Model Portfolio, by Mark Robertson, Managing Partner
Posted on August 1st, 2020
Goosing Returns and Banking On A Couple of Banks. Polaris sold after amazing surge over last few months and First Financial (FFIN) and Great Southern Bancorp (GSBC) establish Ken and Mark's Run For The Roses.
Tin Cup Demonstration Portfolio (August 2020)
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 13.6% vs. 9.1% for the Wilshire 5000.
Total assets are $2,517,331 (7/31/20) and the net asset value is $513.31. The model portfolio advanced 5.31% during July 2020. The Wilshire 5000 checked in at +5.64% for the month.
Tin Cup: Historical Performance. Tin Cup surged to $2,517,331 following a steady climb from the March lows. The rate of return since inception is now 13.6%.
With MIPAR at 8.7%, our target for the minimum overall portfolio PAR is at least 13.7%. The overall portfolio PAR is 13.1% on 7/31/2020. Quality and financial strength are sufficient at the current levels of 88.3 (Excellent) and 84%. EPS Stability is 74 for the portfolio. Sales growth is in the design target range at 13.5%.
Tin Cup Dashboard: July 31, 2020. Ranked by PAR (last column on the right.) Sell Polaris (PII). Buy Canada Goose (GOOS-TO), First Financial (FFIN) and Great Southern Bancorp (GSBC).
The Round Table isn’t the only investing demonstration celebrating with fireworks during July 2020. While the Round Table checks in at 17.4% (since 2010), Tin Cup is no slouch, clocking in at a 13.6% annualized rate of return since 1995 and topping a new milestone as total assets are now greater than $2,500,000.
Just for kicks, I checked the annualized total return based on unit value as it has increased from $10 to $531 — an annualized gain of 16.6%! Yes, this will be different than the rate of return but it gives some indication of the “lump sum experience” of a hypothetical investor in a club that followed this path. $100 invested at the start up would now be worth $5,313. We also note the strength of the recovery vs. the Wilshire 5000 — as the higher-quality companies with higher return forecasts recover more rapidly. The decline during March for Tin Cup was actually less than the total stock market on a percentage basis, again underscoring the influence of quality versus a corrective or bear market.
Tin Cup: Portfolio Worksheet (Dashboard). The decision to offload Polaris (PII) one of the companies with the lowest return forecast while replacing it with the blend of Canada Goose, First Financial and Great Southern Bancorp is on display as the overall PAR is bolstered to 13.6% within an eyelash of MIPAR+5%.
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.
Polaris (PII) turned out to be a wild ride right through the heart of an avalanche. PII was added to Tin Cup back on 12/1/2015 and has delivered 1.7% versus 11.5% for the Wilshire 5000. The stock price had plummeted to $37.4 during 2020 so the gravity-busting ascent back to $103.6 made for quite the wild ride. The Polaris growth forecast is 8% and the financial strength checks in at 71% with an EPS stability of 37 for an overall quality rating of 50. With the return forecast near the bottom of the Tin Cup dashboard — combined with our need for “more PAR,” we’ll nod gratefully for the huge burst of momentum in the Polaris stock price and say thank you in order to shop for new candidates for the demonstration portfolio.
With the proceeds of sale and relatively insignificant month contribution (including dividends) were used to establish new positions in Canada Goose (GOOS-TO), First Financial (FFIN) and Great Southern Bancorp (GSBC).
Canada Goose is the worst performing selection in our Best Small Companies for 2020 with a return of -41.5% since Halloween 2019. File this under stubborn (perhaps) but we still like the company and its outlook. Value Line concurs.
_Canada Goose stock had fallen below $20 a share in mid-March, but has since staged a solid recovery. That said, the equity still trades well below its 52-week high, leaving it with wide recovery potential for intrepid investors. Indeed, given all of the uncertainty in the retail apparel space, the outlook is cloudy and our estimates are tenuous. But because of the brand’s strength, we do envision an eventual return to form. — Matthew E. Spencer, CFA (July 24, 2020)
Ken Kavula featured First Financial during the July Round Table. The company is among many regional financial firms that have bubbled to the top of screening results at Manifest. In fact, during the July session, Mark was tempted to nominate either Great Southern Bancorp or BancFirst Oklahoma (BANF) or Greene County (GCBC) but didn’t. So we’ll turn it into a horse race here. Partial but equal positions in First Financial and Great Southern have been added to the portfolio so we can have our banking stakes after all.
Although we believe that we’ll see some plateauing of expectations with many of the asset-based companies and forecasts will likely moderate as 2020 unfolds, we still see considerable opportunity in the industry group and believe it makes a steadier contribution to the Tin Cup collection during these certainly unsteady times. Plus we get to see whether Ken or Mark get to wear the robe of roses at some point in the future.