No. of Recommendations: 0
So we all just met up to discuss our trainees' strategies. A few themes emerged during the meeting. Many of the trainees will aim for focused portfolios of between 8 to 20 stocks. Such an approach can be relatively risky, however, so they'll need to know their companies well. As Buck Hartzell said in the meeting, "Just don't be wrong."

TMFBreaker Wade mentioned that he'd be running a focused portfolio while also devoting 20% or so of his portfolio to high-growth stocks. Managing risk will be a big issue for him -- he hopes to manage it by investing in a lot of solid 'medium growers'. He expects to outperform the market by 3 percentage points by pursuing such a strategy.

TMFSchool presented her 'Pragmatic Portfolio' and mentioned that her strategy might not be the same as she would invest for herself. Buck cautioned her about that by saying that such a mindset could be confusing for the hypothetical 'investor'.

The other three strategies were somewhat similar in that they were very focused in their approach. Each trainee will need to be very aware of where their 'edge' lies. Understanding their circle of competence will be a big part of the learning process over the next few months.
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No. of Recommendations: 4
TMFBane wanted us to "cut and paste" our 1 page strategies so here goes:

Objective: Generate superior long-term returns on both an absolute and relative basis.

Goal: Exceed the S&P 500 index by >5% per annum over rolling five year periods.

Strategy: Long-biased opportunistic concentrated value oriented fund.

Methodology: We are in the business of purchasing securities at a discount to their intrinsic value and selling when they have reached fair value or when we find a more attractive position or realize that we made an error. A purchase of an undervalued security with a known catalyst is preferable to a more undervalued security with no known catalyst. No attempt is made to time the market; however, market hedges will be used to profit from uncertainty.

Portfolio: We take concentrated positions in our best ideas typically investing in 8-20 stocks. Initial long positions are 3-5% of portfolio with additions >1%. Short positions or market puts are not to exceed 50% of portfolio assets (market neutral); typically 10-25%. No position will represent more than 33% of the fund’s assets.

Risk: We define risk as a permanent impairment of capital and are not distracted by short-term market price fluctuations. Market volatility serves up fat pitches and is not a determinant of risk. Do to our concentrated holding you can expect volatile quarter to quarter performance. We expect lumpy out-performance. Risk is mitigated by making purchases with a significant margin of safety and by focusing our attention on downside risk. Though the fund will typically be long-biased, a fair amount of the fund’s assets may be in market hedges. Our most bearish position will be at least market neutral.


Any and all feedback is appreciated!
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No. of Recommendations: 4
Hi!

Here is a bit more information on my fund.

Objective
Long-term capital growth that outperforms the Wilshire 5000 (or broad value index).

Investment Strategy
The fund employs a value style and seeks to buy high-quality equities at a discount to their true worth. It will attempt to minimize risk of capital loss to the greatest extent possible through low purchase prices, astute judgments of business value, and other factors such as dividends. The fund invests in stocks with low price-to-book ratios, low P/E ratios, or other traditional value measures but isn’t constrained by these metrics.

The fund holds 20-30 positions with a typical time horizon of 2-5 years. The fund invests in stocks of all sizes above a $100 million market capitalization. The fund invests in foreign markets and foreign stocks could make up any percentage of the fund’s holdings. The fund only invests when it finds opportunities that meet its return criteria and may hold large cash positions to wait for better opportunities.

Investment Methodology
The Fund evaluates investments on a company-by-company basis. It attempts to find businesses with a sustainable competitive advantage priced at a discount to their true worth. Other criteria include strong free cash generation and management that is shareholder-friendly and that can allocate capital well. The combination of high-quality businesses, good management teams, and low prices should minimize the risk of capital loss.

Risks
General Market Risk
The fund is exposed to general market risk, where short term market fluctuations could reduce the value of the portfolio.

Non-Correlation Risk
No effort will be made to mimic the sector weightings of the Wilshire 5000, S&P 500, or other market indices, so returns could differ from broad indexes or even value-based indexes.

Value Style Risk
The fund could underperform due to risks associated with the value style, namely that the market will continue to assign a low value to stocks that the manager thinks deserve a higher value.

Manager Risk
The fund could underperform due to poor decisions by the manager.

Currency Risk
Since the fund will not hedge its foreign currencies, it will be exposed to currency risk in its international investments.

Manager Performance & Benchmarks
The manager expects to be judged by his performance against both the market and a broad value-based index, such as the one maintained by Fama & French.

Historical Value Returns
Value-based investment strategies have outperformed growth by 2-4% annually according to various studies. From 1927 to 2007, value stocks outperformed growth stocks by an average of 4.3 percentage points according to Eugene Fama & Kenneth French. From 1969-2002, value stocks outperformed growth stocks by 2.2 percentage points (11% for value, 8.8% for growth).


-TMFRedwood
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No. of Recommendations: 3
Hello Fools!

Goal
To find the best opportunities the market has to offer.   
To use a sound process to build out the portfolio over a period of time. 
To know what the portfolio has, then go get what the portfolio needs.  

Expectations
Caveat:
80% of fund manager’s under perform the market.  

My goal will be to eclipse the market’s performance by at least 3% while minimizing risk and maximizing returns. Ultimately, the portfolio 
will hold anywhere between 30 to 50 stocks. It will also have some degree of international exposure.  

Stock Style:
While not a strict set of guidelines, I will generally focus on businesses with high returns of equity 
and invested capital.  I will also focus 
on companies that are cash flow positive and possess competent, able,
solid, management teams.

Strategies “Buy right and sit tight”
I will consider myself to be a part owner of a business, macroeconomic events will not affect an investment decision.  I will hold 
an investment for 3 – 5 years (preferably longer) or unless something fundamentally changes.  I plan to be unemotional, methodical, and
 focused on the process.  I will be aware of price but not driven by it.  I will be diverse enough where the portfolio will be protected 
during downswings. When I allocate capital, I will generally do it in the form of a percentage.  
I will rebalance by adding new money to lagging ideas.  

Though I won’t use a strict allocation percentage, I find it useful to measure expected growth 
rates by their return potential and illustrate how much (roughly) will be allocated.  
                                       
       Growth Rate       Expected Return         Allocation
Slow    5-10%                  0 – 50%            20 -30%
Medium  10- 20%            -25% - 100%            45 -55%
Fast     20%+              -50% - 200%            20 -30%
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No. of Recommendations: 4
Allow me to present The Pragmatic Portfolio (a work in progress):

Investing Style
The Pragmatic Portfolio takes its name from the rich history of the "Pragmatists," whose early practitioners emphasized practicality over aestheticism. It's not for nothing that Philosopher Francis Bacon inspired the Pragmatists, and it is he who Foolishly coined the phrase, "Knowledge is power." (We nearly went with "The Bacon Portfolio," but thought the name lacked sizzle. Ba dum dum.)

In strategic terms, The Pragmatic Portfolio is a practical solution to building wealth: A portfolio grounded in proven long-term investment strategies, unswayed by market whims, yet nimble enough to capitalize on anomalies and opportunities.

In keeping with the spirit of the movement, the core of the Pragmatic Portfolio consists of established investments in a variety of asset classes: A diversified mix of large-, mid-, small-cap, and international companies -- a verifiably winning long-term asset allocation mix.

In short, we let common sense rule our money management decisions.

Injecting Art Into Science
Around the edges The Pragmatic Portfolio will diverge from the philosophical movement's more hard-line, literal thinkers. We believe there is a certain amount of art involved in investing; that creative thinking is essential in equity analysis and can be a catalyst for great investment ideas.

As a later sect of Pragmatists said: "Truth is not ready-made, but jointly we and reality 'make' truth." Yeah, we had to read that twice, too, but we interpreted it to mean that the market's landscape is not entirely static or fixed and therefore open to exploration, interpretation and investing opportunity. Roughly 20% of the Pragmatic Portfolio assets will be devoted to exploring such opportunities. We will mainly be focusing on the very best companies capitalizing on consumer-related trends (e.g. retail, home, technology, etc.).

Asset Mix
The Pragmatic Portfolio is a bona-fide portfolio and not a bunch of showy spaghetti-against-the-wall picks. Its collection of investment work best as a unit -- baskets of individual stocks that offer exposure to both the most essential investing categories (e.g. stalwart blue chips; international intrigue) as well as more exciting areas (e.g. blossoming consumer brands; robots and rocket boots).

The investing mix is nimble enough to capitalize on market inefficiencies and consumer trends yet grounded enough to maintain a minimum level of stability.

The Pragmatic Portfolio has five layers, each of which will be built using the "Buy the Basket" investing method (e.g. buy the top players (emphasis on the plural) in each category):

• Basket 1: Large-cap U.S. stocks and dividend payers -- established, steady growers -- to form a solid long-term foundation.

• Basket 2: International investments (including ETFs for broader exposure to certain foreign markets) to protect against at-home economic slumps.

• Basket 3: Small- and Mid-cap companies exhibiting the "best-of-breed" characteristics (an established business model, impressive management, a sustainable long-term competitive advantage) for growth potential.

• Basket 4: "Wild Card" investments (unconstrained by market cap, industry, geography or investing style) designed to capitalize on special situations, such as pricing anomalies, market inefficiencies and consumer-related trends.

At first blush the Pragmatic Portfolio may appear to be fairly concentrated in a limited number of investments. As discussed in the "Risks" section, the holdings in each will be further diversified via investments in broad market/sector ETFs.

In other words, we hire the soloist and the choir -- the best standouts in each basket as well as a broad supporting cast to balance out any rocky performances.

Asset Allocation/Expected Returns
Once all assets are invested, the breakdown will hew towards the following mix.

Investment Type Allocation Proxy Index Return*
Large Cap U.S. Stocks 40% S&P 500 7%
International 20% MSCI 10%
Small-Cap/Mid-Cap 20% Russell 2000 9%
Wildcard 20% N/A N/A
*Expected 20-year average annual return. Forward-looking statement based on, um, my first crack at this.

Returns will be measured against those of the corresponding indexes (where appropriate). Our goal is to outperform by a minimum of 2% the historical weighted average of the indexes over a 20-year period.

Risks
By design, the Pragmatic Portfolio is built to mitigate long-term exposure to risk simply by the nature of how the assets are deployed. The four investment baskets expose shareholders to different facets of the universe of investments -- all of which historically tend not to move in tandem.

Investments in ETFs (which offer diversification within a concentrated category) alongside our individual equities will further reduce the Pragmatic Portfolio's risk profile.

We are long-term investors with a minimum time horizon of two years. We're patient enough to wait for the right time to make a commitment and level-headed enough to know when our original investment thesis no longer holds water and it's time to sell.

After all, anything less simply wouldn't be pragmatic.
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No. of Recommendations: 0
Daniel Dzombak
Hippo Fund

Objective: The aim of The Fund is to achieve the highest after-tax return with the least risk possible. The fund will most likely have a great deal of volatility, but the risk of permanent impairment of capital will be negligible.

Strategy: The Fund will practice a concentrated value strategy. The fund will be invested in anywhere from 8-15 positions at a time. Positions will be long-term investments large margins of safety.

Mr. Dzombak’s edge over the 10,000 other hedge fund managers comes from his deep knowledge of the stocks he owns, large margin of safety employed, and investment process designed to mitigate risk.
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