Over the last couple of months, we’ve introduced a couple of new demonstration portfolios. We believe the concepts represented are at the core (pun intended) of decades of successful long-term investing.

Core Diem

The first demonstration is squarely centered on the core of our method — selecting the best-of-the-best highest-quality companies when their stock price sets up a favorable/superior return forecast. We select three stocks every day for this portfolio from the top one-tenth of the top percentile of all stocks covered at Manifest Investing. The selection criteria is our MANIFEST rank: a combination of quality rating and projected annual return. The amount invested every day depends on the median projected return for all stocks on the day of selection.

We’ve been quite surprised that the same six stocks have been taking turns since mid-October. Eventually another stock will join the party — and we’ll build out the portfolio to a Top Twenty and manage it from there. This morning we accumulated Coach (COH), Cognizant Technology (CTSH) and Solar Winds (SWI). For now, this is what Core Diem looked like:

Balanced Budget

The second demonstration portfolio — likely the HARE in the opinion of most investors — will utilize the balanced investing concepts centered on preservation of capital and an allowance for non-core (general market securities) investing. The allocation is heavily influenced by the standing recommendation of The Value Line Investment Survey. (See accompanying image) With the median return forecast at 8.8% versus a long-term average of 8.5%, we’ll keep cash equivalents and non-core components near the 35% mid-point — our BUDGET.

The balance will be formed by a common stock component — but not just any old mix.

We’ve often been asked why we don’t simply invest in the Value Line 1700 all-of-the-above collection of individual stocks based on the following image. In a nutshell, a blend of smaller (faster-growing), medium-sized workhorses, and larger (slower-growing blue chip stalwarts) is an impeccably good idea.

The S&P 500 large company entrant — investing equally in the whole 500 — has outperformed the S&P 500 cap-weighted index by 2% per year over the last nine years! This advantage extends and manifests in both of the other groups also, producing the stellar performance of this all-of-the-above blend (^VAY):

How about you? Are you afflicted by a lost decade or two? We think seven decades of avoiding lost decades is worthy of considerable attention and implementation.

We’re toying with the notion that the Guggenheim equally-weighted series is just what the doctor ordered.

Out of the gate, here’s what the Balanced Budget Demonstration Portfolio looks like:

Ladies, Gentlemen, Hounds, Hare and Tortoise, Start your engines!

Every year in early May, there’s no room at the inns of Omaha.  In fact, there’s probably no vacancy for 500 miles.  When Berkshire Hathaway holds its annual meeting and Graham-and-Doddsville festival, talk turns to succession.  Who’s in line to take over for Warren (and Charlie) when it comes to the Berkshire asset pile?  So I’ve routinely made it a point to stay close to the phone — just in case they dial me up.  I may have gone undrafted for yet another year, but at least this conversation with our son made me smile.

My commitment and focus on making sure that Warren and Charlie knew that I was “standing by” the phone waiting for their succession phone call clouded my judgment and left me vulnerable.

“Uh, Dad. You’re aware that you don’t have to stand by any longer. Your cell phone means that you can go golfing and that phone call from Omaha will still reach you.”

(Uncomfortable silence) “Whoa. You’re right. I guess one day we’ll no longer have that land line.”

“Yeah. We’d hope so. Because even that has a wireless handset.”

(Gulp) “Settle down or I’ll talk about party lines again.”

“No, Dad don’t go there. It’s too horrible.”

“Do you really expect us to believe that the phone calls on Green Acres and Petticoat Junction and that operator named Sarah resembled reality?”

“Well, when Oliver Douglass climbed the phone pole … that was comedy.”

“What’s comedy is that we still have a land line.”

“Watch it. We pay for your cell phone. That can change.”

“Sorry, Dad. At least that old-fashioned phone (shown here) had a hand-held microphone.”

“Uh … that was actually held to your ear. You talked into the thing at the top.”

“You have GOT TO BE KIDDING, right? I feel like we’re walking among dinosaurs. I’m going to go sit in the car and turn on the air conditioner and think about what it’d be like to not have it.”

“Sit in your Buick LeSabre. It won’t take quite as much imagination.”

“Good point. Good thing the windows still roll down.”

Phone-A-Friend

This week, we continue to build out our perspective on long-term performance relative to the stock market over, in some cases, decades. As a refresher, we’re assuming first name basis with Peter (Lynch), Warren (Buffett & Berkshire), Walter (Schloss) and honoring their long-term achievements. We let Ken Heebner keep his last name because it’s cool … we like to “Heebner” our portfolios.

As expected, the random sampling of rhino funds (red, institutional portfolios) continue to fill in — with the majority now landing close to zero or below, signaling failure to beat the S&P 500 over the periods shown. (“Bill” is Legg Mason Value — famous for his 15-year outperformance winning streak from 1991-2005)

Speaking of winning streaks and “phoning friends” we continue to watch for people (and rhinos) who seem to know what they’re doing. In this case, we cite Eddy Elfenbein (http://www.crossingwallstreet.com) and his current 5-year winning streak of outperforming the market. Another noteworthy source of reliable ideas is Jim Jubak and http://jubakpicks.com and the level of out performance shown here. Both Eddy and Jim are hovering at lofty levels and should be regarded as a source of worthy ideas for future stock studies.

The Challenge Club is no slouch either. Join us [for the monthly webcasts] as we continue this quest/discovery of market out performance that started back in 1999.

As the year winds down — and we get this blog launched — we’ll be going back to a number of our favorites, a few oldies-but-goodies.  Some will share fodder for investment-related and life-related pondering.  Others will convey research methods and findings, but they’re all intended to help you (particularly if you’re new to Manifest Investing) to get to know us better.  This was written after attending a Martina McBride concert this summer — and it’s clear that the stock market does behave very much like a teenage daughter, sometimes.

Benjamin Graham had it all wrong.

I’ll let that heresy sink in for a minute.

I ain’t complainin’, but I’m tired.
So I’m just sayin’ what I think.
And if we’re being honest,
Then honestly I think [we all] need a drink.

Graham — hailed as the father of fundamental analysis and value investing — often used a characterization for the stock market by referring to it as Mr. Market.

Graham’s favorite allegory is that of Mr. Market, a fellow who turns up every day at the stock holder’s door offering to buy or sell his shares at a different price. Rarely, the price quoted by Mr. Market seems plausible, but most of the time it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn’t mind this, and will be back the following day to quote another price. The point is that the investor should not regard the whims of Mr. Market as determining the value of the shares that the investor owns. He should profit from market folly rather than participate in it. The investor is best off concentrating on the real life performance of his companies and receiving dividends, rather than being too concerned with Mr. Market’s often irrational behavior. [Wikipedia]

That’s all well and good — but wrong. There’s nothing about the vagaries of following a “Mr. Market” and the peaks and valleys of a male-based gender emotional excursion that could fully explain overall market tendencies.

And that’s where Martina McBride has one over on Ben. Because the market is a teenage daughter.