Model Portfolio, by Mark Robertson, Managing Partner
Posted on October 1st, 2020
A Pause Before Pressing On? We continue to restore overall portfolio return forecast (PAR) to target levels. It's a work in progress ...
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 13.8% vs. 9.2% for the Wilshire 5000.
Total assets are $2,698,204 (9/30/20) and the net asset value is $542.03. The model portfolio declined 3.71% during September 2020. The Wilshire 5000 checked in at -3.94% for the month.
Tin Cup: Historical Performance. Tin Cup sagged a little to $2,698,204 but actually had a fairly strong close to September. The rate of return since inception is now 13.8%.
With MIPAR at 8.0%, our target for the minimum overall portfolio PAR is at least 13.0%. The overall portfolio PAR is 12.2% on 9/30/2020. Quality and financial strength are sufficient at the current levels of 86.1 (Excellent) and 82%. EPS Stability is 76 for the portfolio. Sales growth is in the design target range at 12.1%.
Tin Cup Dashboard: September 30, 2020. Ranked by PAR (last column on the right.) Sell more Booking (BKNG) and Canada Goose (GOOS-TO). Buy more British American Tobacco (BTI) and Bio-Specifics Technologies (BSTC).
The total assets for the Tin Cup demonstration portfolio have still nearly doubled since the lows witnessed during March 2020 when we were wrestling with the advent of the Covid economy.
The recovery has been steep — outpacing the general stock market (Wilshire 5000) by a considerable margin over the last several months. It’s a testament to maintaining sufficient return forecast (PAR) … suitable quality for downside protection … and assertive growth to capture the powerful moves from the leading and fastest-growing companies rebounding out of a time of economic challenge.
Air Lease and British American Tobacco have permission for take off.
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. We’d like to see the overall average sales growth bolstered even further if/when opportunities present themselves in November and December. Condition #1 — thanks to the series of transactions over the last several months has been restored to very close to targeted “design conditions.”
Booking (BKNG) was added to Tin Cup right as the demonstration portfolio passed the $2,000,000 threshold back in January 2018. At the time, the company still went by its given birth name of Priceline. Things went swimmingly over the next six months or so as the position gained 21% in short order. At that point, the stock price went sideways until the onset of Covid-19 in early 2020. The stock price swooned from $2094 down to $1107 — a haircut of some 47% as world travel screeched to a halt. The price has recovered handsomely since then, providing the opportunity to sell the balance of the position as it finds itself centered on the low return forecast hot seat.
Canada Goose (GOOS.TO) was a fairly recent addition to Tin Cup. Admittedly, watching this company soar from $18 to $46 in a few short months was an excursion that we were happy to be part of. At the time of purchase, we drooled over the rapid return boost we’d experienced from Wolverine Worldwide and in this case — the Canadian geese were nearly as entertaining and rewarding. (We have similar thoughts — and willingness to sell — about Urban Outfitters and URBN finds itself fairly near the low return forecast hot seat these days.
The proceeds of sale, monthly contribution and generated dividends were used to accumulate additional shares of British American Tobacco (BTI) and BioSpecifics Technologies (BSTC).
During the 9/1/2020 Bull Session, we talked briefly about the plight of many European companies as the relative performance to domestic stocks has reached a 100-year low. This suggests potential opportunities among some established and/or promising companies from the region. British American Tobacco ranked near the top of screening results centered on quality and return forecast, so we’ll give BTI a run. BTI is the largest publicly-traded tobacco company in the world. Brands include Kool, Benson & Hedges, Lucky Strike, Dunhill and Kent.
British American Tobacco ADRs are ranked to outperform the broader market averages over the coming six to 12 months. Over the 3-5 year period, these ADRs, which should appeal to income-oriented investors thanks to the very high dividend yield, also offer wide price recovery potential at the recent quotation. — Iason Dalavagas (July 17, 2020)
The Booking (BKNG) and GOOS sales and the accumulation of BTI and BSTC restores the overall portfolio PAR to only 12.7%, so we still have a little more work to do in coming months to get this design parameter back into the target range.
We’ve mentioned shopping for special situation opportunities in the retail sector during Bull Sessions, etc. lately and we’ll likely give some thought for the October Round Table and November’s Tin Cup deliberations.
Tin Cup: Portfolio Worksheet (Dashboard). The decision to liquidate the remainder of the Booking (BKNG) position and sell Canada Goose (GOOS) results in accumulation of British American Tobacco (BTI) and BioSpecifics Technology (BSTC) raises the overall portfolio return forecast back “close” to the design range. (Minimum: MIPAR+5%.)