Gurufocus Strategies

[4/29/07] This is the second article in the series that we study the strategies on how to use Gurus’ ideas to achieve outstanding gains over long term. This study is for the Most Weighted Portfolio, which has returned 26.5% since incepted in Jan. 2006.

The Most Weighted Portfolio consists of the top 25 stocks with the highest combined weightings in the aggregated portfolios of Gurus. The combined weightings are defined as the total of the positions of a stock in Gurus’ portfolio. For instance: if Guru A holds 17% of WMT in his holding, and Guru B holds 5%, and Guru C holds 4%. The combined weighting of WMT is defined as 17+5+4=26. The portfolio is rebalanced once every 12 months. The last rebalance was Jan. 4, 2007.

[4/13/07] When we started GuruFocus, the first questions we have were: does it really work?

As GuruFocusers know, most of GuruFocus reports on the Gurus’ picks and portfolios have a time lag of 1-4 months from time the trades are made, except the Real Time Picks we have created for Premium Members. Does it make sense to buy what Gurus bought several months ago? If you are a believer of value investing, it does. Sure, a lot of times the stock prices have gone up after the Gurus bought. But there are about equal number of times the prices went down. This means that you can buy the stocks Warren Buffett or Martin Whitman have bought and pay less than what they have paid. Does that sound a good deal? It should.

We have created Guru Bargains portfolio to prove that. The portfolio was incepted in June 2006, and the stocks were selected from those Gurus have bought during the first quarter of 2006, and have the biggest price declines since the Gurus have bought. How did these stocks do? Miserably! By the end of 2006, this portfolio underperformed S&P500 by more than 20%!