Running A Good Race

12/21/2009


So far this year, our recommended lists are beating the market by a wide margin.

As of Dec. 15, the Focus List was up 38.1%, versus 22.7% for the S&P 500 Index. The Buy List is up 34.7% and the Long-Term Buy List 28.3%. These returns, which exclude dividends and transaction costs, reflect fully invested portfolios. Adjusted for our position in short-term bonds, the Focus List has gained about 31.0%

Our lists have outperformed despite our focus on high-quality stocks, which have lagged in the market’s huge rally from March lows. During that period, stocks with weaker fundamentals set the pace. However, while racing off to an early lead can be a powerful strategy in a sprint, the type of investing we prefer is more like a marathon.

One of the best strategies for winning long races is to select a strong, steady pace you can maintain, then surge periodically to create separation. Our investment strategy uses a similar approach. We avoid sprinters, stocks riding a tide of good sentiment and nothing else. Instead, we look for companies with staying power, counting on superior fundamentals and modest valuations to translate into market-beating returns.

Our strategy has served us well, not only this year but historically. As shown below, all three of our equity portfolios have outperformed the S&P 500 Index since 2003.

Of course, we cannot guarantee similarly strong performance next year. But the race is far from over, and the weaker runners are likely to begin falling off the pace. In 2010, we expect stronger and steadier names — such as those on our recommended lists — to make their move and take the lead for good.


LIST RETURNS

Focus
List
(%)
Buy
List
(%)
LT
Buy
List
(%)
S&P
500
Index
2009 †
38.1
34.7
28.3
22.7
2008
(48.8)
(44.7)
(36.4)
(38.5)
2007
22.8
18.1
10.4
3.5
2006
12.9
14.8
9.3
13.6
2005
8.1
10.3
3.5
3.0
2004
17.5
18.8
8.7
9.0
2003
20.2
25.0
24.0
26.4
Since 2003 † 
49.7
65.4
37.3
25.9
† Through Dec. 15.    Notes: Returns are fully invested and exclude dividends and transaction costs. 

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