On Recessions (State of Investing)

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

If there’s one image that captures the State of the Investing “Union”, this is one of the more important flavors. Recessions massacre profitability and explode Stock Selection Guides (2008-2009). Companies with weak profitability dip below zero and EPS “disappear.”

Value Line Arithmetic Average Companies ($VLE) ex-Financials. This statistic covers the industrials and excludes the asset-based companies where we focus on ROE.

One of the biggest reasons that the 2016-2017 period for the bull market was so “empty” for most investors is because of the recessionary conditions that materialized in some segments, rolling corrections. With the tax law revisions for 2018 and beyond, we’ll be carefully monitoring the additions of 2020 and 2024 estimates to our studies as Value Line ratchets their data arrays one year during upcoming Issue updates.

Crowning Groundhogs (2018)

This Week at MANIFEST (2/8/2019)

“A group of investors heeding the lessons of Graham, Babson and Nicholson has at least one leg up on the crowd and a better than average opportunity to generate exceptional returns.” — Our Groundhog Creed.

Super Performances

The Super Bowl is on Sunday.

Sorry Patriots fans, but if you care about the 2019 stock market, the only thing standing between you and the oblivion of an “old AFL team” winning the Super Bowl and poking the restless bear, the accompanying image of a focused Ram is it. Go Rams!

And that’s the second most important thing going down this weekend.

Our courageous band of Groundhogs have finished another revolution around the sun, the twelfth such rendition — and we’ll be crowning another repeat champion, Anna Gombar of Holly, Michigan.

Inviting Anna Gombar (and her husband Rod) to a stock selection contest is like inviting Tom Brady to a football tournament.

The results are in and the accounting team is crunching numbers, munching pizza and chugging adult beverages in the conference to compile the final results. Spoiler alert: They’re outstanding. Again. (I hope) No, we expect.

Back To The Super Bowl And All Things Commercial

What have been your favorites over the years? The Coca-Cola ad ranks as one of the best of all time. The Apple commercial is epic. And Budweiser consistently hits it out of the park with the gorgeous Clydesdales. But the E*Trade babies and the CareerBuilder Monkeys are legendary.

But — to us (particularly in Michigan) — the Eminem commercial by Chrysler stands out among the best. Ever.

The S&P’s 7.9% Advance Marked Its Best Start To The Year Since 1987

Sharp Rebound. The S&P 500 had it’s best month in three years following December’s slump. Hard to think of the market gyrations over the last four months as anything but a YoYo “Walk-The-Dog” market.

MANIFEST 40 Updates

  • 2. Cognizant Technology (CTSH)
  • 4. Microsoft (MSFT)
  • 12. Alphabet/Google (GOOG)
  • 19. Visa (V)
  • 27. Oracle (ORCL)
  • 28. Wells Fargo (WFC)
  • 36. T. Rowe Price (TROW)

Round Table Stocks

  • Amazon (AMZN)
  • Baidu (BIDU)
  • Booking.com (BKNG)
  • Cognizant Technology (CTSH)
  • eBay (EBAY)
  • EPAM Systems (EPAM)
  • FleetCor (FLT)
  • Global Payments (GPN)
  • Infosys Tech (INFY)
  • Microsoft (MSFT)
  • PayPal (PYPL)
  • SEI Investments (SEIC)
  • T. Rowe Price (TROW)
  • Western Union (WU)

Best Small Companies (2019 Dashboard)

The status of the 2019 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-2019

Investing Round Table Sessions (Video Archives)

Turnout Tuesday Educational Sessions

Results, Remarks & References

Companies of Interest: Value Line (2/8/2019)

The median Value Line low total return forecast for the companies in this week’s update batch is 5.7% vs. 7.7% for the Value Line 1700 ($VLE).

Materially Stronger: Fiserv (FISV)

Materially Weaker: Sohu.com (SOHU), Ameriprise (AMP), SEI Investments (SEIC), BlackRock (BLK), Ctrip.com (CTRP), GroupOn (GRPN), Capital One (COF), Ansys (ANSS)


Market Barometers

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

Value Line Low Total Return (VLLTR) Forecast. The long-term low total return forecast for the 1700 companies featured in the Value Line Investment Survey is 7.7%, decreasing from 7.7% last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 20% when stocks are in the teeth of bear markets like 2008-2009.

Groundhog Challenge 2019

Gh invite 20190130

Get Me Through December … & Beyond

This Week at MANIFEST (12/28/2018)

“Patience is genius in disguise.” — Various, including Hugh McManus

“A 10% decline in the market is fairly common—it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefiting from the wealth building power of stocks.” — Christopher Davis

“You make most of your money in a bear market, you just don’t realize it at the time.” — Shelby Cullom Davis

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

““Is value investing dead? I don’t know. I don’t care. I don’t know when we will know. What I do know is that Warren Buffett says that growth investing and value investing are actually joined at the hip. (Tom O’Hara said this, too.) Valuation Investing is the blend of growth and value investing.” — Joel Greenblatt

Get Me Through December?

Eddy Elfenbein shared the unpleasantness update in this week’s Market Review at crossingwallstreet.com:

The numbers are remarkable. On Thursday, the S&P 500 closed at its lowest level in 15 months. In the last 12 trading sessions, the S&P 500 has lost 11.6%. The details are even uglier. Within the index, 423 stocks are now trading below their 200-day moving average. On Thursday, new lows beat new highs 175-0.

20 Years With The Value Line Arithmetic Average ($VLE). Some context. We’ve seen similar moments like this before. But there’s no denying that the December “candlestick” is in a league of its own … rare company. We’re approaching long-term “Oversold” conditions as suggested by the relative strength index (RSI) nearing 30 and relative long-term lows. We’re reminded that the trailing 52-week returns have dipped sub-zero a few times in the last few years — so this should not be regarded as something new or unusual.

Manifest Investing Median Return Forecast (MIPAR). It’s clear that the median (basically average) return forecast for the 2300-2400 companies in our coverage universe have SUDDENLY shifted to new levels due to the price drop. This could also happen from a breach of fundamentals — but that is NOT the case, here … at least not yet. Return forecasts are now at levels we haven’t seen since 2008-2009.

Source: https://www.morningstar.com/tools/market-fair-value-graph.html

Beyond December — A Hope For Fewer Potholes …

My take on all of this carnage? It’s different this time.

Yes, I said the words.

Bear markets and corrections are pretty unique despite all of our attempts to slap historical price chart overlays and compare factors, etc. The simple truth is that (1) the sample size will never be statistically sufficient for any material conclusions to be reached. [Yet the Rhinos will continue to try. Smile and nod at them.] (2) Markets are not rational.

Current conditions definitely qualify for a sedative or something stronger.

Look no further than the accompanying weekly chart of the Value Line Low Total Return Forecast to see how sudden the current price correction has been. We’ve not seen a change with this velocity or ferocity since 2008. You remember, right? With Christmas carols humming in the background, recall the names Bear Stearns, Lehman, Merrill Lynch and things like credit default swaps and neighbor’s houses in foreclosure.

Yes, there’s a mountain of uncertainty and an abyss of incivility inside the Beltway and a President who’s certainly disruptive. But the core problem with the status is virtually unchanged — ALL of the political posers persist in patching or ignoring potholes (healthcare, immigration, infrastructure, federal capital structure, failed nation building, sloped international trade playing fields, the ostriches and lobbyists related to real capital markets reform, etc.). The hypocrisy is gut wrenchingly prevalent.

I think the stock market is legitimately tired of the perpetual motion of Congressional Kick The Can Down The Road — and corporations are suddenly much more guarded about faith in consistency and less optimistic that the moving targets have abated. As the foot comes off the accelerator and taps the brakes (again) we might return to the recessionary conditions of 2015-2016. Much of the globe is already headed there.

Unattended potholes become sinkholes.

Like snowflakes, it’s different this time. It’s always different. Trying to allocate assets or imagine outcomes based on historical models (even when powered by artificial intelligence) is a neural niblick.

So we turn to a constant. A constant that survived and thrived through the 1970s, 1987, 1994, Y2K and the gasping throes of 2008-2009. That constant is to eschew the chaos. Focus on what matters. Simply put, INVEST BETTER.

We accept that markets are not rational. We refuse to be surprised when they convulse.

We take the words of Warren Buffett quite seriously when he longs for corrective opportunities “a few more times during his investing lifetime” and speaks unflinchingly of tracking excellent companies and waiting for them to be available at attractive prices.

I believe one of those moments may have arrived. We don’t often make “market calls” but we did write about back-up-the-truck moments back in November 2008 (a wee bit early) and March 2009 (squarely in the bullseye). This could be another Buffett Bonanza.

So … we think it’s prudent to do what we’ve done for DECADES. Discover excellent companies, BETTER COMPANIES. Buy those that are priced well. BETTER PRICES FOR BETTER RETURNS.

Hugh McManus likes patience and its genius-making potential. He also likes excellent companies trading near their 52-week or multi-year lows. We’re thinking Hugh must be beside his Irish self these days and hope to hear from him during next weekend’s Round Table. Ken Kavula is sure to be swimming in the pool of sudden small company opportunity. Cy Lynch is likely to admire the latest bear market which will become a future blip. Rest assured that we’ll be more focused on the long term perspective than any pusillanimous politicians and their potholes, meandering Rhinos or any of those annoying talking heads who focus on “how much your 401(k) LOST since breakfast today.”

We promise to remain focused on the discovery and sharing of the best ideas — the opportunities we’ve known for decades as BETTER COMPANIES at BETTER PRICES.

Merry Christmas to our favorite nation of focused and compassionate investors!

Best Small Companies (2019 Dashboard)

The status of the 2019 Best Small Companies can be tracked at: https://www.manifestinvesting.com/dashboards/public/best-small-2019

MANIFEST 40 Updates

  • 1. Apple (AAPL)
  • 23. Skyworks Solutions (SWKS)
  • 26. Intel (INTC)

Round Table Stocks

  • Apple (AAPL)
  • IPG Photonics (IPGP)
  • MKS Instruments (MKSI)
  • Skyworks Solutions (SWKS)
  • Universal Display (OLED)

Round Table Sessions (Video Archives)

Turnout Tuesday Educational Sessions

Results, Remarks & References

Companies of Interest: Value Line (12/28/2018)

The median Value Line low total return forecast for the companies in this week’s update batch is 12.3% vs. 10.8% for the Value Line 1700 ($VLE).

Materially Stronger: Vishay Intertechnology (VSH), Office Depot (ODP), Kemet (KEM)

Materially Weaker: TTM Technologies (TTMI), Diebold Nixdorf (DBD), Western Digital (WDC), Plantronics (PLT), STMicroelectronics (STM), Micron Technology (MU), Cirrus Logic (CRUS), Lattice Semiconductor (LSCC), Celestica (CLS), 3D Systems (DDD)

Discontinued: Spectra Energy Partners (SEP)

Market Barometers

The thing very few people tell you about “overvalued” markets is that, occasionally, the fundamentals arrive to justify them. — Joshua Brown

Value Line Low Total Return (VLLTR) Forecast. The long-term low total return forecast for the 1700 companies featured in the Value Line Investment Survey is 10.8%, increasing from 8.5% last week. For context, this indicator has ranged from low single digits (when stocks are generally overvalued) to approximately 20% when stocks are in the teeth of bear markets like 2008-2009.

Timeless Perspective From Omaha

A number of Manifest Investing community participants have recently forwarded this message to investment club partners, friends and family.  It’s a timeless reminder from 2008-2009, Warren Buffett … and we doubled down on it recently.

The following was excerpted from Bloomberg (11/21/2008):

Billionaire Warren Buffett’s Berkshire Hathaway Inc. slumped 32 percent last year, the worst performance in more than three decades, as the U.S. recession forced down the value of the firm’s equity holdings and derivative bets.

Most of the stock decline happened in the last three months as Berkshire posted a fourth straight profit drop amid sagging insurance results. The company still beat the 38% tumble of the S500, the 14th year in 20 that Buffett outperformed the benchmark. Just six of 1,591 (0.37%) U.S. stock mutual funds with at least $250 million in assets made money for investors last year, according to data compiled by Bloomberg.

“In 2008, there was nowhere to hide,” said Guy Spier, chief investment officer at Aquamarine Capital Management, which holds shares in the Omaha, Nebraska-based company. “Berkshire can’t escape the general fate of American businesses. What Buffett tries to do is ensure that Berkshire Hathaway does less badly than other companies.”

Buffett built Berkshire over four decades from a failing textile maker into a $150 billion company by buying out-of-favor stocks and businesses whose management he deemed superior.

Buffett Not Concerned

The stock plunge “doesn’t make any difference,” Buffett told Fox Business Network Nov. 21.

“It’s happened to me three other times,” Buffett said. “It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 percent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times.”

=End of Excerpt=

It’s a perspective that has led to 20% annualized returns over multiple decades. Ignore it only if you’re willing to settle for a dimmer future.

Mark Robertson


I recently watched a 10-year retrospective on the financial crisis of 2007-2009.

Do you remember Buffett’s reaction to one of the most challenging market moments of his lifetime?

Answer: I hope I live long enough to experience a couple more of these.

Perspective matters.

Here’s what Warren Buffett says to do when the market tanks (CNBC, 10/10/2018)

“Don’t watch the market closely,” he advised those worried about their retirement savings at the time. “If they’re trying to buy and sell stocks, and worry when they go down a little bit … and think they should maybe sell them when they go up, they’re not going to have very good results.”

… he recommends investors “get ice cream with their kids and say hi to a friend they haven’t spoken with in a while.”


And he’d appreciate it if you’d find the nearest Dairy Queen for the occasion.

Of Tortoises & Rabbits

Four years ago, we lamented the decision by Forbes to discontinue their annual Best Small Companies list. 36 years in the running, the list provided a number of actionable opportunities over the last couple of decades for many of us. That said, while sticking to their core criteria, we may have actually improved the discovery and screening process.

The Best Small Company tracking portfolio has now beaten the Wilshire 5000 in 10-of-13 years. The last four years have delivered 19.0%, 21.6%, 31.7 and 32.0% respectively. The 32.0% was achieved versus a Wilshire 5000 at 8.6% for 10/31/2017-10/15/2018. For 2006-2018, the average annualized return is 16.5% versus 10.2% for the total stock market.

Note: The year-over-year results increased to 36% with the surge in the stock market on Tuesday.

When thinking about our experience over the last four years since adopting the orphaned Forbes mission — essentially seeking excellent faster-growing companies through the eyes of George Nicholson — we might want to switch the name of this campaign to Better Small Companies going forward.

As of 10/15/2018, the following (20) companies are on the “leader board” for the 2019 roster of Better Small Companies. Keep in mind that some of the fundamentals will be updated and price changes will cause some “drift”. We expect that 5-6 of these companies will be dislodged from the list as we complete the search for actionable ideas among the best-performing small company funds, Red Chip Review and American Association of Investors Shadow Stocks.

Bsc short list 20181016

The session recording is available here: https://www.youtube.com/watch?v=S_QZ97qlPPk
Go ahead.  Hug some red rabbits!


Fave Five (9/7/2018): Morningstar

Fave Five (9/7/2018)

Our Fave Five essentially represents a listing of stocks with favorable short term total return forecasts (1 year, according to Analyst Consensus Estimates, or ACE) combined with strong long-term return forecasts and good/excellent quality rankings. The median 1-year ACE total return forecast is 10.0%.

This week we limit the field to companies with excellent quality (>80) with the lowest price-to-fair value ratios (P/FV) according to Morningstar.

The Long and Short of This Week’s Fave Five

Long & Short Term Perspectives. (September 7, 2018) Projected Annual Return (PAR): Long term return forecast based on fundamental analysis and five year time horizon. Quality Ranking: Percentile ranking of composite that includes financial strength, earnings stability and relative growth & profitability. 52-Week Position: Position on scale between 52-week low price and 52-week target price. VL Low Total Return (VLLTR): Low total return forecast based on 3-5 year price targets via Value Line Investment Survey. Morningstar P/FV: Ratio of current price to fundamentally-based fair value via www.morningstar.com S&P P/FV: Current price-to-fair value ratio via Standard & Poor’s. 1-Year ACE Outlook: Total return forecast based on analyst consensus estimates for 1-year target price combined with current yield. The data is ranked (descending order) based on this criterion. 1-Year S&P Outlook: 1-year total return forecast based on S&P 1-year price target.

McKesson (MCK) is on “wash sale probation” as it was sold on 8/31/2018 and is unavailable to the tracking portfolio until October.

Intel (INTC) is one of our favorite examples of stock prices that seem to move in “fits and starts.” The company is currently #26 among the most widely-followed stocks by Manifest Investing subscribers and has generally tracked the market (8% annualized total return) since charter membership in the MANIFEST 40 back on 9/30/2005. Intel (INTC) spent four years on the Round Table roster after selection by Hugh McManus and Mark Robertson back on 3/26/2013. The rate of return when sold on 12/19/2017 was 21.6% — beating the Wilshire 5000 by 9.5 percentage points.

Looking down the top (50) stocks that met this week’s criterion, we were struck by the number of Ken Kavula nominations for the Round Table in the field. Perhaps Morningstar gives extra credit for “up, straight and parallel,” too? A recent example is the laser purveyor, Coherent (COHR). The company was featured (by Ken) during the July 2018 Round Table.

Stericycle (SRCL) has been in the Fave Five tracking portfolio since 12/8/2017 and has stumbled to a relative return of -16.7%. Yes, Virginia, SRCL is on the Rule-of-5 hot seat but they may still stick the landing and commence recovery.

NutriSystem (NTRI) is #4 on our Best Small Companies list for 2018 and was added to the Fave Five tracking portfolio on 3/22/2018. NTRI has delivered a healthy return, 32.1% since then. Bring out your best small companies ideas as we build and share the Best Small Companies (2019 edition) around Halloween. Yes, we’re searching haystacks and counting down …

Fave Five Legacy (Tracking Portfolio)

The relative/excess return for the Fave Five tracking portfolio is +3.5% since inception.

The absolute annualized rate of return is 18.9%.

Tracking Dashboard: https://www.manifestinvesting.com/dashboards/public/fave-five

Round Table (July 2018)

Our Round Table … is a free monthly webcast that celebrated its 8th anniversary on 7/31/2018.  The concept is simple. Contributors share their best current actionable ideas. Rinse. Repeat. Beat the market. The rate of return for the tracking portfolio (since inception) is 18.2% — topping the Wilshire 5000 by 5.5 percentage points.  The monthly sessions are sponsored by the NAIC Mid-Michigan chapter and Manifest Investing and stock selections/analysis and portfolio stewardship is demonstrated by a number of community participants who have successful stock selection experience and superior performance.

Round Table (July 2018)

The rate of return for the Round Table tracking portfolio stands at 18.2% over the last 8.0 years.

Our July Round Table celebrated our 8th anniversary. It all started with, “Sure … a monthly demonstration of WHAT WE DO would be great … but NO COSTUMES!” — Ken ‘Party Wrecker’ Kavula.  (July 2010)

So no costumes. Occasional hats.

Frequent solid ideas for further study.


Stocks featured during the July session included Cognizant Technology (CTSH) — our most frequently selected stock over the trailing eight years, Coherent (COHR), Ionis Pharma (IONS) and Skechers (SKX).  The audience selected Coherent (COHR).

The slides used during the session are available on request via Mark Robertson (markr@manifestinvesting.com).

The video archive is available via YouTube at Round Table — July 2018 If you’d like to be notified whenever videos are uploaded to this channel, subscribe using the button on the page.

Green Room, References Mentioned …

IPG Photonics (IPGP) took quite a hit in trading on Tuesday with the price dropping approximately 26% during the day. See Why IPG Is Falling Hard (Brian Feroldi, Motley Fool) for more information on the situation. The drop would have been enough to dislodge IPGP as the best performing stock from 2016 if Tuesday’s price action were included. We noted that Mark’s selection of Mercadolibre (MELI) would be the new leader for active holdings from 2016.

Signature Bank (SBNY) appeared at the top of the “Closest to 52-Week Low” screen used during the session. Investors are reminded that Eddy Elfenbein of Crossing Wall Street follows SBNY fairly closely as a component of his current Buy List and a number of play-by-play commentaries can be found there. Go to the site and search by ticker (SBNY) if you’re interested in a plethora of features regarding Signature Bank.

Attophysics defined.

One of the books mentioned during the session was Factfulness by Hans Rosling. I’m sure that we’ll be talking more about this in coming weeks and months. For more on this, check out the Forum Post by Sunil Veluvali

The Basics of Tariffs and Trade Barriers (Investopedia)

Links to Challenge Stock Audits:

None of the challenge stocks were sold but we dialed up vigilance on Cambrex (CBM) if the price continues to run in the absence of a robust increase in fundamental expectations.

The tracking portfolio (dashboard) can be found at https://www.manifestinvesting.com/dashboards/public/round-table