It's time to reveal my Winning Value Portfolio for 2013. I started this tradition last year when I revealed my 2012 portfolio. The parameters were simple: an equally weighted portfolio of 10 stocks that would be held for the entire year. I will make no changes in the portfolio. The only exception I would make is if a company or its management committed runs afoul of any Securities & Exchange Commission (SEC) violations or other serious violation. A one-year holding period is not a very long amount time and as I've stated before, the frictional costs of trading often go unnoticed by many yet turn out to be quite meaningful when assessing investment return.
In 2012, the Winning Value Portfolio bested the S&P 500 by over 5 percentage points. Indeed while those returns were calculated as of market close Dec. 26, 2012, the outperformance remained intact as of the market close Dec. 31, 2012. Even if you add the reinvestment of dividends into the S&P 500, the Gad Winning Value Portfolio outshined.
Before I reveal the 2013 portfolio, I will be making one additional amendment this year. Purely for comparison purposes, I will also use the Wilshire 5000 as a benchmark for the portfolio. I would note, however, that the S&P 500 is a solid benchmark proxy, as it statistically accounts for the vast majority of business activity in the U.S. So I will still compare performance against the S&P 500.
For 2013, I have selected the following portfolio:
Some names are back from the 2012 portfolio. Despite being up 104% in 2012, Bank of America (BAC) still remains incredibly attractive and I think another year will reveal that. Potash (POT), the largest fertilizer company in the world was a laggard in 2012, but the long-term fundamental demand for fertilizer only gets better as the developing world continues to grow. Two small-caps, Motorcar Parts (MPAA) and Tecumseh (TECUA), continue to somewhat remain under the radar, but I think Mr. Market will be surprised by the resilience of these two companies.
Over the coming days and weeks, I will dive deeper into these names and get into why I like the underlying business prospects along with the valuation. But overall, I feel strongly that this collection of companies will prove to provide a return over the course of 2013 that exceeds that of the S&P 500. More so, if the markets take a turn for the worse this year, then this portfolio will provide a solid mechanism for preserving capital.