2017 Performance Review – NOW Six Full Years Beating Buffett and Crushing The Market

2017 Performance Review – NOW Six Full Years Beating Buffett and Crushing The Market

2017 is also known as the year of continuing to find a few great stocks and sit on your ass and do nothing.

Charlie Munger said this – or something similar – and it’s what I’ve done for almost 3 full years now.

I’ve bought ZERO new stock investments since April of 2015, when I bought a few great businesses, and haven’t done much since.

Why?

Well this article explains several of the reasons

Goldman Sachs says Valuations Across The Board Are At Highs Not Seen Since 1900

I’ve known this for years as I’ve searched all over the world for public company investments and around the US for multi-family apartment building investments since 2015.

But this is where we, as deep and disciplined value investors, can gain a MASSIVE advantage over other investors.

And 2017 further showed this approach of buying great companies and sitting on your ass for a few years, can make you and the people you invest in, a lot of money.

The above quote from Benjamin Graham is one of my favorites.

It means in the short-term, emotion and psychology drive the market. But in the long-term, the market – and individual stocks – get judged on how well they’ve operated and grown over time.

This is great news for us as long-term oriented value investors.

If we can find a few great companies at cheap to fair prices and hold them for the long-term, we’ll have great returns over time. Why? Because…

“Time is the friend of the wonderful company, the enemy of the mediocre.” – Warren Buffett

With this as a backdrop, below is the 2017 performance review.

For links to 20122013, 2013 updated numbers, and 2014 and 2015, 2016 performance reviews, go to the previous links.

Also, as noted above in some of the individual posts, I made multiple mistakes in 2013 when calculating my returns. The numbers below – which show the six full years between 2012 and 2017 – are correct.

2017 Performance Review

I still own all the companies from 2014 and 2015 except one. I bought 3 new companies in 2016, and ZERO investments in 2017. These investments produced a 13.5% average return in 2017.

Here are the highlights from this year:

  • One of the companies I recommended while working at the investment newsletter, is up more than 300% since I recommended them in 2014 / 2015.
  • One company I recommended in Press On Research was up 154.6% JUST in 2017.
  • This same company has now QUADRUPLED since recommending them in 2015.
  • Another two Press On Research picks from 2015 have more than doubled.
  • The average market cap at the time of these recommendations was $246.4 million.
  • The average market cap of the 11 companies I still own – not including the company that was bought out last year – is now $543 million.

Below is the full spreadsheet…

2017 VIJ and POR Performance Review

If you’d like to know what these companies are, you can do so by purchasing ALL past issues at a 50% discount by using this code 2018ALLISSUES in our shop today.

Note. The only product that this code will work on is the ALL issues package here. To purchase this package for 50% off, put the ALL issues package in your cart and use the code 2018ALLISSUES before checking out.

So what does this mean for cumulative full six-year returns now?

Six Full Years Beating Buffett…

Here are Buffett’s returns that I’m referencing.

The Buffett Partnership Returns

I don’t compare myself to Buffett because I want to be the next Buffett. But because everyone knows who he is as he’s regarded by most as the best investor ever.

I want to be known as the first Jason Rivera when my career is over.

At the end, I want to be known as a better investor and capital allocator than Buffett and to produce better returns over time than he has so I can help millions or billions of people all over the world.

At least for now – six full years into my career – I am achieving this lofty goal by beating Buffett, when compared to the first six years of his career.

In the first six years of my career, I’ve produced average – non-compounded – returns of 27% each year. Or a total cumulative return of 162% over that period.

In the first six years of his career, Buffett produced average – non-compounded – returns of 23.1% each year. Or a total cumulative return of 138.8% over that period.

This means in the first six years of our careers, I’ve produced returns 3.9 percentage points better each year than Buffett did in the first six years of his career.

But what does this 3.9 percentage point excess return per year mean in dollar terms over this period?

Assuming we both started with an asset base of $10 million at the beginning of the six-year period, I would have grown that $10 million into $41.959 million after six years.

Buffett would have turned his investors $10 million into $34.798 million in that time.

This is why every point of excess returns is so important, and why you need to be aware of any fees charged to your account by your money managers.

Over a long period – or in this case six years – ‘only’ an excess 3.9 percentage points each year would have made investors $5.7 million extra.

And this further illustrates the power of compounding over time.

Last year, this difference between my returns and Buffett’s returns were 4.3 percentage points and a $5.7 million difference. This year, it’s a 3.9 percentage point difference and $7.161 million.

Even though the actual percentage point difference dropped by 0.4 percentage points, the amount increased because of the power of compounding and an extra year by $1.461 million.

Not only am I achieving my lofty goal of beating Buffett through this time, but I’m also crushing the market as well.

And Crushing The Market

From 2012 through 2017 the Dow Jones Index produced a total cumulative return of 48.9% – or almost doubled – for the six years or 8.2% per year on average.

The S&P 500 produced a 51.3% total return  – or more than doubled – for the six years or 8.6% per year on average.

And the Russell 3000 index – the closest thing to a small cap index – produced a 59% total return or 9.8% per year on average.

I’ve produced returns in excess of these indexes by 18.8%, 18.4%, and 17.2% points respectively each year over these six years.

Assuming a $10 million asset base like above, I would have produced $24.5 million more for investors over this six-year period than the Russell 3000 index would have.

  • $41.959 million minus $17.5 million the Russell 3000 would have produced.

I started posting my results publicly in 2012 because this is when I began doing ‘real’, in-depth, investment research and analysis instead of speculating.

Results have been great thus far, better than I expected. But there’s still a lot of work and improvement necessary to continue this. Especially with valuations near or at all-time highs.

Other Highlights From 2017

Thanks to you investing in yourself via sales of my products, services, and consulting jobs we continued helping Mhicaella and her family in the Philippines.

The last letter we received from her mother told us that Mhicaella is now in 1st grade. She loves P.E. and is learning to read and write.

Here is a picture of Mhicaella when we first started helping her and her family…

Here is a recent picture of Mhicaella…

Mhicaella N.
The beautiful little girl we’re all helping support and have a better life in the Philippines.

With your help, some of the things we’ve been able to help provide for her and her family over the last year are school supplies, medical and dental care, and Christmas gifts for her entire family.

A percentage of all sales of my books, services, and products sold will continue going towards charities like these well into the future.

We will expand on this in the future and help even more kids and their families.

Thank you so much for helping and being a part of this milestone.

***

Other highlights from 2017 are:

  • Got my real estate license.
  • Learned an IMMENSE amount about real estate and real estate investing.
  • Put offers in on several multi-family and single-family properties.
  • Didn’t get any of these deals due to excessive valuations and getting outbid.
  • Did a lot of consulting work for a large firm in New York and Ohio.
  • Learned an IMMENSE amount about marketing in all facets.
  • Expanded my circle of competence into single family and multi-family investments.
  • Grew our mailing list and social media following A LOT.
  • Read around 50 books this year.
  • As mentioned above we continued helping Mhicaella and her family in the Philippines survive and thrive.
  • Learned several valuable skills to help my own businesses and others business.
  • Got several value investment coaching clients this year.
  • Began to build several value investing courses.
  • Hired 4 part-time team members.
  • We helped a lot more people this year than we have in the past due to the things above.
  • Began building more products, services, courses, etc to help as many people as we possibly can.
  • And a lot more

All this will continue to grow even more as we go forward and learn and improve.

Conclusion Thoughts

We’re still beating Buffet after six full years and crushing the market but both are catching up.

Value investing works best with a falling or stagnant market so with valuations at or near all-time highs – and reaching new highs on an almost every day basis still – this is expected.

Unless the market corrects sometime soon, I would expect Mr. Buffett and the market to continue catching up to or possibly passing us in the near future.

As I said last year at this time, barring a major sell-off I expect to add few to no companies again in 2018.

This is because I will only buy something that meets my ultra-strict criteria.  Under no circumstances will I buy something because I haven’t bought in a while.

This helps keep us only in great companies and real estate investments and should help us continue producing exceptional returns over time.

No matter what the market continues to do though over time I’m confident we’ll continue to beat the market by a wide margin. And continue to compound our wealth over time.

And with the market’s march ever higher, it’s allowed me to take the time to learn other valuable business skills.

This will help us even more over the long term as we get back into buying public companies stock. And into buying private businesses and multi-family real estate investments once we reach enough revenue and cash flow.

Here’s looking forward to an even bigger and better 2018.

Thanks so much to everyone who’s been a part of this journey so far. And please let me know how I can continue to improve things going forward in the comments below.

Jason Rivera

Chairman, CEO, and Founder of Rivera Holdings LLC

How To Value Invest Epilogue Excerpt: How Far I Have Come In Less Than Two Years Time of True Dedication To The Craft of Value Investing

Epilogue

“Rule number one: never lose money. Rule number two: never forget rule number one.”  Warren Buffett

I hope you have been able to see the progress that can be made in a short period of time because you can make the same progress if you follow the lessons of this book.  When I started to dedicate myself to getting better I tried to learn and implement as many new things as possible into every article as you probably noticed in the huge chapter on Altria.  After doing this for a while and getting a bit overwhelmed I decided it would probably be better just concentrating on adding or learning one new thing for each article written   I found that this was a much better way for me to do things as I improved much faster than when trying to learn many new things at once.  Going by this process I also noticed that my analysis was still concentrated, I was improving more, and the actual analysis articles got much better because I understood what I was doing better than when trying to learn multiple things at once.

The exact process of becoming a better investor is tough and when you first start, you will probably be doing a lot of things and concentrating in areas that you later will have no interest in.  Treat every company you research as a potential learning experience, try new things, and continue to constantly push for improvement.  Your investing journey will change drastically over time and it is a good thing if it does because it means you are pushing yourself to keep learning and improving.

As an example of how far you can come using the principles and techniques outlined in this book I want to show you how much I was able to improve in just one year once I dedicated myself to becoming an excellent value investor.  The following is my first ever stock “analysis” write up.  The information is completely unedited other than change of the font, size of font, some of the formatting, and a few typos.

Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar.com, Vodafone’s website, fool.com, or Vodafone’s most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world.  They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

  • Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
  • Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years.  Free cash flow or FCF is basically the money that’s left over after expenses, dividends, payments, etc that the Vodafone can use as it pleases.  Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
  • Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%.  Pays a semiannual dividend in June and November of each year.  Also receiving a special dividend from Verizon, $1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
  • FCF/Sales ratio over 16% each year since the 2002 financial year.  Anything over 5% means they are generating huge amounts of cash.
  • Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
  • Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
  • Raising their dividend an average of 7% per year for the next 3 years.
  • Lower debt/equity than their industry competitors.
  • Growing a lot in Asia, Middle East, India, and parts of Africa.  Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
  • Paying down debt with FCF.
  • Gross margin, net margin, and EBT margin all over 17% which is very good.
  • Still a lot of room to grow their revenue through people upgrading to smart phones and paying for data packages which they make more money off of then regular phones.
  • Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2.  Most of Western Europe except Germany is having huge economic problems which have led to lower sales and profits in those areas.

3.  The fear or actuality of another global recession would hurt their sales and profits.

4.  Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5.  Most of their revenue is generated in Europe where as above, there are big financial problems.

6.  Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other governments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone’s prospects to be a great investment for the long-term.  We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%.  They are paying down debt, upping their dividends and receiving a special dividend from Verizon.  Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing at least 7% a year for the next 3 years.  Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

As always if there are any questions let me know.  I believe we will all do well with this stock in our portfolios over the long-term.

Jason Rivera

Go back and compare this to any of the chapters in the book and the difference is shocking.  Shocking in how inadequate my thinking still was at this point where I was investing real money as most of the above you can tell was taken directly from financial sites and the companies own website, not exactly in-depth independent analysis on my part.  The reason I put my first ever write-up in this book is to illustrate how much better you can get in a very short time frame by using the principles and techniques outlined in this book and dedicating yourself to constantly improving.

If you do love value investing, have followed what has been shown to you in this book, have read from some of the sources that I have talked about and listed on my blog, and have the drive to continually improve yourself and get better, I guarantee that you will now be better at evaluating whether a company is a potentially fantastic investment better than most MBA’s and professional level investors without having to spend tens or hundreds of thousands of dollars at a big time university and saving years of time having to research all of this information for yourself.

Thank you so much for buying this book, good luck, and continue to work constantly at getting better and improving your processes.

I shared my first ever “analysis write up” last year during my year-end performance review and wanted to share it again to illustrate how far you can come by truly dedicating yourself to the value investing craft and continually learning and improving in a short amount of time.  With the things I teach in the book I hope the process will become even faster for you if you choose to go down this road.

Next week I will release the 2013 year-end review for my personal portfolio and the portfolios I manage.  The results were shocking to me since I only do a full performance review usually once a year.

If you have enjoyed this and other portions of the book I have released thus far please visit this page to buy the book and to see the now four reviews, all of which are 5 stars, that the book has received thus far.

If you would like to read other excerpts from How To Value Invest that I have released please view this page.

Year End Report On The Companies I Wrote Articles On And An Illustration Of How Far I Have Come Since February

Year To Date Performance

Below is a chart on the performance of the companies I have written articles on this year and how they have done since I published my original articles on them.

Article Tilt Date Published Price At Time Of Article Price Now % Gain or Loss
Original Dole Article Bullish 13-Jun $8.96 $11.22 20%
Original Alexander and Baldwin Bullish 15-Jun $24.04 Equivalent after Spin $28.41 15%
Vivendi Bullish 19-Jun $16.50 $22.55 27%
Chiquita Bearish 22-Jun $4.84 $8.12 40%
Fresh Del Monte Bullish 25-Jun $22.66 $26.07 13%
L.B. Foster Bullish 12-Jul $28.94 $42.36 32%
Kirkland’s Bullish 24-Jul $10.70 $10.47 -2%
Altria Bullish 2-Aug ~ $34.00 $31.32 -8%
Aceto Bearish 10-Aug $9.09 $9.77 7%
Core Molding Technologies Bullish 30-Aug $7.35 $6.79 -8%
Jack in the Box Bearish 1-Oct ~ $28.00 $28.63 2%
Stanley Furniture Bearish 18-Oct $4.32 $4.42 2%
Wendy’s Bearish 28-Nov $4.65 $4.70 1%
Strattec Security Bullish 12-Dec $24.00 $24.30 2%
Brazil Fast Food Company Bullish 26-Dec $8.00 $7.95 <-1%

I still trust my analysis of all the companies I have evaluated this year but at least in the short term it looks like I was very wrong about Chiquita as it has gained 40% since I published my article on them.  For the long term perspective I am still very bearish about them unless they have massively eliminated debt.  I generally do not keep tabs on the companies I wrote bearish articles on so Chiquita may have improved its operations since that time.

Also in the short term, it looks like I let the fear of the unknown about L.B. Fosters potential liability claim problems steer me away from a good investment as it has gained 32% since I wrote my bullish article about them.

Bullish and bearish results ended up being pretty comparable due to Chiquita’s big gain.  Excluding Chiquita from the bearish results and they performed much worse than my bullish articles.

Results below are excluding STRT and BOBS since I just bought both of them.  All results in this post are after fees.

122712_0426_2012YearToD1.png

Overall the companies I bought for the portfolios I manage have done very well as I was up 26.20%, including the 66% portion of Dole that I sold to lock in gains in the summer, and excluding Strattec and Brazil Fast Food since I just opened those positions.  The bullish results are only including gains from the time I published my articles to yesterday, which obviously does not include the big spike in Dole during the summer.

For my personal portfolio I only gained approximately 12% in 2012 because of my foolish past buys which I have documented many times on this blog before.  Because of the previous companies I owned, I missed out completely on Dole until after the company had already dropped back to Earth from its previous highs.

Lesson here kids is to know more than what you think you need to know before buying stock in companies so you don’t have the last two years of average results that I have had due to my lack of knowledge.  I would not change buying any of those companies because it helped me learn much faster than I would have by just continuing to read books, but instead of prematurely jumping into buying stock in companies after reading a couple books, I would have set up a portfolio online with fake money to track and learn from my performance.

After getting rid of the last trash companies that I probably should have never bought, and companies that I would have not bought into with what I know now, my personal portfolio whose current structure can be seen here, is up 16.19% still excluding STRT and BOBS.  Quite a bit worse than the other portfolios I manage due to missing out on Dole’s big gains.  Most of that 16.19% gain is from Main Street Capital which is the only company I still own from before doing the amount of research I am doing now and which is up 52.57% since I bought into them.

Going into the new year, now that I have my personal portfolio without any trash companies in it, I think that as I continue to gain knowledge and refine my craft that I will be able to perform as well in 2013, as I did in 2012 with the portfolios I managed to a gain of 26.20%.

An Illustration of How Far I Have Come Since February

Below is my first unedited attempt at an analysis write up that I did in either March or April after truly dedicating myself to becoming a value investor in February.

Vodafone Group PLC, ADR, (VOD) info

All information taken from Morningstar.com, Vodafone’s website, fool.com, or Vodafone’s most recent annual financial report.

Overview:

With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world. They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.

Pros:

  1. Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
  2. Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years. Free cach flow or FCF is basically the money thats left over after expenses, dividends, payments, etc that the Vodafone can use as it pleases. Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
  3. Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%. Pays a semiannual dividend in June and November of each year. Also receiving a special dividend from Verizon, $1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
  4. FCF/Sales ratio over 16% each year since the 2002 financial year. Anything over 5% means they are generating huge amounts of cash.
  5. Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
  6. Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
  7. Raising their dividend an average of 7% per year for the next 3 years.
  8. Lower debt/equity than their industy competitors.
  9. Growing a lot in Asia, Middle East, India, and parts of Africa. Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
  10. Paying down debt with FCF.
  11. Gross margin, net margin, and EBT margin all over 17% which is very good.
  12. Still a lot of room to grow their revenue through people upgrading to smartphones and paying for data packages which they make more money off of then regular phones.
  13. Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.

Cons:

1. Still a lot of debt even though they are paying it down, around $40 Billion

2. Most of Western Europe except Germany, are having huge economic problems which has led to lower sales an profits in those areas.

3. The fear or actuality of another global recession would hurt their sales and profits.

4. Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.

5. Most of their revenue is generated in Europe where as above, there are big financial problems.

6. Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other goverments or companies in those countries.

Final Thoughts:

Overall I feel very good about Vodafone’s prospects to be a great investment for the long term. We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%. They are paying down debt, upping their dividends and receiving a special dividend from Verizon. Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing at least 7% a year for the next 3 years. Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.

 As always if there are any questions let me know. I believe we will all do well with this stock in our portfolios over the long term.

Here is the link to my most recent article on BOBS.  The contrast is kind of startling and exciting at the same time.  I had not looked at this Vodafone write up until recently probably since I wrote it and was very excited to see how far I have come in only 10 months and I cannot wait to see how much better I will get with years more of practice and learning.