corp.
CVX	25-Feb-22	164	FALSE	131	182	25%	69%	14%	 3.6 	125	190	0%	-21%	FALSE	Chevron Corp.
BA	4-Mar-22	186	FALSE					163%	 -   	215	325	42%	41%	TRUE	Boeing
TRV	4-Mar-22	182	FALSE	125	165	45%	64%	-8%	 2.0 	225	275	39%	-3%	FALSE	Travelers Cos.
UNH	4-Mar-22	508	FALSE	307	471	66%	93%	14%	 1.2 	475	580	5%	6%	FALSE	UnitedHealth Group
AMGN	4-Mar-22	236	FALSE	147	207	61%	58%	3%	 3.5 	315	390	52%	11%	FALSE	Amgen
VZ	11-Mar-22	51.28	FALSE	47	60	9%	3%	2%	 4.9 	90	115	95%	12%	FALSE	Verizon Communic.
CSCO	11-Mar-22	56.11	FALSE	38	53	48%	66%	8%	 2.7 	70	90	43%	27%	FALSE	Cisco Systems
HD	18-Mar-22	331	FALSE					3%	 2.3 	380	460	26%	38%	TRUE	Home Depot
PG	18-Mar-22	150	FALSE	101	134	48%	54%	5%	 2.3 	135	165	0%	14%	FALSE	Procter & Gamble
INTC	25-Mar-22	47.86	FALSE	33	48	45%	24%	-36%	 3.1 	100	120	135%	7%	FALSE	Intel Corp.
AAPL	25-Mar-22	166	FALSE	76	133	119%	119%	6%	 0.6 	170	210	19%	32%	FALSE	Apple Inc.
IBM	25-Mar-22	128	FALSE	101	138	27%	27%	-1%	 5.2 	135	165	18%	-4%	FALSE	Int'l Business Mach.
DOW	31-Dec-21	63.12	TRUE	52	99	22%	25%	-19%	 5.0 	105	160	122%	20%	FALSE	Dow Inc.
MRK	31-Dec-21	79.72	FALSE	73	97	10%	19%	9%	 3.5 	100	120	40%	16%	FALSE	Merck & Co.
HON	7-Jan-22	194	TRUE	126	180	54%	61%	12%	 2.1 	215	260	29%	30%	FALSE	Honeywell Int'l
MMM	7-Jan-22	148	FALSE	158	221	-6%	-1%	4%	 4.1 	215	265	75%	29%	FALSE	3M Company
GS	7-Jan-22	341	FALSE	246	369	39%	52%	-36%	 2.4 	420	570	54%	20%	FALSE	Goldman Sachs
CRM	7-Jan-22	214	FALSE	314	526	-32%	-35%	137%	 -   	240	365	47%	48%	FALSE	[salesforce.com](http://salesforce.com)
KO	14-Jan-22	60.42	TRUE	45	56	35%	45%	6%	 3.0 	60	70	13%	12%	FALSE	Coca-Cola
WBA	21-Jan-22	47.74	TRUE	61	88	-21%	-24%	-9%	 4.0 	60	90	79%	-17%	FALSE	Walgreens Boots
WMT	21-Jan-22	145	FALSE	103	139	41%	60%	4%	 1.5 	185	225	51%	13%	FALSE	Walmart Inc.
NKE	21-Jan-22	130	TRUE	97	148	33%	61%	-1%	 1.0 	160	195	47%	76%	FALSE	NIKE Inc. 'B'
DIS	28-Jan-22	139	TRUE	77	111	80%	111%	230%	 -   	155	210	35%	32%	FALSE	Disney (Walt)
JPM	4-Feb-22	139	TRUE	107	154	30%	48%	-20%	 2.9 	135	185	22%	30%	FALSE	JPMorgan Chase
AXP	4-Feb-22	190	FALSE	126	187	50%	76%	8%	 1.2 	185	225	13%	7%	FALSE	Amer. Express
V	4-Feb-22	217	TRUE	172	246	26%	55%	19%	 0.7 	245	300	28%	32%	FALSE	Visa Inc.
MSFT	4-Feb-22	299	TRUE	187	292	59%	118%	8%	 0.8 	305	370	14%	32%	FALSE	Microsoft Corp.
<b>Dow30		        34,754	       22,202  32,637	                         2.3  39,017  49,958			Dow Jones Industrial Average
Appreciation Potential		  	 -36%	   -6%				         13%     44%     41%     19%</b>

**AllTooFoolish's CAPS Portfolio:** 
If you are interested in seeing this method applied to a broader universe of stocks, follow my actively managed Benchmark Investing portfolio 
using Fool CAPS. I have been using this methodology exclusively in [Fool.com](http://Fool.com) for many years with great success. In the Fool CAPS you will find 
my current portfolio and can see my most recent activities.

Notable activity in my CAPS portfolio over the past three months: 
- no new buys or sells this period

Current BI Portfolio Holdings:
15 Holding in BI Portfolio: EOG, PFE, TAP, DXC, NWL, BEN, FB, AMZN, PXD, DISCA, MS, CAH, IVZ, LKQ, KMI
BI Portfolio Total Return +2.5%
S&P 500 Total Return -6.1%

My overall Fool CAPS Rating at the time of this post was 55 (+4 points since previous quarter)
Score: 1503 (59%)
Accuracy: 46% (48%)

**Disclosures and Useful Terms**
VL Date is the date of the last summary report update from Valueline as indicated in the post’s subject line.
All data sources from Valueline Dow30 reports made publicly available on the VL website. [https://research.valueline.com/research#list=dow30&sec=l...](https://research.valueline.com/research#list=dow30&sec=list)

Current Price is the closing price of the stock as reported by VL, which is usually a few days behind the date 
of the time period mentioned in this posting’s subject line.

ROE/BV Updated is an indication if the stock’s BV and ROE have been updated through the end of the Benchmark evaluation time frame.

10Yr Down is the 10 year downside price. The company must have at least 7 years of non-negative ROE data to qualify.

10Yr Down4Qs is the 10 year downside price averaged over the previous 4 quarter’s valuation price.

10Yr Up is the 10 year upside price. The company must have at least 7 years of non-negative ROE data to qualify.

Both upside and downside are calculated using method outlined in TTD book.
Also a discussion of calculating the upside and downside can be found here:
[http://discussion.fool.com/Message.asp?mid=20916205&sort=who...](http://discussion.fool.com/Message.asp?mid=20916205&sort=who)...

%<10Y Downside is the current price divided by the 10 Yr downside expressed as a percentage.

EPS Future Delta is the projected growth in EPS for the next 4 quarters versus the last four reported quarters.
I use the latest EPS data from the VL spreadsheet which are updated as soon as new earnings are reported.

Div Yield is the current % dividend payout ratio per share.

3-5 Y Low/Hi Price Est. is the downside/upside price estimate which is calculated using the projections of Book Value 
and ROE as discussed in TTD.

Min VL Price Appreciation is the expected change in price from current price to low end VL projected 3-5 year
appreciation price.

VL Price 18 Price Appreciate is the VL projected % change in price from current price within the next 18 months.

ROE >2STD is part of a margin of safety consideration, which is briefly discussed in TTD on pg 70-71. 

I compare the current year's ROE versus the last 10 years of ROE data. If the current ROE is greater than average (10 Yr
ROE) + (2 * stdev(10 Yr ROE)), 
than this column is TRUE, else it is FALSE. This tells me that the stock's ROE is much higher than its historic average and should therefore be avoided.
11 Likes

My question is how has the strategy done over all these years? What has the experience been like? I did read the book by the way.

I haven’t been good about tracking the returns over the years. The pure BI methodology focuses only on DOW30 stocks. Once I found this wasn’t practical to do in recent years, I branched out to a broader group of stocks and didn’t keep track of their individual returns.

Confounding the problem is that I hold my BI picks within a broader group of stocks using different methodologies, and they are all in the same account. I haven’t taken the time to do the proper math to see how BI Picks have done separately from the others. I wish I had, but didn’t, so now it would take a lot of effort to untangle the returns.

I might try and find the time to do it going back in time one year at a time. If I do I will append these results to the thread.

3 Likes

Ok, thank you. It seemed like a good strategy when I read the book.