Band of Groundhogs
Cover Story, by Mark Robertson, Managing Partner February 1st, 2010
Whether you're an individual or group combatant, we can't think of a Community of long-term investors that we'd rather band together with.
2nd Lt. George Rice: Looks like you guys are going to be surrounded.
Richard Winters: We’re paratroopers, Lieutenant. We’re supposed to be surrounded.
Whether you’re an individual or group combatant, we can’t think of a Community of long-term investors that we’d rather band together with. The results from Groundhog III are in and they’re, once again, exceptional. Our “Big Tent” welcomes any and all who seek to join the ranks and share some solid ideas with our paratrooping colleagues.
2009 Individual Groundhog Champion Paul Witt with his spouse (Heather) and their two sons, Colin (10) and Nathan (7) enjoying some time together out with the groundhogs in central Michigan.
It was truly a photo finish again this year. No, not in the individual competition. Paul Witt had drubbed the field long ago … more on that later. This year it was the group drama that came down to the wire as our Challenge Club Select dueled with San Diego’s Two Rivers club and Ken Kavula’s Mid-Michigan entry (the Wolves.) The last day of the contest started with all three entries within $7 of each other.
Our traditional contest now has three years in the record books. The challenge is simple. Your starting balance is $1,000. Select five stocks, starting on our national holiday, Groundhog Day — and take care of the portfolio going forward.
We didn’t dwell on the long-term nature of the contest in early 2007 or 2008 and we didn’t have to for 2009, either. Our participants clearly make their choices with a longer journey in mind. No day trading. No penny stock adventures. Carefully considered selections. Relatively low turnover.
For 2009 … 39-of-57 participants (68.4%) outperformed the Wilshire 5000! (Only 45% of domestic stock mutual funds did.) During a year when the market as gauged by the Wilshire 5000 gained 38%, our courageous band of Groundhogs collectively averaged an annualized total return of 55%.
Groundhog III (2009) Leaderboard. Here are the participants at the top of the standings for Groundhog III. Paul Witt transformed $1000 into $3548 during the annual contest.
The dashboard of consensus selections from February 2, 2009 proceeded to shine. The “Heavy Hogs” dashboard featured (12) stocks that outperformed the general stock market while only four entries lagged. The average annual total return for these (16) consensus selections was 63% led by Cognizant Technology (CTSH) which advanced from $100 to $241 over the course of the year.
Punxsatawney Phil’s Prediction?
It’s become 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."
The average groundhog has achieved a lifetime “alpha” or relative return of +15.2% (!) as several new participants knocked the cover off the ball while hitting it out of the park during Groundhog III. Our Band of Groundhogs raised its collective lifetime accuracy rating to 63% (percentage of selections outperforming the Wilshire 5000 over their holding periods. Punxsy Phil continues to forecast “Spring Ahead” for our hogs.
A Few Moments with … Paul Witt
MI: Congratulations, Paul, on winning the individual category of the Groundhog Challenge for 2009.
Paul: Thanks. My approach was a little unconventional.
MI: We noticed. We’re thinking about attaching an asterisk to the results, putting you in the company of Roger Maris.
Paul: But it wasn’t against the rules. For the record, I started with five pretty good stocks before switching to a single stock fairly early during Groundhog III.
MI: You’re right. And for what it’s worth, the original five would have outperformed the market. We’ll tighten down the rules for 2010.
Paul: The single company is where I work, Dow Chemical (DOW). The stock price had fallen to historical lows and there was considerable turbulence during the acquisition of Rohm & Haas. Investors like John Paulson had a field day.
MI: What do you do for Dow?
Paul: I work in research and development in the area of process optimization. I have degrees in chemical engineering from Minnesota and Iowa State.
MI: We certainly noticed the optimization part. What is your background in investing?
Texan Mac Almond took home top honors among the “Investopedia Simulator” participants … finishing 8th ($1734) in the Groundhog field.
Paul: I joined an investment club in Charleston (WV) back in 1998. The group was 100% PhD chemists. This lack of diversity combined with a huge dose of overconfidence. Our first purchase was acquired in a matter of days by Pfizer, doubling our very first investment. The rest of our decisions foiled the results of that first transaction.
MI: I know that you serve as a volunteer for the Mid-Michigan chapter of Better Investing. How would you describe your investing experience over the last decade or so?
Paul: I met Ken Kavula at a stock study class back in 2002. He’s a very capable and inspirational teacher.
MI: And a pretty good stock picker, too.
Paul: Right. My philosophy now is pretty simple: 1. Learn from Mark, Ken and MANIFEST; 2. Money is made by avoiding emotion; 3. Value is King … paying a high price for a growth stock is playing with fire … it can make your portfolio glow but if you are not careful, you will get burned; 4. I read The Intelligent Investor once a year.
MI: Congratulations, Paul. Thanks to your 2009 performance, the only question about the all-time leader board for 2010 (next year) is where you’ll be at the top of the rankings after you qualify. Good luck in Groundhog IV.
Peer Performances
A few entries let their 2008 selections “ride.” For some, the results were a little dismal. But for San Diego’s Two Rivers investment club, it was the path to the group championship for 2009. Their portfolio featured Coach (COH), FactSet (FDS), F5 Networks (FFIV), Garmin (GRMN) and Infosys (INFY). I suspect that the club members are applying some of that home grown knowledge in the realm of technology.
All-Time Relative Return Standings. Participants qualify with 2-of-3 years of participation in the Groundhog Challenge. The collective returns have been achieved during a period of multi-year negative returns for the general stock market.
Our national Challenge Club finished within an eyelash of the San Diego gang — leaning on Coach, Expeditors (EXPD), Microsoft (MSFT), Stryker (SYK) and Varian Medical (VAR).
Central Pennsylvania’s Chuck Reinbrecht assumed the controls of a contest portfolio started by the late Will Conrad. Both gentlemen serve as volunteer leaders for the local Better Investing community and it’s clear that they both steer pretty well. Chuck turned $1000 into $2130 during 2009 … a solid performance indeed.
2008 champion Mark Robertson completed a third consecutive year with positive returns and leads the all-time results shown in the accompanying table. Participants qualify for the all-time roster after completing their second year. Our 2008 group champion, Bower City of Janesville (WI) continues to lead the long-term results for group entries. Susan Maciolek and her colleagues enjoy a solid track record in our stock picking game … but more importantly, achieve similar results with their real money portfolio.
All-Time Accuracy Leaders. The selections made by our Band of Groundhogs have outperformed the market 63% of the time.
The Clarity of Our Groundhog Future
We know better than to dwell on the results of a few years. We also know that past performance is, well, past. The success may extend because we’re dealing with a band of individual and group-based investors who build portfolios with carefully-considered expectations in mind.
We welcome the clubs, groups and more individuals as the field continues to expand. If you or a group of your friends are interested in joining the Band, send an e-mail to markr@manifestinvesting.com and we’ll be glad to answer any questions and get things started.
There is expanded coverage of the results and all Groundhog dashboards are available on the MANIFEST Forum. All individuals are welcome to participate and we’re grateful for the groups joining our Band of Groundhogs.
Bottom line? We’re blessed to be among friends who love to explore and share. Good luck in Groundhog IV, everybody!
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.