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Warren Buffett sings with University of Nebraska cheerleaders during the Berkshire Hathaway annual shareholders meeting in Omaha, in this May 5, 2012, file photo. (LANE HICKENBOTTOM/REUTERS)
Warren Buffett sings with University of Nebraska cheerleaders during the Berkshire Hathaway annual shareholders meeting in Omaha, in this May 5, 2012, file photo. (LANE HICKENBOTTOM/REUTERS)

Number Cruncher

Tapping the stock-picking wisdom of Warren Buffett and Peter Lynch Add to ...

What are we looking for?

In January, we ran a screen combining the stock-picking methods of investing legends Warren Buffett and Peter Lynch. Our theory was that two heads – especially these two heads – would be better than one.

Let’s check in on the portfolio to see whether we were right.

The screen

We used the “guru stock screener” from Validea Canada. (Globe Investor has a joint venture with Validea.ca, a premium Canadian stock screen service.)

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Specifically, we searched for stocks that met the criteria of both the “P/E Growth Investor” screen, which is based on Mr. Lynch’s methodology, and the “Patient Investor” screen, which seeks to emulate the stock-picking prowess of Mr. Buffett.

The methodology

The P/E Growth Investor screen uses the PEG ratio, among other criteria, to choose stocks.

The PEG, which Mr. Lynch used when he was managing Fidelity’s Magellan Fund until his retirement in 1990, takes the P/E ratio and divides it by the earnings growth rate. Generally, the lower the PEG, the more attractive the stock is from a valuation standpoint.

Mr. Buffett looks for stocks with solid earnings growth and low P/E ratios, among other criteria.

Using the results of the screen, we set up a hypothetical $90,000 portfolio with equal $10,000 investments in each of the nine stocks.

The results

 

From the inception date on Jan. 18 through Oct. 2, seven of the nine stocks rose, led by a 48.5-per-cent gain in Alimentation Couche-Tard.

Over all, the portfolio posted an advance of 11.6 per cent, excluding dividends.

That crushed the S&P/TSX composite index, which rose about 0.5 per cent, excluding dividends, over the same period. We’ll check back again in a few months to see how the portfolio is faring.

Remember that a stock screen is just a first step in the investing process. Be sure to research individual companies thoroughly before you invest.

Follow on Twitter: @johnheinzl

 

How a portfolio mixing Buffett, Lynch strategies has fared since Jan. 18, 2012

Company Symbol No. of units/shares Recent price $
Alimentation Couche-Tard ATD.B-T 327.33 45.36
BMTC Group GBT.A-T 554.02 15.50
Bank of Nova Scotia BNS-T 190.26 53.95
Bird Construction Inc. BDT-T 769.23 14.46
Computer Modelling Group CMG-T 630.92 19.58
Home Capital Group HCG-T 195.73 50.69
MTY Food Group MTY-T 657.9 19.00
National Bank of Canada NA-T 135.23 74.62
Saputo Inc. SAP-T 252.14 42.70
Total $ Stocks

Source: GlobeInvestor.com, Validea.ca

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  • ATD.B-T
  • GBT.A-T
  • BNS-T
  • BDT-T
  • CMG-T
  • HCG-T
  • MTY-T
  • NA-T
  • SAP-T
Live Discussion of ATD.B on StockTwits
More Discussion on ATD.B-T
Live Discussion of GBT.A on StockTwits
More Discussion on GBT.A-T
Live Discussion of BNS on StockTwits
More Discussion on BNS-T
Live Discussion of BDT on StockTwits
More Discussion on BDT-T
Live Discussion of CMG on StockTwits
More Discussion on CMG-T
Live Discussion of HCG on StockTwits
More Discussion on HCG-T
Live Discussion of MTY on StockTwits
More Discussion on MTY-T
Live Discussion of NA on StockTwits
More Discussion on NA-T
Live Discussion of SAP on StockTwits
More Discussion on SAP-T

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