1. 233 How to Review Your Portfolio – Part 2
Puget Sound Chapter
Mike Torbenson

2. Disclaimer
The information in this presentation is for educational purposes only and is not intended to be a recommendation to purchase or sell any of the stocks, mutual funds, or other securities that may be referenced. The securities of companies referenced or featured in the seminar materials are for illustrative purposes only and are not to be considered endorsed or recommended for purchase or sale by BetterInvesting™ National Association of Investors Corporation (“BI”) or its Puget Sound Chapter (“PSC”) or volunteers. The views expressed are those of the instructors, commentators, guests and participants, as the case may be, and do not necessarily represent those of BetterInvesting™ or PSC. Investors should conduct their own review and analysis of any company of interest before making an investment decision.
Securities discussed may be held by the instructors in their own personal portfolios or in those of their clients. BI presenters and volunteers are held to a strict code of conduct that precludes benefiting financially from educational presentations or public activities via any BetterInvesting programs, events and/or educational sessions in which they participate. Any violation is strictly prohibited and should be reported to the President of BetterInvesting or the Manager of Volunteer Relations. 2

3. Course Objectives
Use the knowledge, skills and resources needed to actively manage a portfolio of quality stocks to achieve a 5-year annualized return of 15% or better

4. Agenda What, Why & How Resources PART 1 Diversity Quality PART 2 Value
Purpose & Resources
Guidance (Metrics & Goals)
How-to Steps
Quality
PART 2
Value
Performance
Toolkit 6
PERT
Defense
Sector/Industry
Club Accounting
Valuation
Performance
Capital Gains & Losses
Review Spreadsheet
Review Form

5. Portfolio Review Form Part 1 Part 2 Diversity Quality Value
The last page removed from the handouts is this form. Students may want to keep the form handy to follow your progress down the form in class.
Part 2
Value
Performance

6. Portfolio Review Spreadsheet
Growth Diversity
Sector Diversity
Valuation
Quality
Value

7. Portfolio Review Spreadsheet
Return
Summary
Return
Calculations
Capital Gains

8. Buy/Sell History
Under-valued Today
Over-valued Today
Value

9. Value
Purpose – Find potential buys and sells demonstrating appropriate
Potential Total Return
P/E Expansion
Risk
Resources
PERT

10. Buy Guidance
Manage reward by buying only when potential return is greater than your portfolio potential return
Manage P/E expansion by buying when the stock is historically underpriced, ideally at or near the bottom of your estimated business cycle (4B P/E)
Manage risk by buying when Projected Relative Value and PEG are below 5-year averages and U/D is high (>3)

11. 1. Qualified to Buy Low?
What is “low”?

12. 1. Qualified to Buy Low? Toolkit PERT
Right side provides valuation ratios
% Total Return shows potential reward
U/D and RV manage downside risk
PEG manages growth risk
Proj P/E vs. Proj 5yr High and Low manage P/E expansion potential

13. 1. Qualified to Buy Low?
Manage reward by buying only when potential return is greater than your portfolio potential return

14. 1. Qualified to Buy Low? Toolkit PERT
Sort by Total Return (high to low)
Total Return > 14.1%

15. 1. Qualified to Buy Low? Manage for Risk RV < 100 and
PEG < 150 and
U/D 3-10

16. 1. Qualified to Buy Low? Manage for P/E Expansion
Near Bottom (5yr Lo P/E)

17. 1. Qualified to Buy Low?
Only QCOM and LKQ meets all criteria to BUY LOW!

18. Sell Guidance
Manage reward by selling only when potential return is less than your portfolio potential return
Manage P/E expansion by selling when the stock is historically overpriced, ideally at or near the top of your estimated business cycle (4A P/E)
Manage risk by selling when Projected Relative Value and PEG are above 5-year averages and U/D is low (<3)

19. 2. Qualified to Sell High?
Tech = 38%
Which stocks are “high”?

20. 2. Qualified to Sell High? Toolkit PERT
Sort by Total Return (high to low)
Total Return < 14.1%

21. 2. Qualified to Sell High? Manage for risk RV > 100 and
PEG > 150 and
U/D < 3

22. 2. Qualified to Sell High?
Manage for P/E expansion
P/E near Hi P/E

23. 2. Qualified to Sell High?
GMCR & COST meet all criteria to SELL HIGH!

24. Value Summary What is our strategy to optimize portfolio return?
Buy near the bottom; Sell near the top of the business cycle
What are we managing for buy and sell?
Total Return, P/E expansion and risk of loss and growth

25. Practice
Recommendations?

26. Questions?

27. Potential Risk
Potential Return
Historical Return (AIRR)
PERFORMANCE

28. Performance
Purpose – measure your performance over time to determine if you are improving and/or achieving your goals
Resources
Capital Gains Report
Excel Spreadsheet
Potential Return Report Card
Investment Performance Reports

29. Performance Guidance Backward with Realized Gains
Capital Gains vs. Rule of 5
Forward with Potential Return
15% or better?
Realized + Unrealized with AIRR
Improving?
15% or better
Compared to market?

30. 1. History (Realized Gains)
Are we making money when we sell?

31. 1. History (Realized Gains)
For the last 12 months:
What percent of sells (by block) > 0%
What percent of sells (by block) > 15% CAR

32. 1. History (Realized Gains)
Are we making money when we sell?
Yes, 67% are positive! (above 0)
14.8% made more that 15%!

33. 2. Potential Return
Is our portfolio positioned to continue making money?

34. 2. Potential Return Toolkit Portfolio Report Card provides …
[Potential %] Total Return = 14.1%
Projected Average Return = 8.9%
Upside/Downside Ratio = 2.8

35. 2. Potential Return
Is our portfolio positions to continue making money? YES!
POTENTIAL Total Return of 14.1%

36. 3. Realized + Unrealized (AIRR)
Is our Realized + Unrealized performance improving over time?

37. 3. Realized + Unrealized (AIRR)

38. 3. Realized + Unrealized (AIRR)
Is our Realized + Unrealized performance improving over time? YES!
-0.1% since inception
13% for last 5 years
16.7% for last twelve months

39. Performance Summary What is the purpose of tracking your performance?
Determine if you are achieving goals and/or improving.
What is the difference between realized and unrealized gains?
Realized is history. Unrealized is potential if sold today.
What is AIRR? Realized or Unrealized
Annualized Internal Rate of Return. Both real and unrealized. Balance at start date, all real cash in and out during period. Assumes selling all assets at end date.

40. Practice
Future
Past Year
Past + Current

41. Review Summary Manage diversity to minimize risk and optimize growth
Monitor quality and adjust expectations in accordance with each company’s business cycle
Monitor value as anticipated by business cycle – buy low for potential
Sell high to achieve performance goals

42. Questions?

43. Make A Difference In Someone’s Life
If you have benefited from
BETTERINVESTING,
please pick up some
BETTERINVESTING
materials
and introduce others to this opportunity.

44. Questions?

45. appendix

46. Size Small <= $500 million Large >= $5 billion Medium = between
>=15% growth
Large >= $5 billion
>= 7% growth
Medium = between
>= 10% growth

47. Tools Illustrated Toolkit 6 Bivio Club Accounting Excel and Word
PERT (slide 12, Value)
Portfolio Report Card (slide 13, Value)
Bivio Club Accounting
Capital Gains (slide 7)
Performance Benchmark (slide 37, Performance)
Excel and Word
Portfolio Review Spreadsheet (slides 6,7)
Portfolio Review Form (slide 5)