Investment Strategy

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Investment Strategy
What is the goal of the Tortoise Portfolio? The Tortoise Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be mature, relatively slow-growing, and with moderate to low risk. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with at least stable competitive advantages (stable moat trends).

What is the goal of the Hare Portfolio? The Hare Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be faster-growing, with both higher risk and higher return potential than those in the Tortoise. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with growing competitive advantages (positive moat trends).

Investment Strategy
Morningstar StockInvestor invests in companies with established competitive advantages and generous free cash flows, trading at discounts to their intrinsic values. These are core holdings, with more conservative ideas appearing in the Tortoise Portfolio and more aggressive ideas in the Hare Portfolio. We expect both portfolios to beat broad U.S. stock index benchmarks, such as the S&P 500, over rolling three-year periods.
About the Editor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios — the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

 
Sep 04, 2015
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About Paul Matthew Photo
Matthew Coffina, CFA
Editor,
Morningstar StockInvestor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios -- the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and
Featured Posts
Roundup, 8/28/15 -- Another Volatile Week

It was another volatile week on Wall Street, especially around the opening on Monday morning when many high-profile stocks briefly traded down as much as 20%-30% before bouncing back within minutes. I'm occasionally asked about the merits of stop-loss orders, and events like this demonstrate why such a strategy is generally a bad idea.

Some investors are under the impression that a stop-loss order will restrict your loss to a pre-determined level. However, in reality, a stop-loss order will only trigger a market order when a certain threshold is breached. If you set a stop-loss order 10% below the current market price and the stock suddenly gaps down by 30%, it is likely that your shares will be sold for a 30% loss. If the stock bounces back immediately, as occurred on Monday, then what do you do? Buy the shares back at a much higher price?

In any case, the S&P 500 sold off on Monday and Tuesday but then rallied the rest of the week to end in positive territory. I have no idea if this correction is over, but personally I hope that it's not. Since we have a long-term investment horizon and I plan to be a net buyer of stocks--using the Hare's cash balance, reinvesting dividends, and watching the companies we own repurchase their own shares--I prefer lower prices in the short run. The same logic applies if you plan to buy a house or a car or a gallon of milk, but it seems to be lost on investors when it comes to stocks.

I think many of the Tortoise and Hare holdings are attractively priced, and I also have a number of new prospects on my radar, especially from beaten-up sectors. However, I would hardly call this a historic buying opportunity for the market as a whole. The S&P started out with a relatively rich valuation by historical standards, so a 12.5% correction from the high to the low was only enough to make the market's valuation look average. As always, it's important to pick our spots carefully.

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Despite the market volatility, we're definitely in the late-summer doldrums when it comes to company-specific news. The only items of note from our holdings were: (1) We raised our fair value estimate for General Dynamics GD to $141 from $137 after incorporating strong first-half results; and (2) we cut our fair value estimate for BlackRock BLK to $375 from $390 to account for recent market activity (since BlackRock earns fees based on assets under management, its intrinsic value is directly linked to the performance of financial markets).

Regards,

Matt Coffina, CFA
Editor, Morningstar StockInvestor

Email: matthew.coffina@morningstar.com

Disclosure: I own all of the stocks in the Tortoise and Hare in my personal portfolio.

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Morningstar Investment Services

Interested in investing in the Tortoise and Hare portfolios? Now you can! Morningstar Investment Services, Inc. now offers customizable portfolios patterned after the Morningstar StockInvestor portfolios. Call 866-765-0663 to learn more.

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