#65, Uncertain Times

Nothing To Do At Ewa Beach, Ewa, Hawaii, October ‘07, artistic view, map.


Under An Orange Cloud, Sunset Beach, North Shore of Oahu, Hawaii, October ‘07, artistic view, map.

These are indeed uncertain times. Some of that sentiment has already been reflected in newspapers, on TV, in videos, on the web, and even in this blog. Today we are going to add an additional data point to our discussion on uncertain times. Let us look at the stock market that I mention on these pages from time to time, although recently you have to have plenty of optimism to see anything positive on the horizon. Actually this work started near two years ago, on 11/18/06. Back then I decided to prepare several model stock market portfolio and track those portfolios for almost two years. Today we can show how well you would do if you invested in any of those portfolios. For the simplicity, we decided to invest a million dollars in every one of the mentioned portfolios. It is an easy amount to remember, and not the real amount that somebody may have invested. All stocks bought on 11/18/06 were held, nothing was sold, but some companies stopped trading during that period. We did not reinvest the money. Now about the portfolio choices. Two well-known investors were modeled through those portfolios: Warren Buffett and Bill Gates. Also, Joel Greenblatt’s well-publicized Magic Formula of investing is looked at for comparison. How reliable is our information? It is based on information published on the web, and in investing books and literature. It is believed to be fairly reliable but certainly is not 100% accurate. All investing details, I am sure you agree with me, are not revealed to the public.

These are companies and shares included in the Buffett’s Portfolio: American Express 3067, Ameriprise Financial 484, Anheuser-Busch 879, ASD* 202, Coca-Cola 4047, ConocoPhillips 362, Costco Wholesale 104, FDC* 202, Gannett Co. 69, General Electric 154, H & R Block 229, Home Depot 82, Iron Mountain 102, Lowe's Companies 14, M & T Bank 134, Moody's 971, Nike 47, OSI* 37, PetroChina 14, Pier 1 Imports 67, Procter & Gamble 2023, Sanofi-Aventis 9, Sealed Air 14, SunTrust Banks 64, SVM* 79, The Western Union 202, Torchmark 67, Tyco International 202, United Parcel Service 27, USG 132, Wal-Mart Stores 402, Washington Post 34, Wells Fargo 3857, Wesco Financial 114.
The five biggest investments in this portfolio are: Coca-Cola, Procter & Gamble, Wells Fargo, American Express, and Anhauser–Bush. Companies marked with * no longer trade.

These are companies and shares included in the Gates’ Cascade Investment Fund Portfolio: Alaska Air Group 261, Canadian National Railway 3470, Crown Castle International 8103, Fisher Communication 149, FS* 144, ICOS* 1772, Otter Tail 497, Pain Therapeutics 613, Pan American Silver 1690, PNM Resources 1223, Republic Services 5985, Schnitzer Steel Industries 161, Seattle Genetics 1165, Six Flags 3383, Sprint Nextel 4225.
The five biggest investments in this portfolio are: Crown Castle International, Republic Services, Canadian National Railway, Pan American Silver, and Sprint Nextel. Companies marked with * no longer trade.

These are companies recommended by the Magic Formula of investing site: Alon USA Energy, Biovail, BSG*, Career Education, CGI Group, Fording Canadian Coal, Freeport-McMoRan, Frontier Oil, H & R Block, Headwaters, Holly, Kinetic Concepts, King Pharmaceuticals, K-Swiss, McClatchy, Net 1 Ueps Technology, NSS*, Pacer International, Palm, Patterson-UTI Energy, Southern Copper, Teck Cominco, Thor Industries, Western Refining.
An equal number of 1422 shares were used for all companies in the portfolio.

All portfolios were set up on the Morningstar.com portfolio.morningstar.com web site and all data comes from that site.


Value Of Three Model Portfolios, Santa Clara, California, September ‘08, real view, click to enlarge. The time scale is from Oct. 1, 2006 to Oct. 1, 2008. The initial investments were equal to $1.0 million. Note that all three model portfolios lost money in the last two years.

This is how those three portfolios performed in the last two years. The magic formula worked wonders for many months, then started to go down very fast, and now is the worst choice of all. The Buffett’s Portfolio did not do much in the first year, but then is started to go down, and still remains off from our initial investment. It is however, the best choice of all three model portfolios. Gates’ Cascade Fund was doing poorly basically all the time, and still remains off. These portfolios might indicate that in uncertain times, perhaps nobody does well. If you know of better examples let me know. But only the hard data, please, and not good stories told by somebody.

Berkshire Hathaway, Inc.: berkshirehathaway.com .

Book: Joel Greenblatt, The Little Book That Beats the Market (Little Books. Big Profits), John Wiley, wiley.com, ISBN-10: 0-47173-306-7.

Magic Formula Investing website: magicformulainvesting.com .

MP3 music: http://002e972.netsolhost.com/ .