At ROA we don’t like to get carried away with the story of why a company is a great investment. We want to find the clues to greatness in the numbers, because if the company is great, the results should show it. And we don’t want to fool ourselves by cutting up data to give us the answers we want, because that is confirmation bias.

So we just sit back, take a look at the numbers and see what they tell us. 

The companies that I’ve suggested for your watchlist, all had the touch of greatness that we like to see.

But as the saying goes, the “proof is in the pudding”. So let’s taste the proverbial pudding by creating a portfolio based on the watchlist. We have 30 companies, so we can create a highly diversified portfolio.

You can read our article about diversification and position sizing here.

How did we create the portfolio?

We took all 30 names and added them to the ROA Watchlist portfolio in equal measure, with a starting date of 1 January 2019. That gives us five years of performance to look at.

The results were staggeringly good (or in pudding speak, it was really yummy).

ROA Watchlist performance

The ROA Watchlist portfolio performed very well. Here’s the returns over different periods.

• 1-year return: 51.5%

• 3-year return: 24.4% per annum

• 5-year return: 32.2% per annum

• Since inception: 35.39% per annum

If you had bought this portfolio on 1 January 2019, your investment would have multiplied 5.4 times in 5.5 years. A $100 000 would have become $540 000 in those five and a half years. The same amount invested in the index would have become $210 000. The ROA Watchlist portfolio did 2.5 times better than the benchmark.

Benchmark performance

For comparison, here are the MSCI World Index returns since 2019.

• 1-year return: 19.73%

• 3-year return: 6.92% per annum

• 5-year return: 11.99% per annum

• Since inception: 14.28% per annum

These are not bad results, the benchmark also did really well. But as you can see, the ROA Watchlist left the benchmark in the dust over all periods.

Portfolio alpha and beta

The portfolio’s alpha (or outperformance above the benchmark) comes in at 21.11% per annum. The beta of the portfolio, which is a measure of risk comes in at 1.16. So the portfolio moves up and down a bit more than the benchmark.

Conclusion 

The ROA Watchlist portfolio did amazingly well, but before you run off and buy everything on the list, here’s how to use it properly. Pick companies from the list that you find interesting. Thereafter, do your research. When you’re doing that research, think about valuation and the future prospects for each company. You want to invest in companies that are well run and built to last.

You should only invest when you understand the company, are comfortable with its prospects and feel that the valuation is reasonable.

Remember, if you want extraordinary results, behave like an Extraordinary Investor (we talked about that here). 

Now, does anyone else have a hankering for chocolate pudding? 🍨

I would like to hear what you’re up to.

DM me on social media or email me.