And The Children Shall Lead Us

Cover Story, by Mark Robertson, Managing Partner

Posted on January 1st, 2008

Step up to the plate. Help a friend or loved one to discover long-term investing and persuade them to swing the bat.

Did you know that the going price for a round trip to the moon is running at $100,000,000? During an educational session with a group of bright-eyed teenagers, we explored the feasibility of a future round of golf on the moon and came to the conclusion that it was possible with reasonable contributions and regular investing if they pooled their efforts using time as an ASSET. Discover and own high-quality companies. Fore!

Indelible life memories. Those moments (often involving our children or other young people) are precious. In this month’s cover story, I want to revisit one such indelible moment from my past and spend a few more moments with the notion of encouraging others to “step up.” We’re working with a few family members (and our daughter’s boyfriend) to establish brokerage accounts aimed at embracing a lifetime of successful long-term investing.

I also had the honor and privilege to spend a few moments recently with a class of high-potential teenagers at an investing class taught by my friend, Ann Cuneaz. With bright eyes and brilliant minds focused, it’s clear that enabling future indelible moments is what investing is really all about. Have a GREAT 2008!

The opening paragraphs were originally published in the June 2000 issue of Better Investing magazine and are reprised/edited here.

Scott Almquist. Scott was on my little brother’s little league baseball team. I was his coach. It was summer break from college, and I was working as an intern for a major manufacturing firm. During that summer stint, I learned a great deal from my first exposure to corporate America.

I learned even more from Scott Almquist.

Scott was a really great kid. Quiet and very humble. But he wasn’t our best hitter. Well — perhaps he was — but after eight games, the fact that he hadn’t yet made contact with the baseball made it tough to tell.

It was the last inning of our ninth game. We trailed by three runs, but we had the bases loaded. There were two outs. You guessed it. Scott was the next batter.

Stepping Up

It’d be a vast understatement to say that kids can be cruel. Because they can be worse than cruel. Despite all of my efforts to coach sportsmanship, some of our own players were calling for a pinch hitter to substitute for Scott. In a gut-wrenching moment, their parents were, too. The opposing players were having a field day with dreadful banter.

With tears in his eyes, Scott asked me if I wanted somebody else to hit instead. I told him that I wanted him to merely do the best that he possibly could. No more. No less.

I’ll confess that I whispered a prayer as he missed the first two pitches by a country mile. It was clear that there were a whole bunch of places that he’d rather have been — and that he was in a hurry to get there. Me too.

The next few moments are indelibly etched in my memory.

The pitcher tossed the ball. Scott closed his eyes and swung as hard as he could. The ball miraculously glanced off the end of the bat and trickled over first base and down the rightfield line. It rolled. And it rolled. The rightfielder was already doing his victory dance and didn’t notice that the ball was rolling into the corner. (Good thing, because the experience was new for Scott and the first two runners crossed the plate before he remembered that it was time for him to run, too.) He circled the bases and was lifted to his teammate’s shoulders. They carried him off the field to celebrate his game-winning grand slam.

Step up to the plate. Share your long-term investing experience. It’s a challenge. It’s a campaign. It revolves around encouraging the people that you care about to step up.

But it’s just a start. Successful long-term investing, by definition, almost requires the nurturing of curiosity. Our best investors wonder about how “what we do” works. The real treasure is that they become living testimonials to how well a strategic long-term approach to investing succeeds.

We use a number of catch phrases and themes to surround what happens after we step up and own our shares. Our community resonates with words like “Big Tent,” an oasis from chaos, a place to come home to, anchors in safe harbors, and sleep-at-night investing.

My perspective on investing has changed dramatically since that day in March 1992 when I picked up a life-changing Wall Street Journal article and became suddenly curious about one such Big Tent called BetterInvesting and the experience of investment clubs. I genuinely share that my outlook is so much different that I feel butterfly-proof to the turbulence on any given day or week or month.

But I’m NOT worried… and THAT’S the difference.

Step up. Help a friend or loved one to discover long-term investing. People have to be persuaded to swing the bat. There’s plenty of room in our Big Tent and a powerful community to join. It’s the place where “average investing” ends and a successful investing journey begins.

Thanks, Scott.

Logging a Long-Term Perspective

How rewarding have the last 10-12 years been for long-term investors? During a classroom demonstration with Ann Cuneaz’s teenagers, we took a closer look at annualized returns since the kids started kindergarten for the MANIFEST 40 and some other successful companies that were on the tips of their youthful tongues.

Many long-term investors in our broad community will generally eschew retail stocks and avoid them.

Take a look a the accompanying list. Note the retailers and smaller companies and high-tech companies that would generally fail to capture the attention of many of us.

Shopping Our MANIFEST 40? The long-term actual returns are annualized since the dividend and split-adjusted purchase price shown. Coach has been the most rewarding over the last seven years. The highlighted companies were added to the MANIFEST 40 during a long-term investing demonstration with a group of teenagers. Does it bother you that many of the highlighted companies would generally be ignored by many investors in our community? It should.

Abercrombie, Coach and Urban Outfitters rank among the most successful stocks among the 35 stocks that we’ve featured in the Solomon Select feature since February 2005 issue. I have a confession. As I prepared those features, my skin crawled a little. Knowing how many of you feel about retail/restaurant stocks, I wondered if you might dismiss the Solomon Select feature as something to be taken seriously. (Note: The annualized return for the Solomon Select tracking portfolio is 14% since inception versus 9% for VTSMX.)

Does it bother you that many of the highlighted companies on the list would have failed to capture your attention because of some inherent, and potentially illogical, prejudice? It should. Does it bother you that we have collectively ignored the three top-performing sectors in the S&P 500 for three years running? It should.

Reasonable Expectations

Has Warren Buffett lost his touch?

Are all of those presidential candidates who say we can’t invest successfully on our own without Uncle Sam investing our Social Security dollars correct?

Didn’t that 3-year bear market a few years ago crush returns over the last decade?

In a word … NO. Not really.

The 10-year average annualized return for Berkshire Hathaway is 11.7% — a little short of historical returns, but still an admirable achievement.

A variety of research studies have computed the expected present value of social security benefits and taxes for households with different characteristics and earnings levels. In addition, their analysis incorporated the internal rate of return for the retirement portion of social security contributions. They found real internal rates of return on social security contributions ranging from negative numbers to 6.3%.

The MANIFEST 40 is a tracking portfolio of the most widely-followed stocks by our subscribers based on frequency of appearance on our dashboards. The average annualized rate of return (1996-present) for these (40) stocks is 17.1% with individual results ranging from Knight Transportation (6.5%) to Coach (41.9%.) Over the same time frame, the total stock market (VTSMX) has gained 8.9%. Yes, Virginia … that time frame included the nefarious bear market.

The weakest performer among our (40) favorites outperformed the peak performance condition modeled for the Social Security returns.

A Retrospective and Perspective on Returns. The actual returns are for the period 1996-2007. The forecast returns are for our five-year time horizon (12/31/2007 through the end of 2012.) The returns on the MANIFEST 40 have been strong and the outlook continues to be strong relative to some major benchmarks. No, that’s not a missing bar for QQQQ (1996-2007). That’s a 0% annualized return. The forecast paints a different picture, suggesting that shopping among the 4-letter stocks is probably a pretty good idea these days. Many of the NASDAQ companies are young and energetic … yet another case where the children may lead us?

Of Lunar Tee Boxes …

It’s a fair assumption that our community participants own many of the MANIFEST 40 and are investing better than Uncle Sam.

Are there any guarantees? Yes, but probably not what you’re thinking. While there are no performance promises that can be made, history suggests that avoiding long-term investing probably means that you’ll be guaranteed fewer opportunities for indelible memories in the future.

As we shared with the teenagers, when someone says investing, think Freedom. Freedom to dream … about stepping up and teeing off … even when the tee box is part of the lunar landscape. Step up.


Mark Robertson

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

Expected Returns, Jan 2008

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