The Buffett-Munger Model Portfolio, created by GuruFocus to mirror Warren Buffett and Charlie Munger's time-proven investment principles, has had an exceptional run for four years. It beat the S&P 500 the first three years after inception and narrowly missed this year, returning 12.68% compared to 13.59% for the S&P 500, since Jan. 1, 2012. Now is a good time to sign up for the annually rebalanced portfolio, since its next rebalance will take place on Jan. 1, 2013. Every year, GuruFocus selects the stocks that have the lowest PEG ratios (PEG = Price/5-Year EBITDA Growth Rate) for the Buffett-Munger portfolio.
Investors that invested according to the model portfolio at inception have since enjoyed an 83.71% cumulative return, compared to 58.15% for the S&P.
These are the stocks of the portfolio in 2012:
Of the 25 stocks in the portfolio, 21 have increased in market value since GuruFocus bought them. A particularly robust performer was World Acceptance Corp. (WRLD, Financial), a small-loan consumer finance company in the U.S. and Mexico, which gained 265.74% since it joined the portfolio on Jan. 1, 2009.
The company has been growing through opening new offices and acquisitions. The growth strategy has allowed it to increase earnings per share every consecutive year since 2002, with a five-year EBITDA growth rate of 16.2%. The company’s current PEG ratio at 0.4 is still lower than 98% of the 41 companies in the industry.
Secondly, Bio-Reference Labs Inc. (BRLI, Financial) contributed 77.38% since its inclusion on Jan. 1, 2012. The company, the largest independent clinical laboratory in the tri-state area surrounding New Jersey, saw its stock pushed up this year by record revenues and earnings. The company recorded $176 million in revenues and $23 million in earnings in the fourth quarter of 2012, representing 16% and 22% increases, respectively (including the effects of Hurricane Sandy).
The quarter also marked its 19th year of 20% compound annual growth. The company is a one-stop laboratory for specialty physicians, with academic relationships and expert assistance in today’s critical testing areas, including genetics, oncology and women’s health.
Bio-Reference’s EBITDA increased at a five-year rate of 24.6%, and now has a PEG ratio of 0.8, which is higher than 99% of the companies in its industry.
There were also a few laggards. ITT Educational Services (ESI, Financial), for instance, posted the most disappointing performance by a wide margin, as it declined 69.43% since it was added on Jan. 1, 2009. ITT, a for-profit educational company, has had its stock dragged by government regulatory overhang after investigations began into the sector concerning dubious recruitment and financial aid practices.
Though still possessing a 35.7% five-year growth rate, ITT’s EBITDA fell 18.1% in the past 12 months, along with declines in revenue, net income, cash balances, free cash flow and net income. The declines were owing to significant erosion in enrollment due to the crackdown on the sector, and other headwinds.
ITT has dropped out of GuruFocus’ list of Predictable Companies and will be dropped in the next rebalance.
The second worst in the portfolio was Spain’s telecom company Telefonica (TEF, Financial). Telefonica suffers from the turbulent economic landscape in Spain this year.
“As a group, these companies have done well,” GuruFocus said in a retrospective in October. “They may not have the market momentum with them, and they may face headwinds which bring the valuations low. But if business continues to grow, we believe it is safer to invest in these companies. Indeed, these companies have outperformed the market every year since inception.”
Stay tuned for the next rebalance of stocks that fit GuruFocus’ Buffett-Munger criteria for 2013, set for January 1.
GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.
Investors that invested according to the model portfolio at inception have since enjoyed an 83.71% cumulative return, compared to 58.15% for the S&P.
These are the stocks of the portfolio in 2012:
| Symbol | Company | # of Shares | Bought on | Share Cost | Current Price | Change | Value ($) |
| CASH | Cash | 161.34 | 12/31/1969 | 1 | 1 | 0 | 161.34 |
| ANSS | Ansys, Inc. | 115 | 01/01/2011 | $52.07 | 67.01 | +28.69% | 7,706 |
| ATRI | Atrion Corporation | 25 | 01/02/2012 | $240.23 | 190.06 | -20.88% | 4,752 |
| BRLI | Bio-Reference Labs, Inc. | 371 | 01/02/2012 | $16.27 | 28.88 | +77.5% | 10,714 |
| CHRW | CH Robinson Worldwide, Inc. | 72 | 01/01/2009 | $55.03 | 61.59 | +11.92% | 4,434 |
| CPRT | Copart, Inc. | 282 | 01/02/2010 | $18.31 | 30.04 | +64.06% | 8,471 |
| ESI | ITT Educational Services, Inc. | 94 | 01/01/2011 | $63.69 | 19.38 | -69.57% | 1,822 |
| ESRX | Express Scripts | 135 | 01/02/2012 | $44.69 | 54.65 | +22.29% | 7,378 |
| FCFS | First Cash Financial Services, Inc. | 194 | 01/01/2011 | $30.99 | 47.92 | +54.63% | 9,296 |
| FDS | FactSet Research Systems, Inc. | 78 | 01/02/2010 | $65.87 | 93.99 | +42.69% | 7,331 |
| GD | General Dynamics | 91 | 01/02/2012 | $66.41 | 67.43 | +1.54% | 6,136 |
| HRL | Hormel Foods Corporation | 268 | 01/02/2010 | $19.225 | 31.115 | +61.85% | 8,339 |
| IDXX | Idexx Laboratories | 78 | 01/02/2012 | $76.96 | 95.76 | +24.43% | 7,469 |
| JJSF | J&J Snack Foods Corp. | 124 | 01/01/2011 | $48.24 | 61.99 | +28.5% | 7,687 |
| JW.A | John Wiley & Sons, Inc. | 136 | 01/02/2012 | $44.4 | 36.7 | -17.34% | 4,991 |
| LLTC | Linear Technology | 201 | 01/02/2012 | $30.03 | 33.45 | +11.39% | 6,723 |
| LMT | Lockheed Martin Corporation | 74 | 01/02/2012 | $80.9 | 88.99 | +10% | 6,585 |
| NEOG | Neogen Corporation | 197 | 01/02/2012 | $30.64 | 46.59 | +52.06% | 9,178 |
| NRCI | National Research Corporation | 155 | 01/02/2012 | $38.81 | 54.92 | +41.51% | 8,513 |
| RGLD | Royal Gold, Inc. | 89 | 01/02/2012 | $67.43 | 80.91 | +19.99% | 7,201 |
| SIAL | Sigma-Aldrich Corporation | 90 | 01/01/2011 | $66.56 | 72.55 | +9% | 6,530 |
| TEF | Telefonica SA | 360.2313 | 01/02/2012 | $16.7494884537 | 13.29 | -20.65% | 4,787 |
| WAG | Walgreen Company | 182 | 01/02/2012 | $33.06 | 36.79 | +11.28% | 6,696 |
| WAT | Waters Corporation | 77 | 01/01/2011 | $77.71 | 87.27 | +12.3% | 6,720 |
| WMT | Wal-Mart Stores Inc | 111 | 01/01/2011 | $53.93 | 69.01 | +27.96% | 7,660 |
| WRLD | World Acceptance Corporation | 202 | 01/01/2009 | $19.76 | 72.55 | +267.16% | 14,655 |
Of the 25 stocks in the portfolio, 21 have increased in market value since GuruFocus bought them. A particularly robust performer was World Acceptance Corp. (WRLD, Financial), a small-loan consumer finance company in the U.S. and Mexico, which gained 265.74% since it joined the portfolio on Jan. 1, 2009.
The company has been growing through opening new offices and acquisitions. The growth strategy has allowed it to increase earnings per share every consecutive year since 2002, with a five-year EBITDA growth rate of 16.2%. The company’s current PEG ratio at 0.4 is still lower than 98% of the 41 companies in the industry.
Secondly, Bio-Reference Labs Inc. (BRLI, Financial) contributed 77.38% since its inclusion on Jan. 1, 2012. The company, the largest independent clinical laboratory in the tri-state area surrounding New Jersey, saw its stock pushed up this year by record revenues and earnings. The company recorded $176 million in revenues and $23 million in earnings in the fourth quarter of 2012, representing 16% and 22% increases, respectively (including the effects of Hurricane Sandy).
The quarter also marked its 19th year of 20% compound annual growth. The company is a one-stop laboratory for specialty physicians, with academic relationships and expert assistance in today’s critical testing areas, including genetics, oncology and women’s health.
Bio-Reference’s EBITDA increased at a five-year rate of 24.6%, and now has a PEG ratio of 0.8, which is higher than 99% of the companies in its industry.
There were also a few laggards. ITT Educational Services (ESI, Financial), for instance, posted the most disappointing performance by a wide margin, as it declined 69.43% since it was added on Jan. 1, 2009. ITT, a for-profit educational company, has had its stock dragged by government regulatory overhang after investigations began into the sector concerning dubious recruitment and financial aid practices.
Though still possessing a 35.7% five-year growth rate, ITT’s EBITDA fell 18.1% in the past 12 months, along with declines in revenue, net income, cash balances, free cash flow and net income. The declines were owing to significant erosion in enrollment due to the crackdown on the sector, and other headwinds.
ITT has dropped out of GuruFocus’ list of Predictable Companies and will be dropped in the next rebalance.
The second worst in the portfolio was Spain’s telecom company Telefonica (TEF, Financial). Telefonica suffers from the turbulent economic landscape in Spain this year.
“As a group, these companies have done well,” GuruFocus said in a retrospective in October. “They may not have the market momentum with them, and they may face headwinds which bring the valuations low. But if business continues to grow, we believe it is safer to invest in these companies. Indeed, these companies have outperformed the market every year since inception.”
Stay tuned for the next rebalance of stocks that fit GuruFocus’ Buffett-Munger criteria for 2013, set for January 1.
GuruFocus premium membership is needed to access the details of the portfolios and screeners. We also publish a monthly Buffett-Munger newsletter which features the picks from Buffett-Munger Screener. If you are a premium member, you can download this for free. If you are not a Premium Member, we invite you for a 7-day Free Trial.
