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- The ROA Watchlist portfolio is up 405%

# The ROA Watchlist portfolio is up 405%

## Performance update

Dear Investors,

Its been a few months since we introduced the ROA Watchlist portfolio.

The markets have been volatile recently.

Time for a performance update and a look at what has been added to the list.

Here’s what we will be looking at today:

What is the ROA Watchlist?

ROA Watchlist performance

Benchmark performance

Portfolio alpha and beta

How to use the watchlist

Investor researching the ROA Watchlist companies

# What is the ROA Watchlist?

Over time, I have mentioned many companies that we think are extraordinary. We compiled that into a list that we call the ROA Watchlist (available here).

From that list, we made a portfolio of **31 companies**. We added them in equal proportion to a portfolio with a 1 January 2019 starting date. That gave us five years of performance data and portfolio information.

Below we have a **table of key ratios** for each ROA Watchlist company. If you compare the watchlist average to the S&P500 average, you will see that the watchlist companies are more profitable and have higher returns than the average S&P500 company. As a result, they are also more expensive than the average S&P500 company – you can see this in the lower free cash flow yield (lower means more expensive). That is normal, top quality things are more expensive than lower quality things.

ROA Watchlist and S&P500 ratios

But you get what you pay for. The last column is the 5-year total return (per annum) for each stock. The total return average for the **ROA Watchlist** is **26.5%** which is more than double the S&P500 average of **11.9%**.

Total return is the stock price return plus the dividend yield. The return is a per annum number. (That’s right Nvidia’s return was a crazy 92% per annum).

# Additions and removals

We last looked at the ROA Watchlist in July 2024. Since then we added two companies, **Crocs** and **Epsilon Net**. Unfortunately, Epsilon Net is leaving the Athens Stock Exchange after being bought out (special thanks to one of our regular readers for pointing that out).

Unfortunately, that means Epsilon Net is off the list.

We looked at Crocs in more detail last week, that write up is available here.

# ROA Watchlist performance

If you had bought this portfolio on 1 January 2019, your investment would have multiplied **5 times**. A **$100 000** would have become **$505 000** in those five and a bit years. The same amount invested in the index would have become **$208 000**. The ROA Watchlist portfolio did **2.4 times** better than the benchmark.

ROA Watchlist vs. MSCI World Index

Here are the ROA Watchlist growth rates over different periods.

1-year return:

**38.9%**3-year return:

**18.9%**per annum5-year return:

**30.7%**Since inception:

**32.9%**

# Benchmark performance

For comparison, here are the MSCI World growth rates.

1-year return:

**21.9%**3-year return:

**5.9%**5-year return:

**12.1%**Since inception:

**13.7%**

The ROA Watchlist is significantly ahead in all period. The addition of Crocs actually hurt the watchlist portfolio over three years as Crocs is down over 3 years, but up over 5 years.

# Portfolio alpha and beta

Watchlist portfolio has an **Alpha** of **17.65%** and a **Beta** of **1.18**. Alpha is a measure of portfolio **outperformance** and beta is a measure of **risk**. If beta is above 1, the portfolio moves up (or down) more than the index. If beta is below 1, the portfolio moves less than the index.

## What's up with the Beta?

Beta is a statistical measure of portfolio risk. I don’t want to dismiss it, but it doesn’t mean much in the context of **Extraordinary Investing**. We are long term investors, who are interested in the operating performance of the companies, not the daily price movements.

Coincidentally, here is something I came across this week. It’s a practical example of why short-term price movements are not that important.

Perhaps opera and Roman history are part of his investing success, because they kept him busy and away from noticing the price volatility, which in turn prevented him from reacting rashly.

# How to use the watchlist

Good companies tend to remain good companies and bad companies tend to remain bad companies. The ROA Watchlist is our list of good companies. It is **not a list** of investment recommendations because some of these companies might have become overvalued or their prospects may have deteriorated.

Use the watchlist as a starting point. Pick a company that you find interesting and start researching it.

If something on the watchlist is not attractive at the moment. Don’t permanently dismiss the company, rather come back to it in future when its valuation or prospects are better.

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