Round Table (May 2017)

These excerpts are from our monthly webcast series (The Round Table) that usually airs on the last Tuesday at 8:30 PM ET.  The sessions are FREE and include the selection of 3-5 stocks to study with a demonstration of the analysis used to determine the quality and return forecast.  This demonstration has beaten the market over the last seven years, featuring a collective rate of return of 13.2%.  A tracking portfolio is maintained at:
If you would like to be added to the reminder list for future sessions, send a request to be added to the list maintained at

The Core/Non-Core discussion was a thought starter for sure. Clarifying my thought, adding ‘Successfully’ to ‘Survived At Least One Recession’ means to me that the company was ‘at least’ earnings profitable during a recession period. An example would be UTHR owned by the investment club I belong to. — Marty Eckerle, Cincinnati

[Here is one of the slides used in the discussion …]

Core mettle


Selling Decisions Based on Relative Return

Nothing about the traditional selling decision, or Challenge, changes. We still sell with the overall portfolio characteristics in mind. It’s a standard procedure to challenge the holdings with the lowest return forecast. This was referred to by George Nicholson as “Rule One” for portfolio management. For this month’s meeting, Coach (COH) was challenged, updated, analyzed and sold to provide some boost to overall portfolio PAR.

Following that, any company selected within the trailing 12 months that lags (falls behind) the Wilshire 5000 and exhibits a relative return of -20% is subjected to some “head scratching.” The following flow/decision chart is an attempt to capture this process.

Rt flow chart 20170530

Selling Decisions (May 2017)

How To Use This Chart. This chart summarizes the decisions made by checking various attributes of stocks that have triggered the -20% relative return threshold over the last year.

The first chart is a dashboard sorted by PAR (Ascending). The stock at the top of the sort, Coach (COH) is therefore — on the HOT SEAT. After further discussion and the update included in this thread (see below), Coach did not survive and was SOLD.

When a stock reaches a relative return of -20% (versus the Wilshire 5000, VTSMX) it qualifies for this raking over the coals. The relative performance is displayed in the Relative Return column. If LKQ (LKQ) can remain under -20%, it will be removed from this listing at future Round Tables.

Core? is a decision as to whether a stock should be subjected to tighter constraints or given “blue chip” treatment with a “longer leash.” Most participants tend to regard Retail/Apparel companies as Non-Core and we’ve found over the years that steady forecasts and steady results are generally the hallmark of companies that we consider to be core.

If a company is deemed to be core, a quick check of the return forecast (PAR) and Quality is in order to detect degradation or erosion of expectations. In this case NVO is definitely “on the fence” and we’re monitoring for signs of further weakness. It was noted that the stock price performance has been stronger over the last few weeks.

The last “life line” (vs. Industry) is a quick check to see if a company is actually faring relatively well versus its industry or peers while lagging the market. This essentially “saved” LKQ last month as we noted that the Auto & Commercial Vehicle Parts Index (BigCharts: WSJUSIXOTA) has lagged the overall stock market.

Coach (COH) was sold from the Round Table tracking portfolio on 5/30/2017.

Coh analysis 20170530

The Audience Poll was a bit of a photo finish for May 2017. We ruled that the audience selected both Dollar General (DG) and LGI Homes (LGIH) and will invest $1000 in each. The live audience in Cincinnati on 5/19/2017 selected CVS Health (CVS).

Rt poll 20170530

Gone Gold: PRIMECAP Growth (POAGX)

It’s been nearly five years since Morningstar launched the medalist designations for mutual funds. This month, we cull the gold medal funds that also have a 5-star rating seeking long-term leaders.

It’s been nearly five years since Morningstar launched the medalist designations for mutual funds. The intent is to maintain a long term perspective and identify top tier investment opportunities. Morningstar Medalists are funds that have been assigned a Morningstar Analyst Rating of Bronze, Silver, or Gold, meaning that those are the funds that we think are likely to outperform their category peer groups and appropriate benchmarks on a risk-adjusted basis over market cycles of at least five years. This month, we cull the gold medal funds that also have a 5-star rating seeking long-term leaders, candidates for fund investors and as always, potential sources of actionable and investable stock opportunities.

PRIMECAP Odyssey Aggressive Growth (POAGX): Long-Term Performance. This actively managed fund has beaten the market by 4.5% (percentage points) over the trailing 10 years. The fund has achieved an absolute total return (annualized) of 11.4% during a period when the Wilshire 5000 advanced 6.9%. Although closed to new investors, as always, this type of outperformance may provide some study candidates. The fund appears to select carefully and has very low turnover.

Winner: PRIMECAP Agg Growth (POAGX)

The PRIMECAP Odyssey Aggressive Growth Fund has beaten the total stock market benchmark (Wilshire 5000) by +4.5% annualized over the trailing ten years. The absolute return has been 11.4% — clearly top tier performance as the fund has beaten the benchmark in 9-of-the-last-11 years.

Portfolio turnover is 15%. It doesn’t get much lower than that for an equity fund specializing in smaller companies and deeper value situations. The fund managers act with conviction after considerable diligence that attempts to identify companies with differentiated potential that exceeds Wall Street expectations.

The expense ratio is 0.62%, also an attractively low burden for fund investors and compares well to similar funds. But the fund is closed to new investors at the present — so it becomes a proving ground and source of stock study ideas because the fund managers are excruciatingly selective and any recent additions (or sales) from the portfolio is probably worth a closer look and further study.

$100 invested on 12/31/2004 had blossomed to $360.40 on 12/31/2015. For comparison, $100 invested in a Total Stock Market Index (VTSMX) was worth $217.10 on 12/31/2015. This is a rather dramatic reminder of the power of a 3-5% relative return over a period as short as ten years.

The fund’s largest holdings include: Abiomed (ABMD), Qiagen (QGEN), Sony (SNE), Seattle Genetics (SGEN), Royal Caribbean Cruiselines (RCL) and Nektar Therapeutics (NKTR). But more importantly, added during the 12/31/2015 update were new positions in Ruckus Wireless (RKUS), Hewlett Packard Enterprise (HPE) and Alphabet/Google (GOOG). Ruckus and HPE have advanced fairly dramatically but GOOG is still relatively near the 4Q2015 price levels. We’ll watch the 3Q 2016 update for potential ideas.