I conducted a fun experiment back in 2010. I wanted to see if I could create a randomly selected Financial Samurai Stock Fund that could out perform the S&P 500.
Here's a look back at how the experiment played out.
Thesis: Through random selection based solely off permutations of reader’s names (personal or site title), we are able to create a long-only mutual fund that will outperform the S&P 500 index!
The Financial Samurai Stock Fund
Fund Details: The Financial Samurai Stock Fund had a $1,672,003 billion launch, with 17 positions equally weighted. Concentrated multi-strategy portfolio with defensive names in the alcohol and utility space, as well as higher beta names in technology and health sciences. Small caps and large cap names included. S&P 500 start value 1,115 benchmark.
Duration & Rules: One year. The bottom 3 performers will be up for review every quarter. To stay in the fund, one must write a convincing argument as to why we should not cut our losses. Picks down more than 20% also will be re-evaluated.
Goals: To have fun, learn something about the stock markets, prove a theory that luck plays a big part in performance, and to build better relationships with the community.
Investment Outlook 2010 – 2019 Prediction: The stock market continues to rebound, but at a slower pace. Inflation and interest rates remain benign, leading to a re-emergence of consumer spending. Housing stabilizes with 30-year mortgage rates staying below 6.5%. The government maintains record spending to stimulate the economy and the unemployment rate begins to fall in the second half of the year.
The S&P 500 increases by 10-15% with a blue-sky target of 1,322 by end of 2010 and a 3,000 target by end of 2019.
The Financial Samurai Stock Fund Vs. S&P 500
Let's look at how the Financial Samurai Stock Fund performed versus the S&P 500 during each month of the experiment.
Performance Monitor
Feb 21, 2010: TSF +2.15% vs. S&P 500 -0.53%.
Feb 28, 2010: TSF +1.69% vs. S&P 500 -0.95%
March 14, 2010: TSF +6.55% vs. S&P 500 +3.13%
April 5, 2010: TSF +11.25% vs. S&P 500 +5.65%
May 3, 2010: TSF +13.5% vs. S&P 500 +7.8%
June 16, 2010: TSF +1.35% vs. S&P500 +0.2%
August 16, 2010: TSF -8.2% vs. S&P500 -3.3%! Crashing and burning baby!
November 7, 2010: TSF +8.44% vs. S&P500 +9.95% Underperforming by 1.5%
December 22, 2010: TSF +18.76% vs. S&P 500 +11.84%. ROCK STAR OUTPERFORMANCE!
Composition Of The Financial Samurai Fund
FINANCIAL SAMURAI
Company (Ticker): Boston Beer Company (SAM)
Market Cap: $668 Million at entry price $46.60.
Commentary: A fun play on my name, I chose Boston Beer Company as my pick for the Financial Samurai Fund. Love Samuel Adams beer, but with no dividend, lofty valuations and minimal earnings growth, it's hard to see this defensive stock providing alpha to the fund. People need to drink in good times and bad!
DAVID AT MBA BRIEFS
Company (Ticker): ABM Industries (ABM)
Profile: A building maintenance and facility services company.
Market Cap: $1.09 Billion at entry price $20.65.
Commentary: The stock doesn’t look like it’s going to do anything spectacular in the short term but ABM is predicted to have consistent earnings growth throughout the year and has beat the analyst’s estimate every quarter for the last 4 quarters.
ABM is currently trading at $21.14 and the 1 year target estimate is $25.50. Volume peaked at 700k shares the week before Christmas and then dropped way off, and its trading well above the 50 day and 200 day moving averages, so it’s hard to tell if the stock price is going to continue to rise, trade sideways, or drop this week.
Not exactly a sexy stock but facility services should be fairly recession-proof and should do even better now that we’re supposedly heading into a bull market.
CHARLIE
Company (Ticker): Harman International Industries (HAR)
Market Cap: $2.44 Billion at entry price $35.28.
Profile: Engages in the development, manufacture, and marketing of audio products and electronic systems in the United States and internationally.
Commentary: Don’t know a thing about the company but will be interesting to find out!
CREDIT CARD CHASER
Company (Ticker): Calgon Carbon CP (CCC)
Market Cap: $786 Million at entry price $13.90.
P/E: 20.26X
Earnings Growth 2010: 47.2%
Profile: Manufactures and markets products and services employed for separation, concentration, and purification of liquids and gases (huh?). Drinking water and wastewater treatment, enviro remediation, and industrial process apps are its customers.
Commentary: Better than average predicted earnings growth for 2010 and trading right around the middle of its 52 week high so it could have some potential. I don’t pick individual stocks but this will be a fun one to watch!
DON AT MONEY REASONS
Company (Ticker): Monsanto Co (MON)
Market Cap: 45.03 Billion at entry price $81.75.
P/E: 21.75
Dividend (yearly): 1.30%
Earnings Growth 2010: 34.7%
Profile: Monsanto Company, together with its subsidiaries, provides agricultural products for farmers in the United States and internationally. It has two segments, Seeds and Genomics, and Agricultural Productivity.
Commentary: Don's pick for the Financial Samurai Stock Fund is Monsanto. Monsanto has been beaten down pretty badly (it was at it’s high, over $145 per share), so it has some room to rise! People need to eat, and MON has some of the best engineered seed available.
FLEXO AT CONSUMERISM COMMENTARY
Company (Ticker): Flextronics (FLEX)
Market Cap: $5.82 Billion at $7.16 (don't know when the officially entered the stock into the portfolio)
P/E: 9.68
Profile: Flextronics International Ltd. provides vertically-integrated advanced design and electronics manufacturing services to original equipment manufacturers of a range of products in infrastructure, mobile communication devices, computing, consumer digital devices, industrial, semiconductor, white goods, automotive, marine, aerospace, and medical devices markets.
Commentary: The company manufactures printed circuit boards, a very useful and ubiquitous piece of technology. The need for their services is not going away any time soon.
FREE FROM BROKE
Company (Ticker): Berkshire Hathaway (BRK-A)
Market Cap: 152.89 Billion at entry price $99,099.
Profile: a holding company owning subsidiaries engaged in a number of business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis. Berkshire also owns and operates a number of other businesses engaged in a variety of activities.
Commentary: Can you bet against the Oracle of Omaha? Until recently, Berkshire has done remarkably well year after year, investing in well known companies such as Coke, American Express, and P&G.
STEF AT 151 DAYS OFF
Company (Ticker): Steris Corp (STE)
Market Cap: $1.65 Billion at entry price $27.97.
P/E: 14.56
Dividend: 0.44 (1.60%)
Estimated Growth in 2010: 4.1% (ouch!!)
Profile: Steris Corp develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical support products and services to healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.
Commentary: With the hysteria of swine flu in the past and Lord knows what kind of mutation it will bring in the future, the company will stand strong in years to come. Medical tech stock tends to be a defensive stock during the bear market and move steadily in a hot market. You would DEFINITELY want it in your portfolio!
DANIEL AT SWEATING THE BIG STUFF
Company (Ticker): Big Lots Inc (BIG)
Market Cap: $2.42 Billion at entry price $28.98.
P/E: 13.88
Earnings Growth: 11.5%
Profile: Big Lots, Inc. operates as a broadline closeout retailer in the United States.
Commentary: As a discount retailer, it does well when the economy struggles. In 2010, as the economy only begins to improve, Big Lots should continue to have success in the discount market.
THRIFTY GAL AT CHASING PROSPERITY
Company (Ticker): PG&E – Pacific Gas and Electric (PCG)
Market Cap: $16.89 Billion at entry price $44.65.
P/E: 11.86X
Earnings Growth 2010: 7.6%
Dividend yield: 3.7%
Profile: PG&E is a public utility company that provides electicity and natural gas to northern and central California.
Commentary: Pop culture reference: villan in ‘Erin Brokovich’
LEAN LIFE COACH AT ELIMINATE (T)HE (M)UDA
Company (Ticker): Toyota Motors (TM)
Market Cap: $140 Billion at entry price $84.16.
P/E ratio (ttm): Nada – They’ve been losing money for the first time in over 50 years!
P/E ratio (fwd): 25X
EPS Growth: Yahoo lists 1200%? From zero that won’t be too hard!
Profile: One of the largest car companies in the world.
Commentary: Challenged by some quality issues they will likely continue to suffer for a few more months but I believe their commitment to continuous improvement (Kaizen) will help them out of this rut.
The continue to build good cars that have generic styling that appeals to a wide market. They are coming out with some new technology including plug in hybrid and are revamping the Lexus brand to draw in the younger crowds. If you like fast cars check out the Lexus all carbon body LFA!
PATRICK AT CASH MONEY LIFE
Company (Ticker): Compellent Technologies, Inc. (CML)
Market Cap: $704 Million at entry price $22.68.
P/E: 146.90
Earnings Growth 2010 (estimate): 31.0%
Profile: Compellent Technologies, Inc. is a provider of enterprise-class network storage solutions. The Company’s storage center is a Storage Area Network (SAN), that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization.
Commentary: Aggressive earnings estimates for a company that has yet to register large profits. I guess my entry will mimic the elements of the S&P that drags down the rest.
LEN PENZO
Company (Ticker): Lenar Corp (LEN)
Market Cap: $2.4 Billion at entry price $12.77.
PE: N/A (divide by zero – never a good sign)
Dividend Yield: 1.2%
Earnings Growth 2010 (est): showing losses
Profile: A leading home-builder in America.
Commentary: As I mentioned earlier, I think housing is on very flimsy stilts. The current anemic upturn (if you can call it that) only propped up due to government subsidies and bailouts so I would never recommend a home builder as a stock pick in 2010. But the rules are the rules, and as such I expect this component of your honorable Samurai fund to weigh it down like an old rusty boat anchor!
EVOLUTION OF WEALTH
Company (Ticker): Edwards Lifesciences (EW)
Market Cap: $5 Billion at entry price $86.85.
P/E: 24X
Earnings Growth 2010: 17%
Profile: Edwards Lifesciences provides products and technologies in treating cardiovascular disease. They are a leading provider in a growing sector.
Commentary: If you believe America will continue to be fat this could be a good investment. Was that mean?
LL AT INVESTOR JUNKIE
Company (Ticker): Lumber Liquidators (LL)
Market Cap: $730 Million at entry price $26.80.
P/E: 24X FY2010 with 40% YoY earnings growth.
Profile: Lumber Liquidators, Inc. operates as a specialty retailer of hardwood flooring in the United States. It offers an assortment of hardwood flooring that includes prefinished premium domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates. The company also provides flooring enhancements and installation accessories, including moldings, noise-reducing underlay, and adhesives. It offers its products primarily under Lumber Liquidators and Bellawood brand names.
EVAN AT MY JOURNEY TO MILLIONS
Company (Ticker): Jones Apparel Group (JNY)
Market Cap: $1.4 Billion at entry price $16.06.
Profile: Jones Apparel Group, Inc. is a designer, marketer and wholesaler of branded apparel, footwear and accessories. The Company markets its products to the consumers, through a chain of specialty retail and stores and through the e-commerce Web sites. The Company also markets costume jewelry under the Givenchy brand licensed from Givenchy Corporation, footwear under the Dockers Women brand licensed from Levi Strauss & Co., and apparel under the Rachel Roy brand licensed from Rachel Roy IP Company, LLC. The Company operates in five business segments: wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories, retail, and licensing. The brands of the Company include Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, Easy Spirit, Evan-Picone, l.e.i., Energie, Enzo Angiolini, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Albert Nipon and Le Suit. On June 20, 2008, the Company completed the acquisition of GRI
Commentary: Look at those brands this company is going to be fine! Not sure its going to be a homerun, but its going UP!
MONEVATOR
Company (Ticker): Monster Worldwide (MWW)
Market Cap: $2.2 Billion at entry price $17.40.
P/E: 42X
Earnings Growth: 167% for next year
Profile: Monster.com, a popular job search and placement site.
Commentary: I am picking this stock to keep with the play-on-the-blog-name theme, but I actually am pretty bullish on economic recovery so this recruitment giant isn’t entirely unattractive. I haven’t looked at the accounts or the balance sheet etc, though, and I’m not wildly familiar with US stocks (though I know many of the companies superficially) so I recommend it only for the FS fund, nothing more!
The Financial Samurai Fund Outperforms The Index
Not only did the FS Fund outperform the S&P 500 index in 2010, it has outperformed the S&P 500 index every year until 2019. This goes to show that random stock picking does work.
But over the long term, it’s very hard to outperform the market. Same goes with day trading – it's a waste of time and money. You might get lucky once or twice, but it's not a great long game.
I think a prudent move is to invest 80% of your investable assets in a S&P 500 index fund, and the rest in individual names you think will outperform if you truly want to pick stocks.
For most people, their problem is that they don’t know how to get started and don’t regularly contribute to their equity investments.
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I just stumbled over this, great idea. Have you stopped doing this at the end of 2010, or will you be publishing the performances for 2011?
Cheers,
Alex
I very much look forward to seeing how this pans out, long term. Think contrarian and think for yourself, and I think you’ll do really well.
Andrew
Relieved MWW has finally turned positive!
Next stop — overtaking Len Penzo! Well, maybe.
Very good to see too! I’m sure you’ll be able to overtake Len Penzo! Only 55% away! lol.
Dream on, guys. Don’t you know I am an unabashed housing market bull? LOL
Just gotta say, gosh damn the fund is up 13.5% YTD now, and outperforming the S&P 500 by 500 basis points!
Hmm, I really thought MWW had come back a bit. With unemployment blatantly having flatlined the bounce back must be due any day soon!
Lenar continues to lead your index. What, on earth, is driving the price of the stock up? The fundamentals are crap and there is still an oversupply of houses out there.
Well looking at GE it’s been a bit of a roller coaster but seems to be mirroring the market for the most part. They continue to shed various niches, the latest being Turkiye Garanti Bankasi A.S. a mostly public Banking system in Turkey. It’s interesting to see how far out GE spreads and their global reduction strategy seems to make sense to be a bit more nimble. Funny to think of a conglomerate this large being nimble but there you go.
@Financial Samurai
Throwing jargon at me which makes me waste time looking them up! Kidding aside, I had to lookup what a ‘beta stock’ was to make sense of what you said… (some of us are not privileged to be in the finance industry, although I’m trying to learn!) Is a low beta stock bad for the fund if you’re trying to outperform the S&P?
@ admin
Who would’ve thought riding that Buffett’s coattails could work?!? I wonder if some of the gain is due to the B shares splitting, possibly attracting investors to the A-shares as well?
@thriftygal
Hah ,too late to change to Thriftfool, but that woulda been nice for the fund! We gotta keep everything randomly legit! Gosh, PCG really is a low beta stock… too bad it is down this year! We’re screwed here in California.
@Len Penzo
I’m thinking we should sell Lennar +35% YTD yeah? You wanted to sell at +25%, you must really be wanting to sell at +35%?
@Money Reasons
Fingers crossed about their quarterly results then! -4% isn’t hurting the fund too bad. Things could turnaround!
@Monevator
It pains me to sell MWW here…. and I’m a believer the job market will improve this year, and MWW will benefit. We gotta hold strong!
@FFB
Yes, pretty dang good performance by Warren!
EPS increased by 9% for 2009 at PCG. A 10% increase in assets and a 8% increase in dividends suggest an earnings growth rate of approx. 7% for the next 2 years. Although electricity usage fell slightly during 2009, an increase in new customers and a rate structure protected against usage declines contributed to the higher earnings. Continued customer growth, system upgrades and California’s environmental standards are expected to sustain the growth in earnings.
So far so good!
Sam: Lennar at 35%? This is getting embarrassing. I have a hard time seeing any justification for these kind of gains when the housing market is still completely in the toilet.
Sorry for the last post, but…
In January 2010, Monsanto was named the Forbes company of the year! Click here to read about it!
Seems like the company has been experiencing 18% growth for the last 5 years. Not to shabby!
IMHO, the 2nd quarter’s earning results will really determine whether this stocks is a keeper or should be voted off of the Samurai Fund island (and not the Island ECN:))
I just hate the MON is violating Buffett’s first and second tenets…
The first rule of investing is don’t lose money; the second rule is don’t forget Rule No. 1
Out of the dog poop league, up to the financial nirvana. I wish I could credit their sterling performance (this week) to the moderately improved revenue in the last quarter or the sterilisation of steroid by Steris (fan of alliteration, anyone?). Motley Fool saw some improvement ). But as Monevator correctly put, I have more confidence in chicken entrails or tea leaves at this stage.
MWW has flipped as you’d hope with the return to risk the past couple of days. Some traders are looking at resistance levels and the like. Personally I’d rather consult chicken entrails, but if you like this sort of thing:
I think US unemployment is peaking if not peaked, and hiring should pick up in earnest soon.
Hmmm… Looks like my early prediction regarding CML was right on…. LOL! I would put my money where my mouth is for my website, but I wouldn’t buy CML stock at the moment. :)
ABM was one of three companies highlighted in a recent Smart Money Magazine article – check it out here: https://www.smartmoney.com/Investing/Stocks/3-Stocks-Retirees-Should-Own/?afl=yahoo
Looks like Honda is following Toyota with the recalls. What’s going on with the Japanese automakers? On the other hand, Ford stock is soaring (8.20 – 11 in three months)! Is it too late to change my name to thriftyfool and pick Ford?
No doubt TM handled this poorly…. OK they sucked! Sad, in the past the did handle quality questions the way Len said and admitted ignorance when they were. It appears congress will get to the bottom of it for sure.
There is so much conflicting information, nobody has any faith and that is the biggest problem today. If this fix is real, it’s a great time to buy. If it turns out to be just another guess, I’m afraid you are right Samurai.
Either way it’s too big an issue to salvage for the Samurai fund.
Keep in mind, Kaizen is about improving what we have today. It’s not dead, this is when it has the most value! The question is whether they get back to their roots like Akio Toyoda says they will or if they continue to open their mouths and insert their foot.
Personally, I’m holding some cash and considering the opportunity. If you are a long-term investor this might be a great opportunity. If Ford can recover from Firestone, there is no reason to think TM can’t recover from this.
@Len Penzo
Dang, you shoulda let us know before we put this heap of lying junk into our fund! Toyota actually said it was a “floor mat problem”?! WTF? What if someone died due to their floor mat problem? That’s bogus.
I will never buy a Toyota either if they don’t come clean and apologize for the lie. Why buy a Toyota when you can buy a Honda, or a bagillion other cars?
Thanks for the thoughts.
@Financial Samurai
Toyota’s credibility is gone. I told everybody who would listen to me a couple months ago when Toyota claimed it was a floor mat problem, that they knew that wasn’t true and were only trying to buy time because they had NO IDEA what the real problem was at the time. They should have come clean and admitted they didn’t know but their engineers were working OT to solve the problem – yes they would’ve taken a big hit, but it would have only been temporary.
I still suspect the real problem is a sinister software or firmware problem. I do not believe their current fix is anything more than a mechanical band-aid.
I would like to see a complete engineering report showing how they isolated the problem and positively identified it. I suspect they haven’t because can’t.
I believe Toyota may be damaged more than most people think. I know I will NEVER buy a Toyota unless I see proof that they fully understand the problem.
Best,
Len
Len Penzo dot Com
Lean – Toyota is really bumming me out. I think their reputation for reliability is damaged for a long time i.e 1-3 years. Toyota doesn’t make flashy cars, so they can’t rely on their good looks and performance. The only thing they can rely upon is reliability. With that gone, so is the brand, sales, and profits.
Kaizen is no more. They ruined it.
Evil lawsuits started the downward dragging on MON, and the President’s latest attacks on the financial system (perhaps a new systemic risk?) is bring down the entire market… :(
Well, at least with MON sitting in dog poop, perhaps it’s seeds will spout and the stock price will grow again!?!
Can it get much worse for TM? They kept fighting against the grain and now appear to have committed seppuku. Relative to their cash reserves it will hurt but not be catastrophic. Assuming TM is successful with the recall, the only question is how soon the market will forget and forgive?
Lean – Thanks for highlighting the massive pain that is dragging down the fund! We lost $10 million alone today Lean! Sell or buy more?