Where The Rubber Meets The Road

Cover Story, by Mark Robertson, Managing Partner June 1st, 2015

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An athlete can train all day, but the race is where the rubber meets the road and they’ll know how good they really are.

Dear Manifest Investing, I am a new subscriber to Manifest and I am not finding Manifest helpful. Since many other users DO find Manifest helpful, I think it is my lack of understanding of what Manifest is all about. I have had a lot of experience, 50 years. I am at a high level for buying and selling stocks without any advice. My brokerage is Fidelity. I am successful. I’ve subscribed to Better Investing for many many years and also Value Line for many years and also Morningstar for a few years. I heard of Manifest Investing from a video conference at Better Investing. The lecturer said he liked Manifest Investing and I thought I’d give it a try. He provided a good talk. How do successful investors use Manifest Investing?

Where the rubber meets the road is the most important point for something, the moment of truth. An athlete can train all day, but the race is where the rubber meets the road and they’ll know how good they really are.

A place or circumstance at which the implementation of a plan or intent is to be achieved.

What is Manifest Investing all about?

Since you mentioned Better Investing, you probably remember the years that I served as your senior contributing editor. Part of that experience was working side-by-side with some of the legends/gurus of the modern investment club movement. But more importantly, the opportunity to work with legions of successful investment clubs and individual investors (by the thousands) reinforced many of the lessons learned. Observing successful investors and portfolios led to a fairly simple, but powerful, set of best practices. Manifest Investing is an effort to capture those best practices and to put them at your fingertips.

1. We’re here for the RETURNS. We’re here, collectively, to achieve outstanding returns — in many cases outperforming the conventional benchmarks. 2. QUALITY is critical. Invest the Best. This will protect you during corrections, recessions and bear markets. 3. GROWTH is important. Everything we do at Manifest Investing revolves around these three major characteristics for any investment that we discover, study and/or own.

You mentioned Value Line and Morningstar. We’d add at least a third, Standard & Poor’s (S&P). Everything we do revolves around a consensus of a variety of trusted sources of research. Every company analysis (return forecast and quality ranking) can be considered to be the output of locking a bunch of analysts in a room and not letting them out until they provide a consensus stock study.

I’ve been doing a version of Manifest Investing since the early 1990s, predating my editorial experience at Better Investing. The last 10 1/2 years at Manifest Investing have continued to deliver lessons about increasing the probability of success — and we deploy them continuously.

Our experience has been that acceptance of some of the premises can be a challenge. To that end, we’d recommend that you visit our January 2006 cover story, “Beyond The Closet & Off The Couch” and perhaps spend a few moments with Occam’s Razor via the “Cutting Off The Ends” (November 2009) cover story. Simplicity is liberating. “Let go.” Embrace over 70 years of demonstrated success.

You can find those cover stories by clicking on Publications > Articles > Cover Stories.

Favorite Features

For most newcomers, we’d start with probably the favorite feature of Manifest Investing — discovering actionable stock ideas. We’ll come back to that.

Because you’re an experienced investor, it’s likely that the most meaningful thing that you can do is to create a dashboard using a recent brokerage statement. We use the accompanying statement (shown here) to demonstrate the process.

What we’re about to cover is valid for individual investors AND investment clubs (partnerships). In fact, many clubs use dashboards to reach “common ground” — a compass that guides them to audit and explore the analysis of the holdings with the weakest return forecast, lowest projected annual return (PAR) or quality ranking. You can find more details about the composition of the quality ranking at “Excellence Ranked” (March 2013). The nutshell definition is that our quality ranking is based on quality as defined by both Benjamin Graham and George Nicholson Jr. (Graham was Buffett’s mentor. Nicholson is regarded as the grandfather of the modern investment club movement.)

Portfolio Design & Management

Go to Dashboards > New Dashboard and create a dashboard using one of your recent brokerage statements. Under “Holdings”, enter the ticker symbol and number of shares held for each holding.

We trimmed out a couple of columns so that readers wouldn’t pay much attention to the number of decimal points and dollar signs. These concepts are valid for all portfolios, big and getting-bigger. What do we learn?

1. The overall return forecast is 9.3%. With the average return forecast at 6.5% (see MIPAR definition at “Pendulums and Projections,” September 2005) the portfolio is currently designed to outperform the market by +2.8% (9.3% minus 6.5%) over the long term.

We aim for the average return forecast (MIPAR) plus five percentage points. In this case, we’d like to see 9.5% as the weighted average of the portfolio.

2. Quality is quite solid at 88.5. We believe that it is prudent to keep overall quality high when return forecasts are relatively low — as is the case at the present. At 88.5, the mix of companies has sufficient quality.

3. The overall growth rate is low (8.5%) Our target for the weighted average growth rate is 10-12%. This is only achieved with an appropriate, and time-honored, blend of small faster growing companies combined with medium size workhorses and large slower growing blue chip industry leaders. The balance and mix is important.

For more, see: https://www.manifestinvesting.com/events/76-group-investing-common-ground
(This is a video session that covers many of the portfolio design and management concepts used by Manifest Investing subscribers.)

This portfolio includes three “uncovered” investments. Subscribers can request coverage of virtually any holding. However, in this case, American Capital (AGNC) is not among the companies covered in the Value Line 6500 and experienced investors would find sketchy information and stale data at a glance via sites like http://finance.yahoo.com/q/ae?s=AGNC+Analyst+Estimates Based on this cursory analysis, it would be difficult to complete (and maintain) coverage on AGNC.

UBS ETRACS 2xM Leveraged (MLPL) is an ETF composed of 25 energy infrastructure MLPs. MLPL is covered by stockcharts.com and is a energy-based fund on steroids that we’d be unlikely to cover. ProShares Ultra S&P 500 (SSO) is another leveraged (2x) version of the S&P 500. It’s another fund that we’d be unlikely to cover.

A current version of the portfolio/dashboard can be accessed via:
https://www.manifestinvesting.com/dashboards/public/june-cover-before

Discovering Actionable Opportunity

If the demonstration portfolio were mine, I’d probably sell the non-traditional entries. What would we replace them with? This is also among the most favored features by Manifest Investing subscribers. The StockSearch screening feature is simple but powerful.

Click on StockSearch > New StockSearch to display a number of parameters for screening.

We often input 99.5 in the “Manifest Rank >” to generate a smorgasbord of higher quality stocks with relatively higher return forecasts — the two most important milestones in our stock studies. The results from a Manifest Rank > 95.5 generates study candidates like Cognizant Technology (CTSH), Whole Foods (WFM), Priceline (PCLN), Polaris (PII) and Qualcomm (QCOM) among a few other community favorites.

To The Sandbox!

The process of using the “What If” feature for portfolio decision support is probably best presented by Ken Kavula in the clubhouse series and here:
https://www.manifestinvesting.com/events/145-a-few-moments-with-our-sandboxes-february-15-2014

In this case, we can convert the non-traditional holdings to cash and embed the StockSearch candidates in a what-if display to decide which stocks are potentially best fits for buying. (See accompanying dashboard excerpt)

We’ll continue next month in the realm of vigilance and demonstrate where and how to deploy the new Alert features. Check out the Round Table “Events” and the archives. We’ll also be spending some time with an update on long-term performance … confident about rubber and the road ahead.