The reminders come from all corners. In one case, it could be a group of ladies in an investment club in central Michigan and their formidable portfolio. In other cases, it could be the performance of our relatively passive Bare Naked Million portfolio as it continues to chug along on the wings of industry leaders, bought on sale, and rarely sold. It can also be the individual retirement portfolios of friends and family as we watch companies like Colgate-Palmolive (CL), Johnson & Johnson (JNJ) hold down the fort while companies like Priceline (PCLN) pro-vide some sizzle. It could be the results of our Hoard demonstration portfolio.

“The stuff that you’ve taught us about portfolio design delivers -- at least for us -- a stark clarity. We know that a portfolio is a puzzle built from pieces. We also know what matters. Design and maintain for enough return, with sufficient

quality to provide stability ... and enough overall growth to encourage us to discover new opportunity.” “We realize that there are no magic black boxes and certainly no guarantees -- but we have something to aim at and that makes all

the difference in the world to us.”

We’ve heard those words from a couple of different directions in a couple of dif-ferent ways and frankly, we’re excited about what the next chapter holds. And yes, it’s about “getting the smoothie right.” I discovered Linda T. Mead’s book on blue chip investing while thinking about the smoothie recipe. Prominently displayed on the cover of her book, Investing with Giants, are ten companies that many of us would regard as blue chip, or core. (Some would appropriately argue that 1-of-the-10, then -- and now -- doesn’t match the other nine.) 12 1/2 years later, the performance of these ten companies BEATS THE MARKET.

Expected Returns Editor: Mark Robertson, Manifest Investing LLC Volume XXII, No. 8 Results, Remarks and References Regarding Investment Initiatives August 2014

In This Issue...

Whole Foods Mkt (WFM) .... 3

Fidelity Sel Tech (FBSOX) ........ 4

Clubhouse ........................... 5

Screening Results ................ 6

Tin Cup Model Portfolio ... 7

http://www.manifestinvesting.com

Blog: http://expectingalpha.com

Smoothie Investing Another summer is winding down. We appreciate your patience as we continue our development efforts and we’ll return to normal publication schedule in September. The past several weeks have afforded a number of opportunities to spend time with indi-vidual investors and groups and -- as always -- we’re grateful for the reminders and reinforcement that we witness and that you provide. Over the last few days, we’ve had some fun with a group of stocks that have outperformed Google (GOOGL) since its IPO on 8/19/2004. Combine that with a reminder about core investments and the result is a blend that raises the probability of success for long-term investors, a “smoothie” if you will. Join and relax with a late summer smoothie, a blend of blue chip and NASDAQ.

Investing With Giants. Linda Mead featured a collection of ten household names in her investing book back in 1982. We would argue that one of the companies was different than the others and arguably didn’t belong in a blue chip group. In any event, the collective result over the last 12 1/2 years is a relative return of +2.1%.

$100 Into Ten Giant Blue Chip Stocks Back in 2002 ... BEAT THE MARKET

Linda T. Mead’s book was published on March 1, 2002 ... just as the bear market was really getting ready to sink its teeth. Combine the Great Recession of 2008-2009 and your intu-ition is probably fairly lackluster performance since 2002. You’d be wrong. Really wrong. TIME is not a 4-letter word.

2 - Expected Returns - August 2014

Googling Up Some Pizazz

As we whip up the smoothie, we know that the ingredients must necessarily include a blend of high-quality compa-nies who also happen to have a blend of life cycle growth rates. The Giants featured will generally have single digit growth expectations. The recipe nudges us to also discover compa-nies that augment and complement the blue chips with a good dousing of growth potential. This is how we build and maintain portfolios with overall growth rates of 10-12%.

Which brings us to a second list of companies this week. The guys over at Bespoke Investment Group (http://www.bespokeinvest.com/) celebrated the 10th anniversary of Google’s initial public offering by noting that Google (GOOGL) stock has done very, very well over the last ten years. How well? 28.0% annualized. Bespoke shared that only ten companies in the current S&P 500 have fared better. In the MANIFEST Forum, we held a safari and outed all ten companies as shown in the accompanying table.

Standing Test Of Time

In a subsequent tweet, the Bespoke guys (@bespokeinvest) also observed

that 145 of the companies in the S&P 500 back on August 19, 2004 no lon-ger existed. For long term investing, it’s a theme that we’ve visited on nu-merous occasions. If we’re selecting companies based on our imagination and an image of the company on the five year time horizon, it’s generally helpful for that company to exist when we arrive at the horizon. We’ve used the inspirational image of Warren Buf-fett closing his eyes and imagining the company 5-10 years out in the future.We couldn’t help but notice that the

Performance Results: Since Google IPO (8/19/2004). Bespoke Investment Group posted a comment on the 10-year anniversary of the Google initial public offering. They chal-lenged investors to come up with the 10 current S&P 500 companies who had outperformed Google over the last ten years -- no small feat. GOOGL has a 28.0% absolute total return (annualized), clocking in at a relative return of +19.8% versus the S&P 500! On the MANIFEST Forum, various contributors rounded out the list. We note that all (10) are NASDAQ compa-nies, once the domain of 4-letter tickers. None of these qualify as 4-letter words.

Google Beaters were all from the NASDAQ. At one time, all NYSE tick-ers were 1-3 letters and NASDAQ were 4-5. While this is no longer the case, it’s pretty clear that this is nothing short of a commercial for shopping for promising future stalwarts among the NASDAQ type of companies.

Study the Google Beaters carefully. We hope it’s clear that these 4-letter tickers are anything but 4-letter words and again, TIME is not a 4-letter word. TIMING is a 4-letter word.

Blend the Google Beaters with Mead’s Giants and you have pretty delicious smoothie -- generating an annual-ized return of approximately 25% for a hypothetical smoothie portfolio.Of course, it’s crazy to think of going 20-for-20 but “shopping in the zone” certainly improves your chances of ar-riving in the neighborhood.

The accompanying Smoothie 20 sam-pler portfolio was built using a group of time-honored NYSE leaders with relatively high current return potential and combined with ten NASDAQ lead-ers. Yes, Virginia, Google (GOOGL/GOOG) is on the list. When you can’t beat them, you join them and hope to make the collective stronger. Linda Mead writes of investing with giants. Core investing matters. But when we think of investing with giants, we think of “Investing With Our Friends.”

Smoothie 20 (8/22/2014). Not so much a screening result as a sampler, this list of 10 stal-warts from the NYSE and 10 “Googlers” from the NASDAQ all have average annual total return forecasts greater than 12% for the next 3-5 years. Minimum Financial Strength rating is B++. Source: Value Line Investment Survey, Investment Analyzer, Summary & Index.

Solomon Select

Whole Foods Market (WFM)

August 2014 - Expected Returns - 3

The average price of the items at Whole Foods carries a significant premium to other grocery and big box retailers. Under these condi-tions, a consumer staples company becomes discretionary and vulner-able to economic cycles. That said, the premium/organic market is ex-pected to expand at 12% (or more) for the foreseeable future.

Whole Foods (WFM) was selected for the Round Table during the July ses-sion. And yes, I heard the concerns loud and clear about margin erosion. S&P agrees. “We expect ... margins to narrow significantly in 2014 and 2015 ... in an effort to drive an acceleration in sales growth.” The looming compe-tition is real and the comparisons are challenging. Wal-Mart has been able to maintain net margins of approximately 3.5% consistently. Costco Wholesale is a purveyor of quality products and gen-erates an approximate 2.0% net margin steadily. Food retail is not easy.

Growth, Profitability, Valuation

The analyst consensus sales growth forecast is 12% with Value Line check-ing in at 12.5%. Store growth is holding steady at 10% and there are concerns about year-over-year same-store sales growth clunking in at less

Whole Foods Market (WFM): Business Model Analysis. This image/profile is a prototype, a work-in-progress, as we explore enhancements to the company reports (equity analysis) pages. On the left, the consensus expectations of the analysts are aligned with study inputs for growth, profitability and valuation to support comparisons, sensitivity analyses and reconciliation of potential variances. The thumbnails on the right provide historical evidence and trends.

than 5%. It’s an important character-istic to heed. Remain vigilant because when store openings wane and adding incremental square footage is no longer prudent, we’ll be looking at what S&P calls “terminal growth.”

Based on the historical trends, it’s fea-sible to envision a 4% net margin. The 3-5 year forecast by Value Line is 4.2%. The expansion of recent years will likely plateau and new levels will be realized as the strategies unfold and the com-pany advances on the life cycle curve.

The historical P/E has ranged fairly close to 30x. But the life cycle curve also de-livers a natural compression in projected average P/E. If the profitability is sus-tained at leadership levels and growth persists, it’s reasonable to use a P/E of 20-25x for the forecasts. If that falters, expect some erosion. Morningstar, S&P and Value Line are all still comfortable with P/E ratios in the low to mid-20s.

At the time of selection (8/1/2014), the average projected annual return for WFM is 14%.

The quality RANKING for WFM is 99 with a financial strength composite (percentile ranking) of 95. Earnings stability is 55 but keep in mind that some of this reflects the INCREASE

(improvement) over the last several years in net margin.

The stock price peaked at $65.24 on October 25, 2013. The current stock price of $37.86 represents a plummet of some 58% from the all-time highs. We note that the Wilshire 5000 has GAINED 9.8% over the same time period.

Whole Foods is a long-time favorite at the Motley Fool. “Worries about Whole Food Market’s future have knocked down the price, but its long-term prog-nosis remains positive. Competition is currently fierce, but that means the or-ganic and natural marketplace is gaining more and more traction. Worries about Whole Food’s drive to cut prices on its products ignore the strategic reality that it has to shed its ‘Whole Paycheck’ image -- and the grocer still boasts margins that are among the best in the industry. This stock may be besieged by doubt, but it’s still the same strong business as it was before the panic.” -- David Gardner, Stock Advisor newsletter and Motley Fool Co-Founder.

Value Line believes that “most inves-tors should probably remain on the sidelines, for now.” Could be. But a relative strength index (RSI) of 37.2 suggests that WFM is potentially over-sold. What do you think?

by Mark Robertson

The Hoard’s relative return since its inception (January 2009) is +2.0%. Our goal to beat the market by at least three percentage points. The absolute rate of return is 16.3% versus 14.3% for the Herd (total stock market) dur-ing the same period. Overall accuracy (the percentage of picks outperforming the market) is 83.3%.

Reviewing Current Holdings

The Hoard Portfolio meets all of our targets for key design characteristics except for projected sales growth. Overall PAR (8.9%) is 2.4 percentage points above current MIPAR (6.5%), slightly less than our goal of MIPAR+3 percentage points. Overall quality is “Almost Excellent” at 79. Financial strength is solid at 79% (A).

The average sales growth forecast of 9.9% is at the low end of our target range, but improving, and satisfactory considering the relatively few number of options available.

Decisions

The accompanying ETF Manifest for August 2014 displays the turbulence in energy-related funds over the last month. Many of the exchange-traded funds that we track suffered price damage and hence, surged up the charts as their return forecasts were bolstered, including current holding iShares DJ US Oil Equipment (IEZ) ... a fund that Cy Lynch added to the collection several months ago. IEZ has performed quite well with 4-of-5 positions (lots) outperforming the market, in line with the massive 83.3% outperformance accuracy of the entire portfolio.

Fund Analysis: Hoard vs. Herds

Accumulate Fidelity Select IT (FBSOX)

4 - Expected Returns - August 2014

Hoard Dashboard. Our $124,917 invested so far is now worth $206,137. (8/14/2014) Vanguard Technology (VGT) is the best-performing active selection to date. http://www.manifestinvesting.com/dashboards/public/hoard-vs-herd

August 2014 Funds. Top ETFs ranked by expected return. Source: Morningstar, Manifest Investing

Results (August 14, 2014). The average selection for the Hoard has outperformed the total stock market benchmark by +2.0% since inception. Accuracy, the percentage of positions outperforming the Wilshire 5000 since selection, is now 83.3%.

We’ll go ahead and accumulate our specialty (industry) fund for information technology (FBSOX) as companies like Cogni-zant Technology, Infosys, Accenture and Maximus all took a hit over the last month as reports continue to be lackluster and a few of the industry participants continued to guide lower citing the sluggish global economic conditions. But it’s not all slug-gish. The surge in recent months for ADRE (one of our largest -- and underperforming -- positions) continues to make steady progress. Perhaps this portends expansion on a global scale in months and years ahead?

August 2014 - Expected Returns - 5

Clubhouse

Your Dashboard As An Investing GPSby Ken Kavula

The Clubhouse is for sharing features and tips & tricks ... based on your feedback and favorite resources.

My goal in this series of Clubhouse columns is to help make the Manifest Investing website easier to use. I’ve discussed in previ-ous columns the two primary functions that I use in helping select stocks to buy and to sell. I think we should now turn to the core tool in the Manifest Investing arsenal: the Dashboard.

Dashboards are easy to find. Just hit the My Dashboards link at the top of any page:

A list of all dashboards created by you will then be created under this heading:

A dashboard is nothing more than a display, on a single page, of the most important characteristics of a group of stocks that you have chosen. If you have already created dashboards, they will all be listed and sorted by value. If you’re new to the site or have never created a dashboard, click on add dashboard and you’re ready to begin. Here’s what a fresh sheet looks like:

Start by naming the dashboard and, if you wish, entering a brief description of the port-folio. Next enter the amount of cash in the portfolio. For beginners, I’d advise you to ignore the next two buttons and move to the Holdings section. Here you type in the ticker for your first holding along with the number of shares you hold. Click on Add An-other Holding as long as you have more stocks to add to the portfolio. When you’ve entered the final stock, move to the bottom of the screen and hit Submit. Almost immediately, a dashboard for the stocks you’ve entered will appear.

Example Dashboard Creation

Suppose you hold 100 ABT, 225 CTSH, 350 MWIV, 132 PEP and 120 FOSL. You also have $1250 in cash.

Using these values, I created a dashboard, hit submit and got this result:

You can now begin to analyze and manage your portfolio in an easy, straight-forward way.

For example purposes, I’m going to be looking at numbers from a dashboard that represents the holdings of the Mid-Michigan Model Investment Club. Before I begin to drill down into individual stocks or even display the holdings in the portfolio, I think it’s important that we understand a few basic ideas about portfolio development and management.

I’ll start with what I consider the most important characteristic of any portfolio, namely the portfolio’s PAR value. Remember that PAR is an acronym for Potential Annual Return. When I look at the PAR value for a portfolio, I’m looking at a weighted value. In other words, a stock that make up a large percentage of the portfolio contributes more to the total average value than a stock that represents a tiny portion of the total.

I’d like for this PAR value to stay in the Manifest Invest-ing “sweet spot”. In other words, I’d like the portfolio weighted PAR value to be 5-10% above the current market average as measured by MIPAR. As I write this column, the MIPAR value stands at 6.6% which means an average stock in the MI database should return 6.6% annualized over the next five years. I’d like my portfolio to be in the sweet spot, so I am aiming at a number somewhere between 11.6% and 16.6%. What I find so great about using dash-boards is that I can read my portfolio return at any given time by checking my portfolio averages.

After noting the current MIPAR value (6.6%), I check my averages for the portfolio. Remember, I’m now examining the Mid-Michigan Model Club portfolio. The “report card” is displayed in the accompanying graphic.

You can see that today’s PAR value is 12.3%. That’s in the sweet spot range and it signals to me that my goal as I add money to the portfolio is to not “mess it up”.

... continued on page 8 ...

6 - Expected Returns - August 2014

Screening Results

Opinions On ParadeAlthough the overall return forecast levels (MIPAR and VLLTR) have slightly rebounded from historical lows, we con-tinue to believe that shopping for the highest quality stocks with outsized re-turn forecasts is prudent. This month’s screen shares some candidates and uses our weekly batch process format to share research opinions side by side.

Quality & Return Emphasis

We start again this month by ranking the top study candidates (from the overall population of 2400 companies) using the MANIFEST Rank -- a scored combination and percentile ranking of both return forecast (PAR) and quality ranking. The top percentile is shared here.

We continued to filter by removing any companies with a Value Line low total re-turn less than the average (3.9%). The screen was completed by eliminating any companies with a price-to-fair value (P/FV) ratio greater than 100% according to either Morningstar or Standard & Poor’s.

Recent Solomon Select featured stocks Fossil (FOSL) and Proto Labs (PRLB) both continue near the top and multiple selection QUALCOMM (QCOM) contin-ues to be a worthy study. Our persistent theme on the power of information and problem solving continues to feature the likes of Cognizant Technology

(CTSH), Infosys Tech (INFY) and Maximus (MMS). CTSH and MMS have been recent and recurring selections for our Round Table. In fact, with Cy’s selection of CTSH in July -- we’ve now selected CTSH ten times over four years.

Some of the stronger retailers continue on the leader board and we notice that a food fight breaks out between Whole Foods Market (WFM) and Tin Cup holding Fresh Market (TFM).

Matt Spielman’s Round Table selection of Air Lease (AL) is also compelling.

Matt’s thorough analysis is available via the April 2014 Round Table archive and Matt has been providing updates and competitive analysis on the MANIFEST Forum.

The company with perhaps the most “technical upside” in the form of upwards price pressure is Michigan’s own ITC Holdings (ITC) ... a play on the future of electrical transmission system infra-structure that is worthy of further study.

Study and shop at will.

Market Expectations (7/31/2014). The median return forecast (MIPAR) for all 2400+ stocks followed by MANIFEST is 6.9%. The multi-decade range for this indicator has been 2-20% with an average of 8-9%. Continue to emphasize high-quality.

Sweet ‘16’ (August 1, 2014). Screening results based on the combination rating percentile ranking (MANIFEST Rank) of return forecast (PAR) and quality rank. MI 40: Ranking in our profile of most widely-followed companies. P/FV: Price-to-Fair Value Ratio. * - Not covered by Value Line Standard Edition.

August 2014 - Expected Returns - 7

Tin Cup Model Portfolio

Sell MELI, Accumulate COH, GNTX & V

This demonstration portfolio invests the maximum allowable 401(k) in stocks. Total assets reached $1,000,000 in 17 years. Tin Cup has outperformed the S&P 500 since inception (1995) and the annualized total return is now 18.3% vs. 9.6% for the S&P 500.

Total assets are $1,227,438 (7/31/14) and the net asset value is $267.64. The model portfolio gained +0.71% during July 2014. The Wilshire 5000 checked in at -1.98% for the month.

Portfolio Characteristics

With MIPAR at 6.8%, our target for the minimum overall portfolio PAR is at least 11.8%. The overall portfolio PAR is 10.9% on 7/31/2014. Quality and financial strength are sufficient at the current levels of 92.1 (Excellent) and 89%. EPS Stability is 84 for the portfolio. The overall (average) sales growth forecast is 9.2%. The target is approximately 11%.

Performance & Decisions

An interesting thing happened as July drew to a close. As the market proceed

Tin Cup Dashboard: July 31, 2014. Ranked by PAR (last column on the right.) Sell Mercadolibre (MELI). Accumulate Gentex (GNTX), Coach (COH) and Visa (V). http://www.manifestinvesting.com/dashboards/public/tin-cup

Tin Cup Performance: Approaching 20 Years. We’ve long been inspired by the Fortune articles (1983 and 1994) entitled YES! YOU CAN BEAT THE MARKET that assails the track record of Warren Buffett and a number of Graham-and-Doddsville investing giants including Walter Schloss. Wrapped in a this-can’t-be-happening theme and nobody can do this is evidence to the contrary.

to decline 300 Dow points, the Tin Cup port-folio continued something it has been doing during June and July, that being, gain. Yes, we know better than to over react or unduly celebrate any short term movement in the portfolio value vs. the markets -- but it still feels good. The net result is a portfolio that is asking for a little tweaking.

Investing the August monthly contribution and dividends into Coach (COH) will leave

us far short of the minimum return forecast for the portfolio. (10.9% after the transaction) So we audit the anal-ysis of Pepsi (PEP) and gauge the im-pact of switching proceeds to the likes of COH, Gentex (GNTX) and Visa (V). As a core holding, and with roughly equivalent expectations for PEP and Mercadolibre (MELI), MELI becomes the source of funds. The overall return forecast is returned to 11.6%.

8 - Expected Returns - August 2014

(c) Manifest Investing LLC 2005-2014. All rights reserved. All efforts are made to use factual and timely sources believed to be reli-able. No warranties whatsoever are implied. This publication and affiliated services represent an educational demonstration. NO INVESTMENT RECOMMENDATION IS INTENDED. Manifest Investing LLC has no affiliation with Value Line Publishing, Inc. but is a business partner with bivio.com and supports the educational efforts of long-term investing educators nationwide. Manifest Investing LLC staff may hold shares in the companies or funds that are reviewed in this publication. Blog: http://expectingalpha.com Web site: http://www.manifestinvesting.com ... Follow (Like) us at facebook.com/manifestinvesting

Contact Us You may write us at Manifest Investing LLC, P.O. Box 81120, Rochester MI 48308. If you prefer e-mail, contact us atmanifest@manifestinvesting.com. Every effort will be made to answer your questions individually. Your inquiries, comments and recommendations tell us what you want to see and we’ll do our best to provide it.

Clubhouse (continued) Dashboard DemonstrationContinued from page 5 ...

Ken Kavula is a retired educator and suc-cessful long-term investor. Ken has served in a number of leadership positions for the Na-tional Association of Investors and is active in four investment clubs. Welcome to the Club-house. Subscribers are invited to share their favorite experiences, suggest best practices and most importantly, let us know “What’s on your mind?” What topics and questions do

you have? We all get better when we do this together. Email Ken at kkavula1@comcast.net

Once I’m certain that my PAR value is healthy, I begin to work my way through the other values on the list. Next is Quality. The members of this model club have decided that the portfolio quality should be at the 80th percentile or above. I concur with this value. A quick check reveals a portfolio quality of 88.8. The number meets my goal and I want to keep it at 80+ as I add new holdings.

Growth, which refers to growth in sales or revenue, is also an important metric for me to watch. I know if I concen-trate on only large, high-quality companies, the portfolio’s growth is liable to slow. I also know that if growth in rev-enue slows, growth in earnings will slow and the stock price appreciation will eventually slow as well. That idea keeps me focused on adding faster growing medium and small-size companies to the portfolio. Over the years I’ve learned that growth in the neighborhood of 11-13% is usually robust enough to keep the PAR value in the sweet spot. I check the growth in this portfolio, find it to be at 12.0% and re-mind myself not to mess it up as I add to the portfolio.

Next on the list is P/E Value and Yield. I don’t set goals for either of these metrics but I like to see the overall portfolio projected P/E value to stay near the market average (today at somewhere in the 16-17 range). I regard yield as a bo-nus from the my portfolio of growth companies and set no minimum value. Whatever I get, I reinvest in the portfolio.

The last two measures of portfolio health are Financial Strength and EPS Stability. I like to keep both of these val-ues above the 80th percentile. For Financial Strength this corresponds to an A- from Value Line. You’ll notice that the Financial Strength measure is just shy of goal. I will cor-rect this over time by making sure any new additions to the portfolio have financial strength numbers that exceed 80.

Each month, the model club starts by quickly analyzing the numbers that I’ve just explained. When one number is not in line with our goals, we make sure that we take steps to begin to bring the number back into the range we prefer. We do this slowly and methodically. It’s not neces-sary or prudent to try to solve portfolio issues in a single meeting. As long as progress is made with each new sale or purchase, we feel we’re on our way to a well-managed portfolio.

I’ll be spending the next two or three columns discussing and dissecting dashboards. If something needs further ex-planation or if you’ve always wondered about some part of the dashboard screen, why not let me know at kkavula1@comcast.net and I’ll include the question or concern in a future column.