Model Portfolio, by Mark Robertson, Managing Partner
Posted on June 1st, 2020
Following in Round Table Portfolio-Centered footsteps, CVS Health *CVS), Simulations Plus (SLP) and Alliance Data Systems (ADS) were sold. New positions started in Abbvie (ABBV) and EPAM Systems (EPAM). Shares accumulated in Air Lease (AL), Schwab (SCHW), Align Technology (ALGN), and Jazz Pharma (JAZZ).
This demonstration portfolio invests the maximum allowable 401(k) in stocks. In the absence of choices within the portfolio, we shop outside the portfolio using the combination of return forecast and quality rating to identify candidates to be added to the portfolio. Total assets reached $1,000,000 in 17 years. Tin Cup has outperformed the S&P 500 since inception and the rate of return since 1995 is now 13.2% vs. 8.9% for the Wilshire 5000.
Total assets are $2,307,056 (5/31/20) and the net asset value is $470.43. The model portfolio advanced 9.48% during May 2020. The Wilshire 5000 checked in at +8.02% for the month.
Tin Cup: Historical Performance. Tin Cup surged to $2,307,056 following a steady climb from the March lows. The rate of return since inception is now 13.2%.
With MIPAR at 9.5%, our target for the minimum overall portfolio PAR is at least 14.5%. The overall portfolio PAR is 13.5% on 5/31/2020. Quality and financial strength are sufficient at the current levels of 91.5 (Excellent) and 87%. EPS Stability is 73 for the portfolio. Sales growth is in the design target range at 12.0%.
Tin Cup Dashboard: May 31, 2020. Ranked by PAR (last column on the right.) Sell Alliance Data Systems (ADS), Simulations Plus (SLP), CVS Health (CVS). Add Abbvie (ABBV), EPAM Systems (EPAM). Accumulate AL, SCHW, ALGN, JAZZ.
There was a time with a stock with a 4-letter ticker symbol was at home in the NASDAQ. Stocks with 1-3 letters were NYSE stocks. That changed a few years ago but is still largely true. With the huge gains in the Nasdaq-100 (QQQ) we’re thankful to look up and down the Tin Cup dashboard and see the prominence of 4-letter holdings.
But the strength didn’t stop there as newcomer Wolverine Worldwide (WWW) had a very good month and so did Simulations Plus (SLP). There are signs of potential recovery at Cognizant Technology (CTSH). The thesis continues to be fairly credible that global economic recovery will benefit CTSH and a little more time with the new CEO is a good thing, too.
The portfolio value has surged to near all-time highs — suggesting that we carefully consider the opportunity to sell the hardest charging stocks. Participants in our Round Table monthly webcasts have watched as we ENFORCE one of our guiding principles — that being a perpetual effort to keep the overall average portfolio return forecast sufficiently high. Specifically, at least five percentage points greater than the market average.
As with the Round Table, some key contributors like Simulations Plus have soared mightily and the collective impact is that overall portfolio PAR has sagged lower. This is complicated by an overall market average PAR (MIPAR) which has been extremely turbulent as analysts adjust forecasts and assumptions in the middle of this economic upheaval. This provides a little temptation to ignore the guideline, or relax standards and we’ve decided that we’ll stop “relaxing” so much.
As a reminder, we start this month’s decisions with a refresher of the core portfolio-centered principles.
All decisions with Tin Cup are fairly mechanical, as we strive to keep the portfolio within certain limits:
(1) Overall average PAR at least 5 percentage points greater than the median return forecast (MIPAR).
(2) Excellent Quality. Overall average quality ranking greater than 80.
(3) Overall average sales growth forecast of at least 10%, but preferably 11% or more.
Conditions #2 and #3 are on target.
But the surge and the turbulence led to an overall PAR of 10.9% on 5/31/2020. When placed in the context of a MIPAR of 9.5%, the return forecast was getting too close to an “average condition.” In a departure from normal custom, the portfolio displayed is the AFTER portfolio — with the average return forecast bolstered to 13.5% with more work likely to be done come June 30, 2020.
We usually feature the BEFORE dashoard, but truthfully, your editor failed to screen capture it at the time of month-end head scratching.
At that time, the positions with the lowest return forecasts (PAR) were Alliance Data Systems (ADS), CVS Health (CVS) and Simulations Plus (SLP). Those positions were sold for considerable gains.
With the proceeds of sale and relatively insignificant month contribution (including dividends) were used to establish new positions in Abbvie (ABBV) and EPAM Systems (EPAM).
There was still considerable cash so accumulation purchases was made in Air Lease (AL), Charles Schwab (SCHW), Align Technology (ALGN) and Jazz Pharma (JAZZ). All of these companies are featured at the top of the dashboard when sorted by PAR (Descending).
Further accumulation of Amazon (AMZN) was avoided because the position already represents 12.7% of total assets. After June, we’ll continue the work in progress …
Abbvie (ABBV): Business Model Analysis. The company was presented by Ken Kavula during the recent Covid Cancellation Conference. Ken cited the company’s strong historical performance, expanding opportunities and solid Allergan integration, so far.