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Cover Story - Feb 01, 2012

Group Groundhog

Mark Robertson
Managing Partner

Groundhog V (2011) Individual Champion Nick Stratigos. Truth told, the picture should be with Woody (“You’ve Got A Friend In Me”) from Toy Story. The real buzz is that Nick leans on his local community and Manifest Investing for ideas and support.

A year ago we celebrated the achievements of the “girls” as Groundhog IV came down to the wire with some of our favorite ladies from Houston to Minnesota battling for the finish line. This year, it’s all about the groups known as investment clubs. The group entries from clubs won the overall championship and locked down four of the top five positions. Our overall winner for 2011 hails from Traverse City, Michigan — is known as the Northern Traders — and was the subject of our Dashboards Diagnostics session last March. The individual champion for 2011 is Pittsburgh’s own Nick Stratigos. It seems fitting that Nick should win because (1) he’s always near the top of the standings and (2) he can see Punxsutawney, Pennsylvania from his porch.

The challenge of long-term investing. We know that we’re better together.

Our Groundhog Creed

“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.”

February has been regarded as investment club month by this community for a long time. Investment clubs are places where fear is confronted and mysteries solved. The result for many of the participants in the modern investment club movement has been the study and implementation of some time-honored analysis and portfolio design and management that can enable superior long-term returns.

With four of the top five finalists representing investment clubs, let’s just say that we’re more than a little warm and fuzzy. I can think of few places I’d rather be than curled up around the fireplace and learning with the partners of our group champion Northern Traders on the banks of Grand Traverse Bay in Michigan.

A few miles to the south, SMTJ (Still Makin’ The Jam) club from Kokomo, Indiana nearly stole the show — advancing several positions on the last day of the contest as the stock price of Green Mountain Coffee sizzled. The Mutual Club of Cheney (Spokane) has consistently been among the leaders for five years … and former group champion, Bower City Ladies of Janesville, Wisconsin was a threat to win it all again this year.

Groundhog V (2011) Leaderboard. Here are the participants at the top of the standings for Groundhog V. The Northern Traders transformed $1000 into $1284 during the annual contest. $1000 invested in the Wilshire 5000 was worth $1035 on 2/2/2012.

Our 2011 Group Champions, Northern Traders of Traverse City, Michigan went 5-for-5 in their inaugural dash in the Hog. All five of their selections outperformed the Wilshire 5000 for 2011. We see many bright sunrises and sunsets for this gathering of like-minded long term investors.

Investment clubs. Learning by doing — together. Leaning on each other and building the patience and discipline that can deliver long-term investing success. We’ve said it before but our best-performing participants clearly make their choices with a longer journey in mind. No day trading. No penny stock adventures. Carefully considered selections. Relatively low turnover.

Buy. Hold. For as long as it makes sense to do so.

Collective Wisdom

At Manifest we have a common theme. It’s our hope that by exploring the mysteries and challenges of long-term investing — while traveling in packs or groups — that we’ll collectively emphasize (target) the success of positive relative returns.

And it’s here that our individual champion for 2011, Nick Stratigos, personifies the intersection of group investing and successful individual investing. How so?

Because Nick is the 2nd straight Groundhog champion to herald and pay tribute to our beloved Beardstown Ladies.

“I got started after reading the Beardstown Ladies book.”

But the club foundation and encouragement doesn’t end there.

All-Time Relative Return Standings. The median relative return (performance percentage points greater than the Wilshire 5000) is +1.1% since inception of our Groundhog Challenge back in 2007. Participants qualify for this Hog Hall of Fame with participation in at least two years.

“Then I found the Pittsburgh Chapter Model Club. It was a great way to get exposure to BI and George Nicholson and the principles that I follow today. I ended up starting two different clubs. One is still in operation today. I miss the club routine and camaraderie but my life has made me move into the individual investor mode for now. But, Manifest Investing and the community you have created has more than filled the void! I also am involved as a volunteer/director with the Pittsburgh chapter and enjoy teaching others the advantages we have all learned.”

We don’t think it’s much of a stretch to think of Manifest Investing as one big investment club. We routinely explore screening results and study companies. Implementation includes our monthly Dashboard Diagnostics webcasts as well as the sharing of ideas that takes place at the online Round Table near the end of each month.

“I’ve always used the resources out there like screeners or articles to identify companies to research. But, the best resource has been through the communities like our Chapter meetings, club meetings and Manifest.”

“As far as lessons learned, patience has been the most important. Even in this year’s contest, I pulled the trigger on GMCR after a significant move upward. If I had been patient, I would have held on a bit longer and made a little more profit. But, the other lesson learned is that GMCR eventually came back to earth and I was happy I moved when I did. If you rely on your research and experience, things [often] work out in the end.”

Nick’s 2011 experience is a solid demonstration of patience and discernment. While holding four of his original selections (BWLD, IIVI, MELI & TNDM) from beginning to end, the starting selection of Green Mountain Coffee soared approximately 87.2% in less than two months. Nick replaced GMCR with Dolby Labs (DLB) before ultimately settling on Teva Pharma (TEVA) to finish the 2011 contest. Again, not a lot of turnover, but a decision that cemented victory.

Groundhog All-Time Accuracy. Larry Dix of Cleveland and Shelly Stokes of Minnesota lead the pack with the highest frequency of outperforming selections over the five years of the Groundhog Challenge. Mutual Group of Cheney (Spokane) continues to lead the group entries.

Nick Stratigos is another investor inspired by the Beardstown Ladies. Nick also serves as a volunteer for investment education programs in the Pittsburgh area. His selections for 2011 achieved an annual total return of 22.4%. His favorite sources of ideas are his like-minded neighbors and the StockSearch at Manifest Investing. March of the Penguins.

Not Just A “Longest Drive” Contest

Without question, we’re here for the returns.

That said, we also focus on discovering opportunities that are positioned to outperform the general stock market after we pull the trigger. Therefore, we track the number of selections that perform better than the Wilshire 5000 as a percentage of the total decisions made. This ratio is deemed the “accuracy.” The all-time leader, with 17 outperforming selections out of 23 total decisions (73.9%) is Larry Dix of Cleveland. Shelly Stokes of Minnesota (73.1%) has consistently ranked at the top of this list since the inception of the Groundhog Challenge. Neither Larry or Shelly can be considered one-hit wonders either. Both of them have been prominent on the leader boards during the duration of the Groundhog contests.

If you’re new to this or the Motley Fools CAPS stock picking contest and format, some context is provided by realizing that the “average investor” appears to achieve an accuracy rating of approximately 40%. Despite taking quite a hit during 2011 (there was some evidence of swinging for the fences … and the Chinese small companies were unkind — and that’s being diplomatic/kind) the overall accuracy rating for Groundhog Nation is still 52.5% since inception.

For 2011, fewer participants outperformed the Wilshire 5000 (42.5%) compared to the levels we witnessed during 2007-2009.

Our Invitation

Our traditional contest now has five years in the books. The challenge is simple. Select five stocks and send the tickers to markr@manifestinvesting.com or post the decision on the Manifest Forum in the Groundhog Challenge folder. We’ll take entries until March 21 and you’re encouraged to enter as an individual and we’d love to see more entries from clubs. Hogs unite! Go wild.

Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.

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