Best Of

March of Some Favorite Mentors

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A favorite from March 2012, celebrating the usefulness of Value Line and honoring a couple of legends — Chuck Allmon and Walter Schloss.

My responsibilities at Better Investing included the opportunity and privilege to correspond and spend time with some of the most exceptional investors in stock market history. From Peter Lynch to John Bogle and the likes of John Neff, the moments were treasured and the mission was a continuous focus/emphasis on deriving lessons that could be applied to our long-term perspective. The objective is simple. Discover wisdom and lean on experience in an effort to maximize the relative returns of everybody all around us.

Current day favorites include many of you, Jeremy Grantham, Brad Perry and until a few days ago … one of the denizens of Graham-and-Doddsville, Walter Schloss. More on Mr. Schloss in a minute. Another long-time is a favorite for many of you, Charles Allmon of Growth Stock Outlook legend and one of the best stock pickers that any of us could (or will) ever meet. We dubbed Chuck Allmon one of our favorite dancing bears — because the financial media often referred to him as a “permabear.”

We ran across this excerpt (a post on our Forum by Dan Hess) from November 2008 that honored Mr. Allmon’s lifetime achievements but also shared (12) stocks with the market clearly clenched in the teeth of a formidable — and very real bear — at the time. In Dan’s words at the time:

Many will recall Charles Allmon as a contributor to Better Investing for many years and also being a newsletter watched closely by the astute investor Joe Smith. After [a mere] 44 years of issuing the newsletter he will give this up in December. But being only 87 he is not retiring but taking on a new career in a venture capital start up. 🙂

You can read the Forbes Article at How to Pick a Growth Stock.

The article shows 12 stocks Allmon is highlighting in his most recent GSO newsletter. I note that Stryker (SYK) and FactSet (FDS) recently discussed here are on his list as well as a half dozen of stocks with green PARS.

Although Allmon has been a bear for many years it is interesting to see he expects P/E Ratios to fall further back toward the levels in the early 1970’s bear market.

It is sad to see Charles Allmon give up his newsletter but at 87 he plans to continue to his managed funds and start a new career but first he is going to take a well earned vacation at his Hawaii home.

Fast forward 3.3 years …

The Dancing Bear (Charles Allmon) achieved a relative return of +15.7% with this group of (12) favorites from November 2008 — some 3.3 years ago.

The collective return is 33.0% (yes, annualized) and 8-of-12 have outperformed the Wilshire 5000 since then for an accuracy rating of 66.7%.

Dance, Mr. Allmon, dance. Thanks, Dan!

A Few Moments to Honor A Legend …

We lost a great one during February, Walter Schloss — one of Warren Buffett’s SuperInvestors of Graham-and-Doddville.

http://www.bloomberg.com/news/2012-02-20/walter-schloss-superinvestor-who-earned-buffett-s-praise-dies-at-95.html

From recent posts on Walter …

The heart of our Tin Cup demonstration portfolio could be described as “Schlossian.”

Value Line is good enough for Warren Buffett, who wrote about the achievements of Walter Schloss with admiration in his work, The SuperInvestors of Graham and Doddsville. Schloss relied extensively on Value Line.

Over 39 years of investing had delivered annualized returns of slightly over 20% to the clients of Walter Schloss. He worked entirely from a few publications like Value Line.

In Buffett’s words, “Schloss practices investing in a way that any ordinary investor can.”

The Throwing of Towels

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From the January 2003 issue of Better Investing … a reminder to focus on what really matters following yet another particularly challenging period in the stock market.

Enough is enough. Are we ready to throw in the towel? Is it now time to sell all our stocks and abandon our investment club?

No. It’s not. Nobody said this was going to be easy all the time.

In fact,we know that just the opposite is true. Sometimes the largest rewards are realized by those who find a way to ignore the dreary consensus and invest regularly in companies that will survive the stock market storm.

Up and Down and Working

As the market trudges along during 2002,we seem headed for a third consecutive year of lower stock prices.

As this issue goes to press in early November, the Dow Jones industrial average (DJIA) is down another 15 percent year-to-date. It may be hard to believe, but we’ve been tested before. In many ways the tribulations of 1973-1982 were far worse.

Sneak a peek at the accompanying chart. The graphic shows that the DJIA seemingly made no gains for a period of nearly 10 years. Many of the painful prognosticators on television and in the print media are fond of pointing out that stock prices went virtually no where between early 1973 and mid 1982.

At first glance it’s hard to argue with the facts. The DJIA increased from 118.40 to 144.30 some 10 years later — an annualized appreciation rate of 2 percent.

But that’s an urban myth.

Someone who invested $20 per month into the DJIA over those 10 years would have contributed a total of $2,400. The value of this $2,400 stake actually reaches $3,400 at the end of 1982. The reality is that during this terrible test of investor resolve, a committed and disciplined effort to invest $20 a month (in the DJIA) netted an annualized rate of return of 11.5 percent.

Ugly Charts, Ugly Ducklings?

The story doesn’t fluctuate.

Stock prices do. Looking at the ugly chart shown above, I thought it might be interesting to take a look back at what our NAIC editors said during times like 1975, 1978 and 1982. These had to be times when it seemed like the stock market would never continue its upward advance. It had to be particularly depressing as the DJIA approached and retreated from 1000 three separate times over that 10-year period.

As the 1980s began, our editorial reflected on the challenge of the 1970s.

“With the 1970 and 1974 credit crunches, the oil embargo, the high rate of inflation, escalating fuel prices and international instability, it’s hard to picture a worse time for investing. The poor investor who hasn’t had guidance in this period has been lost at sea.”

“NAIC’s suggestions are basically simple. We believe that investing in stocks is a way to take advantage of the growth that businesses continually strive for.”

“By carefully selecting good companies and paying no more than reasonable prices for them, investors can enjoy their progress.”

At the time, a scholar had written a book and placed NAIC stock analysis tools in a featured place in his text.

In his opinion, our tools were the “Standard of Excellence” of all the stock analysis material he had seen.

Long-time NAIC investors who own good quality stocks over their lifetimes have excellent results.

No one knows how long a market decline will last. When the fall continues over a long period,it becomes very difficult to continue investing.

But profits come quickly once the turnaround begins, and they begin to multiply. Note the right-hand side of the chart.

Put down that towel, throw another $20 into the club kitty and hug an ugly duckling.

2008: A Dark Night?

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The following post is a little lengthy.  We present it here because it was developed as an introspective during the darkest days of the Great Recession.  As we studied company after company with long-term return forecasts of 20-40%, confidence was shaken as the financial crisis brought Wall Street and Main Street to their knees.  The retrospective of what happened during 1974 and 1938 combined to bolster all of us.  The early days of 2009 were a unique moment in time when it truly was time to back up the truck (as many trucks as you could muster) and those who did were rewarded and the long-term perspective fully restored and reinforced.

When would that have been?

I can vividly recall sitting in my office at Better Investing back in late 1998 with Don Danko, the magazine’s sage editor. We were nestled in the middle of that bubbly bull market and Don expressed some concerns that nobody else seemed to be aware of. It had to do with unbalanced, accelerated returns over short periods. In his words, “The comparisons matter … this is going to be tough to compare to … five years — and ten years — from now.” For me, it was an unforgettable moment and lesson.

In other words, the outlook for a roman candle is worst when the audience is going “Oooo … and Ahhh” as the projectile reaches its apogee.

NAIC/BI founder George Nicholson, Jr. CFA had wrestled with these issues a couple of decades ago. The following chart illustrates pretty clearly the last time investors faced a situation similar to 2008:

A nod to MANIFEST subscriber Gary Simon, for providing the inspiration for this graphic. The caption used to say something about 10-year annualized returns basically “never” being negative.

Those words no longer apply.

And Nicholson’s anxiety becomes obvious … the year was 1975.

Check out where the 1985 box “landed” — reflecting the results of the next ten years following 1975. Note the positions of the boxes for 1976, 1977, 1978 and 1979 … ten years hence the Go-Go years of the late 1960s.

Now heed the landings of 1986, 1987, etc. The takeaway is that when roman candles return to ground zero — it’s time to go shopping, even if you have to grit your teeth.

Here’s another look that is eerily familiar as the toppling market in 1974 certainly resembled what we’ve experienced over the last 18 months or so:

Seasoned investors may remember David L. Babson’s cautionary words back in the 1965 and late 1960s as he assailed the gunslingers of the day, market professionals that seemed to be ignoring valuation and chasing momentum stocks. In a speech (attended by a huge crash of rhinos) from March 1968, Babson said and wrote, “The long-range expectations of many investors are becoming increasingly distorted by the speculative atmosphere that pervades the financial community today. Stock trading is the heaviest in history and is a direct result of the growing emphasis on quick profits and rapid portfolio turnover. The successful long-term investor avoids being over-influenced by the emotions of the day. This is the way to achieve really good results without exposing valuable capital to above-average risks.”

Institutional portfolio turnover was approximately 40% at the time!!! (The average turnover for recent years has been closer to 100%.)

In any event, the roman candles of the mid- to late-1960s were setting the stage for malaise ten years later.

Rely on Financial Editors — Nicholson, January 1975

What was on George Nicholson’s mind during late 1974? He was concerned about the irresponsible behavior of the media. Interestingly enough, my colleague Kurt Kowitz brought up the 24/7 nature of the media this very morning: “They’re not helping.” Nicholson wrote a series of commentaries urging patience and responsibility from media leaders … and then he turned his attention on the lessons of history, the environment of 1938 and the experiences of investors as he was just getting started in the realm of investing. Here are some of the highlights:

Paper losses on stocks are no more real than paper profits because prices swing with fickle public opinion.

1830 Prudent Man Rule: “Do what you will, the capital is at hazard.” — Judge Putnam.

Looking ahead to 1975, we know we have to think, work and use self-discipline to make progress.

Look back at 1938, when auto production dropped 50%. (Hitler’s military was nibbling away at Europe)

But 1938 was a good year to invest. The DJIA had fallen 50% from the 1937 high by March and rose 60% before Thanksgiving.

The [stock market participants] who sold their stocks in 1938 missed the boat. 1938 separated speculators from investors.

From 1928 to 1938

By the roman candle logic, the 10-year period following the roaringest of the roaring 20s was destined to be a tough comparison, providing the justification for Nicholson’s retrospective:

Prior to 2008, this was clearly one of the toughest sledding 10-year periods in stock market history.

Here’s a closer look at the 1-year results for 1910-1940:

I think few people realize that some of the best years (including the #1 all-time, 1933) in stock market history came during the Great Depression. One of the things weighing heavy on Secretaries Paulson and now, Geithner, is the entry we see here for 1931. The theory is that too much time lapsed between October 1929 and the ultimate corrective actions attempted. Whether or not we agree with the intervening efforts made to date — this image should help to drive home the import of expedience.

1929, even with the Crash, was not the ugliest year. That “honor” belongs to 1931. 1930 and 1932 (and 1937) were nothing to write home about either. Ted Brooks covered much of this and shared some solid perspective, along with this data. Thanks, Ted!

But pay special attention to 1934-1936 and 1938. This was part of Nicholson’s focus.

The corollaries appear to be strong. His mention of the 1938 auto production swoon is nothing short of “haunting” for those of us at our own version of Ground Zero near Detroit. It also adds fuel to my commentary about when executives lean on “unprecedented” as an excuse. As I’ve suggested before, there is very little “unprecedented” about the situation that the American automotive firms find themselves in. (What appears to be unprecedented is the lack of reserves to sustain during the cycles.)

Investment is Keystone — Nicholson, February 1975

Nicholson continued the prodding of the financial journalism world a month later, along with a reminder to the citizens of Better Investing nation that investing is crucial to the generation of future freedom:

In this year of crisis, learning investment has new meaning — that is, restoring the capital markets and the economy.

Has America forgotten to invest? How important is investing to individual Americans? The [media] in their anti-business, anti-investment crusades have overlooked the role of investment [in achieving and maintaining a peaceful balance.] Investing is indispensable to mutual survival …

Three months ago, the media would jump on [Alan] Greenspan for his remarks on the jobless plight of investment personnel. Now both construction workers and auto workers know in general that, when the investment industry breaks down, some of their workers go from private to emergency government payrolls at greatly reduced rates.

(Yes, he’s talking about the same Alan Greenspan that you’re thinking …)

The financial community — institutions … and analysts — are as open to criticism as the media for their shortcoming of wanting too much regardless of consequences. Their standard guideline should henceforth be “better” not “more.”

But in the final analysis the individual investor, not the institutions, has the responsibility for supplying money for big and small businesses. American investors, through individual action and moral persuasion, must make investment work in the world.

Sound topics for your February 1975 club meetings: 1. [Our time-honored principles] 2. [Quality companies] and 3. Triple Play Investing as particularly applicable to today’s market.

I have been investing proceeds in Triple Play situations during 1973-1974 in preparation for the next bull market. If past performance is a guide, the performance should exceed the DJIA by a wide margin.

Triple Play Investing

My instincts on this stuff are generally pretty good … but I have to admit that I smiled a little when encountering this reference to Triple Play investing — considering our recent presentations and efforts at MANIFEST.

Restoring the Capital Markets — March 1975

“Bank director, officers and financial analysts, if they want to avoid another debacle, should understand the 1830 Prudent Man Rule … in its entirety and grasp its essence — which is, that finance must back prudent businessmen, if the Nation is to prosper.

“Manufacturers and labor should speak up — impress their views on the financial community — finance all industries or perish.

“Restore broad and vigorous capital markets. We all need to do our part — savers, investors, labor, management and bankers.

“Thirdly, examine critically Benjamin Graham’s article of Sept-Oct 1974. Does he fail in not separating income from value in a period of inflation?

“Does he stick with the technique of comparison of income to the detriment of using common sense as to value in light of the facts of inflation?

When Harvard Lost But Won — Nicholson’s World, April 1975

In 1831, Harvard lost a law suit. Now it has over a billion dollars.

From 1823 to 1828, the Harvard account balance had declined from $50,000 to $38,000. John McLean died (10/23/1823) and Harvard attempted to recoup the loss via litigation.

The ruling was made in favor of the trustee : “All that can be required of a trustee to invest, is, that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital invested.”

The Harvard Trust was 100% invested in common stocks and in fundamental industries essential to the industrial growth of a Nation: banking, insurance and manufacturing.

Justice Putnam’s decision was far-sighted and good for the Nation.

Prudent Investing

Nicholson wrote often of the Prudent Man Rule, celebrating his alma mater’s defeat in the courts and their victory in learning more about successful long-term investing and accountability.

Diligence matters and Nicholson was convinced that returns could be enhanced by paying attention to the characteristics of opportunistic growth, excellence in management and superior profitability — the very essence of our continuing quest to this day.

For those paralyzed by watching too much media :), bear down … complete your studies carefully — and when you discover a high-quality company that is appropriate for you, with relatively high projected annual returns, become a watchful owner.

Bull Market & Boom Ahead — Charles Allmon, July 1975

Charles Allmon is nearly unequaled as a stockpicker. His commentaries are among my favorites in the Better Investing archives. He was notoriously bearish on any given day. His portfolios achieved high relative rates of return and his outstanding results have been chronicled and hailed by the Hulbert Financial Digest. That he did this — often with massive amounts of cash equivalents — was an irritant to some of my professional investing colleagues and I’ve witnessed some gnashing of teeth over the years. 🙂

His words here are a timeless testimonial to an exemplary Community of investors. Take a bow.

Is this bull market for real? Probably. There are sufficient doubters around to assure that a generally rising stock market might endure into 1977 or even longer.

One particular group of NAIC investors rate high marks in my book. They’re the experienced investors (20 years or more) in the 60-80 age bracket. It was something of a revelation to find that a surprising number held a contrary view during October 1974 … and generally agreed that better days — even happy days — might lie immediately ahead. I spoke with scores of investors at the 1974 convention. Only the “oldsters” seemed to be tuned to my wavelength on this matter of investor psychology and where they thought we’re headed.

So what else is new?

Sticking to the Knitting, 1973-1983

I’ve written previously of the outstanding stock selections made during the 1970s test of the investing mettle of our Community. We’ll take a closer look at some of the specific selections from the monthly stock features in another “report.”

I’ve also written about the virtues of investing regularly in carefully chosen stocks. Much is made of the “flat spot” in the market from 1969-1982. But we don’t invest in markets, we invest in leadership companies when the price is right. And investing regularly has incredible virtues versus tracking a lump sum invested in 1969 in an attempt to suggest that equity investing is futile — or dangerous.

Hog wash. It’s an UGLY urban myth. One of the ugliest.

In the “Throwing of Towels”, I documented the difference between investing regularly and shared that a return of 11.5% was achieved, during a period when the stock market notoriously gained ONLY 2%.

I’ve experienced similar encounters with the multi-decade crowd that Mr. Allmon salutes — and trust me, they’re thinking about the opportunities presented today a whole lot differently than the media is doing lately.

Do you buy the Bowl or the Goldfish? — Nicholson, August 1975

The goldfish bowl appears to have been an oblique reference to the Prudent Man Rule at the time … We’ve had some discussions about the threat of inflation and its impact on our studies — and we’ll continue that in earnest. Gerald Ford was focused on inflation and it would wreak havoc over the next few years and Nicholson spent considerable time on “inflation investing” during the period. He starts with an extremely contrarian view from Benjamin Graham:

At the midway point of 1975 …

Moreover, the economy seemed to be saucering out and ready to climb. Inflation was weakening. So what was there to worry about?

Price: Another aspect of the moral question is price and inflation. Ben Graham (10/1974) Financial Analysts Journal on “The Future of Common Stocks” emphasized the importance of common stocks and the need to buy at appropriate prices.

Forbes interview (6/15/1975): What about inflation? Doesn’t it wipe out the growth value of common stocks?

Graham replied, “I’m not ready to accept that, after 100 years of being a bullish argument for stocks, inflation could turn out to be a bearish argument. Through inflation, businesses have tremendous assets selling at a discount from their replacement costs. I think it shows the shortsightedness of the financial community not to recognize it.”

Goldfishbowl

Buffett’s 12-Year Horizon & Expectations

The financial media has been picking on Mr. Buffett again, attempting to spew meaningful conclusions over recent investments in General Electric and Goldman Sachs … and assailing his positions in Wells Fargo and American Express. (Will they ever learn?)

His horizon is different and exceeds the comprehension of those assigned to fabricate reasons for market gyrations on a daily basis. I don’t envy them. We’ve seen them use the same reason on different days to explain market direction in opposing directions. 🙂

Morningstar’s Bill Bergman recently shared an outstanding perspective on a very long-term put option purchased by Buffett’s Berkshire Hathaway last year. In a nutshell, Buffett only has to pony up if the stock market is lower 12 years from now than it is right now. In the meantime, Warren gets to “play” with a few billion dollars. ($4 billion, if you’re keeping score)

Bergman’s commentary provides an excellent perspective to wrap this discussion of our dark night, 2008. It includes the answer to, “How often have returns been negative for a 12-year period for as far back as we can measure?” In other words, has Buffett lost his mind?

“Since 1950, using daily data on the S500 (adjusted to include dividends), there are roughly 11,850 days to compare where the index was relative to where it was 12 years earlier. The average 12-year return on the S500 since 1962 was 165%. In other words, since 1962, the S500 has on average more than doubled over any 12-year period. The S500 actually fell below where it was 12 years prior on 58 days over that time frame, or about one half of 1% of the time. The average 12-year change in the S500 for those 58 days was negative 3.5%. In other words, the S500 declined over a 12-year period only one half of 1% of the time, and when it did, the decline was less than 5%.”

“Looking at these data also reinforces how infrequently the 12-year returns have been below zero—and when they were, declines were modest. A single three-month period in 1978 accounts for almost all of the 58 times the 12-year return came in negative. In turn, given that we’ve had a few instances of negative 12-year returns in recent months, a naive look backward suggests the conditional probability of a negative 12-year return from 2007 to 2019, given that longer-term returns have collapsed since 2000, might be even lower than our experience on average since 1950 would suggest.”

Looking Forward

It’s hard to look forward without looking backward. Our expectations are products of experience. In capital markets and economics, one set of tools includes predictive models based on complex math fed with historical data. But the most complex tools are not necessarily the best things in the tool chest. Simpler, wiser judgments can easily trump complex math. On that score, an observation Buffett recently shared with a network TV audience may provide some valuable perspective:

“Ever since 1776, betting against the American people hasn’t been a good idea.”

As Ben Graham suggested, if the math involves anything more than algebra … it’s probably of not much utility in the realm of investment analysis. Stow the tools. Lean on Buffett’s instinct.

Buffett has also mused about the current bear market — sharing openly that he’s seen several of these — and he only hopes to live long enough to see a couple more.

Somewhere in Omaha, an accomplished long-term investor is taking another sip of Cherry Coke and putting his feet on his desk again. He’s thinking about opportunities, closing his eyes, and visualizing where that company seems to be headed over the next five years. Sound familiar?

If Warren is shopping and you’re paralyzed, I’d argue that it’s time to join him. Dark nights are no joke but Nicholson would encourage us to see the opportunity, instead.

Mark Robertson

Resolutions: Of Chocolate and Lemonade

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Did you know that the fourth highest day of chocolate consumption is January 4th? Yes, trailing only Easter, the Christmas season and Valentine’s Day, that fourth day of every new year marks the collapse of our dreaded new year’s resolutions. You know the routine, “I’m gonna lose some weight, eat less chocolate, stop smoking and drinking and commit some time to getting my investment efforts in focus.”

Be It Resolved…

But four days? I’ll plead guilty to participating in this annual slaughter of good intentions. “No really, I’ll spend more time every day at the health club, just as soon as I can remember how to get there, Dear.”

A funny thing happened on the way to this year’s moment of fleeting resolution. I finally made one that I can feel pretty good about breaking. I pledged that this year I’d refrain from making resolutions. True to form, I began breaking this non-resolution immediately. I haven’t had a cup of coffee yet this year and I’ll confess that this “simply happened.” We’ve closed all of our fugitive investment accounts, consolidating them in a place that we can monitor and maintain using the philosophies and methods you’ll find at Manifest Investing. We’ll be continuing and redoubling our efforts to help groups of employees understand and optimize their defined contribution plans.

If you’re fairly new to investing or new to the concepts presented at Manifest Investing / Expecting Alpha, I want to take a moment and extend an extra special welcome to you. Becoming a committed, patient and strategic long-term investor is probably the most exciting thing that you can do about your future and the well-being of those you care about the most.

Natural Fear

“But I don’t understand all of this investing stuff?” I save my greatest fears for the things I understand the least. I suspect that you have some of the same feelings about uncertainty. If you’re feeling a bit overwhelmed, I want to share something one of my colleagues taught me a long time ago.

She’d been participating in a series of online discussions about stock analysis and long-term investing. She admitted that the avalanche of buzzwords and jargon was making it difficult for her to keep up. But she also shared that she simply kept a file of notes and index cards. Whenever somebody talked about something she didn’t understand, she’d file it. Then she’d periodically revisit the folder to see if there were any cards she could throw away. As time passed, she emptied the folder and discovered a peaceful confidence with her investment decisions.

The rest of the story? This lady ultimately went on to write a column on investing for a magazine!

This approach, or something similar, might work for you. But don’t make any resolutions about it!

An Antidote to the Fear

My experience with my first stock purchase is etched in stone in my memory. With CNBC blaring, I’d taken the afternoon off from work to use my Schwab account for the first time. I’d read some magazine articles and was convinced that Waste Management was destined for greatness. I set some steaks out for the celebration of our arrival as individual investors when my spouse got home from work. With sweaty palms and chronic “stage fright” I finally held on to the receiver long enough to give my purchase instructions to the broker. I hung up and lost consciousness. I recovered to watch the last fifteen minutes of ticker tape for the day. WMX 35… WMX 34 1/8… WMX 34…WMX 32 3/4… WMX 31 1/2. I lost consciousness again. My carefully considered investment had lost ten percent of its value in 15 minutes on this suddenly gloomy Friday afternoon. My wife came home, put the steaks in the freezer, and got out some hot dogs for dinner.

The fear is natural. But there are some answers. Conquering the fear and maintaining the patience and commitment to virtually anything is usually easier when you do it with friends.

Manifest Investing is approaching its 8th birthday. We support the promise and potential of investment clubs for people who want to embark on a life long journey of successful investing. Investment clubs are educational vehicles. Our community of long-term investors is unequaled and a considerable resource for people trying to remove the mystery and become successful long-term investors. If you’re not a member of this community, you should be.

Five Things Investors Need to Understand

Your objective as a serious long-term investor is actually pretty simple. You want to do well. Your version of “how well” is up to you and you’ll learn about the importance of sleeping at night as you continue your investing journey. I believe that reasonable expectations are important. I do not expect to achieve 40% returns year after year. I do expect the returns from my investments to range from one-year drops of 20-30% to single year gains of as much as 50%.

But over the long term, I expect my returns to slightly better (3-5%) than the general stock market. The accompanying figure shows the returns for any given year since 1941. We see that most years, the annual result ends up between 0-30%. In fact, the average annual return for stocks has been approximately 10%. Do you see the “bell curve?”

Annual Returns for the Modern Stock Market. The modern stock market is the period following the reforms of 1932-33 and 1940. Take a look at the returns for the years starting with 1941, a uniquely bad year and 1945, a uniquely good year. Think about world conditions at the time. Note the ebb and flow as the decades roll by. Notice how unprecedented the late 1990s were, as consecutive years all landed to the right. The frustration of 2000-2002 gave way to better times in 2003 and 2004. Sources: Manifest Investing LLC, Ibbotson Associates.

The annualized total return for our Tin Cup demonstration portfolio since 1995 stands at 18.7% during a period when the stock market has advanced 6.4% per year. I believe that aiming for returns that are 3-5 percentage points higher than the general stock market has a decent chance of achieving that goal.  Not every year will be a bed of roses but we spend a lot more energy focusing on the results on the right than the left — all the while remaining focused on the windshield and NOT the rear view mirror when it comes to designing and managing our portfolios.

The first thing we need to understand (and have) is an objective, a target total return. Most people understand annual returns. If you’re offered a certificate of deposit with a 4% return or one with an 8% return with identical terms, most of us would choose the higher return.

Scores of investment clubs achieve long-term annualized returns that exceed market benchmarks. We’ll share details and lessons learned from successful portfolios and mutual funds in future articles. The point is, it is possible to achieve market-leading returns over the long run.

Taking aim at that long-term result requires that we understand expectations for the individual investments that comprise our portfolios. We need to build portfolios with enough return expectations to achieve the objective. Much like caring for a garden, this is a never-ending vigil. We also need to understand the differences between weeds and desired plants. This is the role understanding investment grade, or quality, plays in our efforts.

Using the methods discussed here, the expected returns and quality are built from three characteristics: projected sales growth, profitability and value. Think G-P-V.

Despite all of the buzzwords, it really boils down to common sense. Our son and daughter and our nieces and nephews used to build a lemonade stand while visiting my parent’s house. Mom and Dad lived on a golf course and the stand sat in the middle of some shady evergreen trees. Golfers do get thirsty. It was a good business model. Needless to say, the enterprise was pretty profitable. What was the business worth?

That depends. How much did the lemonade mix cost? What did these young entrepreneurs charge and how much was left after reimbursing my mother? Would it have made sense to launch another location? An income statement is no more complicated than that. How much more will the golfers drink? What profits will be left after paying all the bills?

Common stock investors own a piece of the business, a stake in the profits. A stock price is nothing more than the most recent result of a price negotiation. It doesn’t always resemble what the business is worth. That’s where the value (or valuation) comes in. We’ll take a closer look at valuation next month and attempt to demystify this challenging concept a bit. For now, think Growth-Profitability-Valuation and that this leads to an understanding of quality and expected returns. This is the core of our MANIFEST method. “Less fear.”

A Little Grace & Abbott Labs (ABT)

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From the time-honored vault: Originally published on 12/14/2010, this entry into that year’s Christmas Countdown carried a powerful reminder about the sometimes silent power of long-term investing.
The second company in our 12-day Christmas Countdown is Abbott Labs (ABT).  Abbott Labs has been featured prominently at Manifest Investing in our Sweet 16 screening results for the December newsletter and ABT has been selected twice for the MANIFEST Round Table (more on this to follow) and we regard the company as a core, or bolstering, holding with consistent steady results over the years … Speaking of “over the years,” I don’t know about you, but I get a little reflective and nostalgic as December marches on and the new year approaches.  In this case, our selection of Abbott Labs gives us an opportunity to revisit a story shared by Sharon Serres back in March with the MANIFEST community.  It’s the story of Grace Groner — one of those legendary literary little old ladies.  Grace worked for Abbott Labs and had done so for decades, holding a few shares that she’d purchased decades ago.  I don’t know what other stocks may have resided in her portfolio, but when Grace passed away earlier this year, she left behind an awesome gift for her alma mater, Lake Forest College.

It’s seems fitting to me to celebrate a little grace (in this case, a LOT of grace) during the holiday season.

Abbott Labs (ABT)

No stranger to investors in our community, Abbott Labs (ABT) is a global, broad-based health care company devoted to discovering new medicines, new technologies and new ways to manage health. Products span the continuum of care, from nutritional products and laboratory diagnostics through medical devices and pharmaceutical therapies. The comprehensive line of products encircles life itself – addressing important health needs from infancy to the golden years.  ABT is recognized as a global enterprise with the ability to serve customers around the world.

Throughout its 120+ year history, Abbott people have been driven by a constant goal: to advance medical science to help people live healthier lives. It’s part of their heritage.  Today, approximately 90,000 employees around the world share the passion for “Turning Science Into Caring.” It’s a commitment to focusing on what matters most: life and the potential it holds when we are feeling our best.

Stock Study and Equity Analysis Guide

Q: Why do we do stock studies?

A: To build a vision of what a company (stock) might be worth in the future.

That vision includes two core components: a five-year earnings forecast … and an estimate of the average value (projected P/E ratio) that we believe investors will be willing to pay — based on our assumptions, judgments and careful considerations.

Any stock study is basically a fill-in-the-blanks quiz.  If (company name) can grow sales at ____%, achieve a profitability of ___% for net margin, and if a reasonable price-to-earnings ratio (P/E, essentially the foundation of the value of any company) would be _____x … then the projected annual return (PAR) could reasonably be:  _______%.

In the case of ABT, our answers are (1) 9% … (2) 18% … and (3) 15x … for a result of 17-18% projected returns.

As I mentioned before, we’ve featured Abbott Labs frequently over the last several months.  Recently, I covered it as I discussed some screening results and shared the study results behind the answers selected for the quiz above.  You can view a video (including powerpoint discussion with audio) here:

http://www.youtube.com/watch?v=BU3ECwHXMww

Our next Round Table session is scheduled for [12/29/2012 at 11 AM ET] … with more details and information here:

http://www.manifestinvesting.com/events/103-round-table-december-29-2012

We look forward to discovering a little more grace and formidable long-term investments like Abbott Labs during our Round Table session.

Three French Hens (from December 2010)

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An oldie but goodie flashback. This countdown nostalgic moment comes from the selection of  Vistaprint (VPRT) during our 12-day Christmas Countdown during December 2010.

It was a dark, foggy … actually quite misty … night and I stood and shivered while waiting patiently in the shadow of the Eiffel tower.  I had called Bob Woodward to see if he wanted to come with me, but he had too many Washington D.C. holiday parties to frequent.  I thought to myself, “… even if impaired, he has more experience at this sort of thing than I do.”  It felt good to “hear” some English, even if it meant talking to myself.

My respite was shattered by some rustling.  I peered over my shoulder to see three french hens, decked out in trench coats, scratching their way to me.  I nodded.  It was clear that no password was necessary … but that another bottle of wine wouldn’t hurt.

“Bonjour, Monsieur Manifest.  Comment allez-vous?”

(Great.  More French.) “Greetings.  Do you speak any English?”

“Desole (sorry) … until tonight, we didn’t know that we could speak.”

“No problem.  You’re talking to someone who once wrote that he did stock studies with Elvis at a Denny’s in Kalamazoo.  Anything is possible.”

“Ah! Elvis! Tres bien!  Magnifico!”

“That sounded like a little Spanish?”

“We’re working on our diversity in the hen house.”

“Splendid.  Did you bring the information?”

“Oui.  But try as we might … and we did … we couldn’t find a French investment opportunity for you.  You did that session on Sanofi-Aventis a couple of years ago.  Our advice is to keep Sanofi on the radar screen.”

“What did you come up with?”

“It’s Dutch.  But it seems to fit with the festive season … you know wooden shoes and that Kris Kringle thing.  The company makes holiday cards, too.”

“I’m waiting … if you’re waiting for Woodward, he’ll not be joining us.”

“Americans.  So impatient.  (cackling audible)  The company is Vistaprint (VPRT).”

“Merci.  Have a wonderful holiday season!”

“Au revoir …”

Vistaprint (VPRT) offers small businesses everything they need to market their business. We offer high-quality printed marketing materials, promotional products and marketing services such as copywriting, design, websites and postcard mailing.

Sales Growth Forecast

The company is still relatively small, but growing, and transitioning from a small to medium-sized company.  Higher sales growth rates have been replaced by forecasts that are moderating.  The company is susceptible to recessions (impact on smaller and medium-sized customers) but has been flagged by some analysts — including a cheery consensus — to benefit from economic recovery and small business incentive programs.

The big slowdown in small-medium business spending really hurt Vistaprint, which provides printing and marketing services to companies that are too small to handle their printing needs on an in-house basis. Shares plunged in early August, which looked to me to be a severe over-reaction.

Analysts at Kaufman Bros. see shares rebounding back from a recent $37 to $50 as the company’s sales problems this summer prove to be short-lived. “Vistaprint is currently facing a perfect storm, with small business weakness, adverse (foreign exchange) impact and recent execution issues. We note that all these factors are temporary, and should reverse themselves in the future,” notes Kaufman’s analysts. They predict that shares, which currently trade for 13 times next year’s profits, will trade up to a price-to-earnings (P/E) multiple of 20x once these near-term concerns abate.

Spending at small businesses is likely to rebound only slowly into 2011 and perhaps more robustly into 2012. But investors need to look ahead, and these stocks could start to appreciate handsomely, simply on the expectation that small and medium-sized business spending will eventually rebound …

Profitability Trend and Analysis

Historical net margins are in the 10% range with analyst expectations for 2011-2012 in the 12% range.  This may be optimistic but the company appears to be capable of delivering.

Value: Projected Average P/E

This is a “classic” aging curve — displaying a decaying trend for P/E as the company matures and moves from a small to medium-sized company.  Growth rates in the 30-40% and above have been replaced by expectations less than 20%.  The P/E forecast must naturally follow.

Equity Analysis Guide

Based on a sales growth forecast of 17%, profitability in the 12% range for net margin, and a projected P/E ratio down from historical levels (but still ample) at 22x … the projected annual return (PAR) is 16-17%.

We’ll close with the Christmas Card that I built while visiting their web site (http://www.vistaprint.com) and doing some research on the company.

From partridges to doves to hens, I’m spending a fair amount of time with the winged animal kingdom and now I have to figure out what a “calling bird” is and see if I can locate four of them … (to be continued)

Reminder: This is an educational demonstration with companies used for illustrative purposes.  NO INVESTMENT RECOMMENDATION IS INTENDED.  Do your own homework and make your own decisions.

Things That Go Bump In The Night

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During a recent Round Table webcast, Hugh McManus (March 2011)  shares that humans aren’t necessarily “wired” to deal with the challenges of investing and that we have to seek means of dealing with it.

When you’re sitting around the campfire, noises from the darkness are generally BAD. Fear of darkness isn’t necessarily a bad thing. It just might save your life under the right circumstances. But that same core of human instincts is closely related to why investors in general make bad investing decisions when clouded by emotions and/or adrenaline. During our February Round Table, Hugh McManus shared stories of cavemen, mammoths on the bad end of a spear … our quest for fat (the perfect food) … all while weaving a tale that explained why Vulcans will choose Earth as a perfect retirement village. Turns out our stock market is pretty good hunting for them.

Webcast: Things That Go Bump In The Night (Approx. 24 minutes)

For more information and archived Round Table sessions: http://www.manifestinvesting.com/events

Little Nudges Can Make A Difference

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Originally Published: November 2010 (Expected Returns newsletter)

If you’ve ever wondered how the “little things” in life make a difference, we invite you to spend a few moments with career teacher and retired principal Ken Kavula and his wife Natalie. Scores of investors have been favorably affected and influenced by them. Natalie is a career teacher also. They have both served as volunteers for the national umbrella organization for investment clubs (NAIC) and have delivered a number of educational opportunities and events for investors in all parts of our community. Based on the impact, it’s clear that sometimes “little things” aren’t so little, after all. As Ken often reminds, small companies can deliver large impact on our investing journey.
Investing together is something Ken and Natalie Kavula enjoy. This photo, taken after Ken received a lifetime achievement award for excellence in volunteerism, is from an NAIC national convention. Ken stipulates that any first person “I” in this story should really be a “we”. Natalie and Ken are partners and their family investments are jointly managed. That includes studying, buying, maintaining and selling! “We do it all together and we wouldn’t have it any other way.”

For more: Little Nudges Can Make A Difference

Intelligent Investing

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Among the library of investment books promising no-fail strategies for riches, Benjamin Graham’s classic, The Intelligent Investor, offers no guarantees or gimmicks but overflows with the wisdom at the core of all good portfolio management.

“If you read just one book on investing during your lifetime, make it this one.” — Fortune magazine.

I’ve read it at least two, maybe three, times. Maybe it has something to do with falling leaves and spending a few quiet moments during autumn beside the pond in my back yard. As we embark on a series of case studies and research into what George Nicholson called, “Broadening Your Investment Management Program,” I found myself spending time with Benjamin Graham’s “The Intelligent Investor” again. Warren Buffett knew Graham well (Ben taught Warren how to invest as his professor at Columbia and as a professional colleague) and says, “I read this book as a 19-year-old. I thought then that it was by far the best book about investing ever written. I still think it is.” If you’re serious about learning to invest intelligently, how can you avoid it?

The Intelligent Investor is a book for true investors … inherently for the longer term and requires a commitment of effort. The true investor uses discipline, research, and his analytical ability to make unpopular but sound investments in bargains … Graham coaches the investor to develop a rational plan for buying stocks and bonds, and he argues that this plan must be a bulwark against emotional behavior that will always be tempting during abrupt bull and bear markets.

MANIFEST contributor Ken Kavula often speaks of discipline as the greatest gift bestowed by George Nicholson, Jr. upon the modern investment club movement. Graham and Buffett mention patience and discipline frequently and routinely. On the next few pages, we’ll share some of the highlights from the book. My copy is dog-eared, highlighted and yes, I’ve even written notes in it. Relax, Sister Rita Claire taught me that it was OK to write in books and bend pages so long as it didn’t say “Property of St. John’s” inside the front cover.

In the most recent edition, Jason Zweig makes a solid contribution with editorial remarks and commentary as a continuous “side bar” throughout the book. In his introduction, Zweig listed his interpretation of Graham’s common sense and core principles. Here is how I’d play them back:

1. A stock is not a ticker. Think ownership in an actual business.

2. The market is a pendulum. Momentum creates opportunity during both bear and bull markets.

3. The value of any investment is merely a function of its current price. That value is established by the projected return which is based on the current price and a reasonable expectation for a future price.

4. Insist on suitably high projected returns (but not too high) to build a margin of safety into the decisions you make.

5. Invest with patient confidence.

“If you have built castles in the air, your work need not be lost, that is where they should be. Now put the foundations under them.” — Henry David Thoreau, Walden

Hmmm. If memory serves, Thoreau used to spend quite a bit of time by the pond, also. Interesting that Zweig chose that for the first comment. We’ll now dig in to some of the highlights from my dog-eared pages …

The Myth of 15% Growth

Graham spends time defining investing vs. speculating and investing defensively vs. what he referred to as “enterprising investing.” Our community of investors would easily qualify for the enterprising label.

Many of our colleagues still believe that the magic 15% number cited by NAIC/Better Investing refers to growth characteristics. It doesn’t.

“… only 8-of-150 largest companies on the Fortune 500 managed to increase their EPS at least 15% for two decades during 1960-1999.”

“… only 10% of large U.S. companies increased EPS by 20% for at least five consecutive years, only 3% achieved this for 10 years straight; and not a single one had done it for 15 years in a row.”

The 15% refers to long-term annualized returns for total portfolios.

Market Fluctuations

Common stocks, even of investment grade (relatively high-quality), are subject to recurrent and wide fluctuations in their prices. The intelligent investor should be interested in the possibilities of profiting from those pendulum swings. Every investor who owns common stocks must expect to see them fluctuate in value over the years. [195]

The investor with a portfolio of sound stocks should expect prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. Remember that market quotations are there for convenience, either to be taken advantage of or to be ignored. Never buy a stock because it has gone up or sell one because it has gone down. [206]

Patient Focus — Things That Matter

“… investors who receive frequent news updates on their stocks earned half the returns of investors who got no news at all. [223]

Consider this another important attribute of investment club practices, the notion of meeting monthly. In some cases, reactive decisions to events that were not made have turned out to be some of the best decisions overall.

Researchers Brad Barber and Terrance Odean divided thousands of traders into five tiers based on their turnover. Those with less frequent transactions (at the left) kept most of their gains. Impatient and hyperactive traders make yacht payments for somebody else. (Source: Barber and Odean, University of California at Davis, and Berkeley, respectively.)

The Math — Keep It Simple

… in 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related investment policies, that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal … of substituting theory for experience … or to give speculation the deceptive guise of investment. [282]

Occam was right about his razor.

This is the prevailing thinking behind our emphasis on (1) top-line growth, (2) profitability and (3) reasonable and considered forecasts for P/E ratios … and the math behind it all is relatively simple.

Aggregate Forecasts

…individual forecasts can be wide of the mark. Our general view is that composite or group estimates are likely to be a good deal more dependable than those for individual companies. [288] Think dashboard averages. Think MIPAR.

Smartly Own

When you buy a stock, you become an owner of the company. … there is just as much reason to exercise care and judgment in being an owner as in becoming a stockholder.” [499]

The prudent homework and diligence shouldn’t end when the purchase decision is made. Proportion your time and attention appropriately between candidates for purchase and your holdings.

Trapping Bulls & Quality

George Nicholson warned of swapping high-quality for lower quality stocks as bull markets rage as one of the most dangerous things that an inexperienced investor could do.

Here we find Graham’s own warning on the same behavior: The risk of paying too high a price for good-quality stocks — while a real one — is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that chief losses to investors come from the purchase of low-quality companies at times of favorable business conditions. [516]

Translation: Avoid lower quality companies when MIPAR is in single digits.

Investing is most intelligent when it is most businesslike … disciplined … and superior results are possible. Thanks, Ben (and Jason Z.)

Beyond Football (by Mitch Albom)

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This was originally published on November 11, 2007 as we celebrated the success of our son’s high school football team.  As you’ll see, it’s about much more than football — and it still ranks as one of my all-time favorites.

I recently finished reading Mitch Albom’s latest, Have A Little Faith, and believe it ranks right up there with Tuesdays With Morrie … and thought it might be time to revisit this article from two years ago as Mitch covered Alex’s football team. To this day, Alex’s experience with Coach Patritto, Coach Mullins and his team mates ranks as one of our lifetime favorite moments of Thanksgiving. And for those of you who tire about the football game deluge at this time of year, this might help you to see beyond the GAME.

As many of you know, our son Alex is a senior defensive tackle for the Rochester Adams Highlanders. We featured a look at Alex during a growth study on the subject of forecasting when performing investment analysis. Update: He’s now closer to 6-2 and 230 lb and still eating entire pizzas and multiple bowls of cereal, so he’s not done growing yet. Why the obsession with football? I think the following column by Mitch Albom, nationally-syndicated columnist and author of the best-seller “Tuesdays with Morrie”, gives you a pretty good idea that although we’re talking about football … we’re talking about much more than football.

LOOK OVER JORDAN, WHAT DO YOU SEE?
Rochester teen defies stereotypes as school makes run for football glory

November 11, 2007

BY MITCH ALBOM, FREE PRESS COLUMNIST

Friday night, at a high school football playoff game, it was damp and cold, and the players bounced on their toes to keep warm. Near the Rochester Adams bench, amidst all these bigger teenagers, stood Jordan Kidder, barely five feet tall, with glasses and braces, a school cap, a jersey, a varsity jacket and a job to do.

“Watch this for me, Jordan, OK?” a player said, running over.

“OK,” he said.

“Some water, Jordan,” another said.

“Here,” he said, handing over a bottle.

“How’s it going, Jordan?” another said, slapping his hand.

“Going good,” he said, slapping back.

As the game went on, he didn’t throw a pass or make a tackle, he never pulled on a helmet, but when the Highlanders scored, he clapped his gloves hard, and when the kicker needed a tee, he made sure it was there, and when the team went to halftime, he went with them, getting the guys whatever they needed, encouraging them to keep fighting.

As student manager, Jordan Kidder, 18, has a unique job. As a young man with Down syndrome, he has a unique life. He doesn’t quite look like the guys on the team, isn’t quite as big, doesn’t speak the same way, maybe moves a little differently. And in high school, where being “different” can be a curse, you might think the other players have been teaching him something.

Truth is, he has been teaching them.

“I didn’t really know what to make of Jordan when we met,” admits Josh Renel, Adams’ star running back, who now picks up his buddy every Tuesday en route to team dinners at Buffalo Wild Wings, “but Jordan has shown me you can’t really judge a person by what he looks like. He’s just like any one of us.”

The story behind his name

Just like any one of us. That sentence would have been laughable 18 years ago, when Cynthia Kidder was pregnant. Tests showed the likelihood of serious problems, and it was politely suggested she terminate the pregnancy. In fact, today, when a prenatal diagnosis is given of Down syndrome, studies suggest up to 90% of women choose to do just that.

Cynthia refused.

“If I have a child with problems,” she said, “it’s still my child.”

At the time, she was confident. She had a big job in New York, she had two other sons. She could handle it. But when the child arrived, she recalls, “People didn’t say, ‘Congratulations.’ They said, ‘So … I hear you had the baby.’ ”

A dire life was predicted for her son: heart defects, smaller limbs, almond-shaped eyes, low muscle tone, learning disabilities. All the typical stuff with Down syndrome, a chromosomal abnormality that usually affects cognitive ability, physical growth and facial appearance — in other words, how you think, how you grow and how you look. He’ll never read, Cynthia was told. He’ll never do math. He’ll never do anything that’s not repetitive behavior. A doctor told her the “good” news: There were two Down syndrome kids he knew “who worked at a McDonald’s, wiping tables.”

Cynthia was drowning. She called a religious aunt and asked for support. Somehow the spiritual “Swing Low, Sweet Chariot” came up in the conversation, and the line, “I looked over Jordan and what did I see … a band of angels coming after me …”

The next day, she woke up feeling better.

She named her baby Jordan.

And from that day forward, the kid has been defying predictions. He learned to read — slowly, but he did. He learned to do math and science. He went to classes with other “normal” kids — at Cynthia’s insistence, and with help from the Rochester school system — and he made his own friends with an amazingly open and happy heart. One time, when Jordan was playing tag with some fellow grade-schoolers, Cynthia noticed they kept telling her son he was “it.” Worried, she quickly intervened, lecturing the boys on the rules. But later Jordan told her, “The first part of recess was more fun. I got to be ‘it’ the whole time.”

Cynthia and Jordan’s father held Jordan to the same standards as their other children. They found teachers who would do the same. As a result, Jordan has grown into a pretty typical teenager: He listens to Zebrahead on his iPod, watches pro wrestling (his favorite is A.J. Styles), scarfs down hamburgers and pasta, sings in the choir, and is even on the swim team. OK, so he almost always finishes dead last. What’s important to him is that he’s part of things.

Besides, at one swim meet, he finished next-to-last. You never saw anyone as happy with that result as Jordan was.

The story behind his role

But what Jordan really loves is the football team. He has been a student manager for four years, starting with the freshman squad and working his way up. He handles the equipment, distributes the water and consistently raises team spirit. The first day, he admits, “I was nervous. But I got over it.”

Why were you nervous?

“I’d never been on a football field.”

Were you worried they’d tackle you?

He explodes in an infectious laugh that could melt the hardest heart. “No. But one time, against Troy, I ran on the field for a tee, and they all came flying by me — whoosh, whoosh.”

Did you go down?

“No,” he laughs again. “I went in between them.”

Kids with Down syndrome are often described as having an almost supernatural effect on those who know them, a certain sweetness, innocence and nonjudgmental persona that, for want of a better phrase, chokes you up.

Tony Patritto, the Adams football coach, has that look often when he speaks about Jordan. Like so many others, he had never dealt with a Down syndrome kid, and his instinct, at first, was to pity and make concessions. Except Jordan kept coming late to science class. “I called him out,” Patritto says. “I took a chance.”

Jordan responded. And he has been part of Patritto’s world ever since. There’s a team gesture his Highlanders players use, a shark-like hand-to-the-forehead that signals “fins up” for defense. Whenever Patritto sees Jordan, in the hallway, in the locker room, “he gives me this huge grin and makes the ‘fins up,’ and it just makes my day.”

When you ask Patritto what Jordan’s duties are as team manager, he answers “to be with us.” When you ask Renel, the star running back, about Jordan’s popularity, he laughs and says, “You cannot not like him.” When you ask Jordan — who shaved his head with his teammates when the playoffs began — what he will miss most when football ends, he says, “My friends.”

And when you ask Cynthia Kidder, who now runs a national Down syndrome organization called Band Of Angels, dedicated to celebrating and supporting those with the disability, what she thinks about her son graduating next spring — and planning to go to college — she recalls how teachers once told her that by the fourth grade, Jordan might be able to make macaroni and cheese.

“I told them, ‘He lives in my house, I can cook for him. But I’m not a teacher. Can you teach him?’ ”

They have. And he has taught them. About stereotypes. About patience. About dealing with real problems and still maintaining an explosive laugh and a sly sense of humor. When Jordan was told a Free Press photographer was going to take his picture, he asked, “Can they take one of me and the cheerleaders?”

Adams won big Friday night, capturing a Division 2 regional championship, 49-10, over Farmington Hills Harrison. If the Highlanders (12-0) win two more games, they will be state champs, the Promised Land for a high school football team.

Then again, they may already be there. You look over Jordan and what do you see? A big-hearted teen flanked by a band of angels — teammates, teachers, family, friends — all loving someone “different” no differently than they love themselves.

If that’s not the Promised Land, what is?