T&T Individual Stock Investment Strategy
T&T maintains two model stock portfolios which it uses to construct client stock portfolios. The capital in these model portfolios is the personal capital of T&T and not the capital of T&T clients. Accounts of clients may yield a different result. See discussion below on “How T&T Uses the Model Portfolios to Create Client Portfolios.” These model portfolios are composed of individual stocks traded on an American exchange. The stocks can be large, medium or small, and they may be classified as growth or value stocks. Both portfolios focus primarily on total return--dividends plus capital gains. These portfolios are used as the bases of our individual stock portfolios for our clients. Client individual stock portfolios should very closely track the results of these model portfolios. We generally make changes to these model portfolios on a quarterly basis, and then adjust our client portfolios accordingly. The quarterly changes typically involve eliminating and/or adding two or three individual stocks and changing the weighting on some stocks currently in the portfolio, though occasionally there may be more extensive changes.
T&T employs fundamental analysis exclusively in its individual stock investment strategy. We estimate the total annual five-year returns for stocks based on our estimates of the earnings and price-earnings ratios of these stocks. We estimate the five-year earnings-per-share for stocks using data and projections from six independent research firms and the five-year price-earnings ratios from an estimate given by Value Line and our own proprietary formula based primarily on information on the estimated long-term earnings growth rate, the historical volatility of the stock price, and the estimated dividend yield provided by the research firms.
How We Build and Maintain Our Model Portfolios
We produce a proprietary list of about 70 stocks primarily based on our estimations of the expected return, the predictability of the various metrics used to calculate that expected return, and to a lesser extent the estimated dividend yield.
Of the stocks on our proprietary list, our portfolios usually include only the stock in any given industry that we believe will outperform the others on our list. If there are two or more stocks in a single industry that we really like, we may include both (or all) in the portfolios, but we will reduce the percentage allocation to each stock so that the industry does not have more than an 8% allocation.
The stocks chosen for the portfolios are not all held in equal allocations. The stocks we like the most, usually comprising about a third of the stocks in each portfolio, will be overweighted and thus may represent around half of the value of the portfolio.
We generally replace a few stocks and may change the allocation percentage on others when we rebalance the portfolios typically at the beginning of each calendar quarter. Occasionally we replace a stock between rebalancings if we prefer a stock not in the portfolio and do not want to wait until the quarterly rebalancing.
T&T Model Portfolios
T&T Blended Multicap Portfolio ("T&T Blended)
We started this portfolio in late March 2020. This portfolio contains approximately 25-30 stocks that we believe will beat our estimated annual total return on the S&P 500. We estimate the total annual five-year return of the S&P 500 Index based on our estimates of the five-year earnings and price-earnings ratio of this index.
T&T Income Multicap Portfolio (“T&T Income”)
We started this portfolio in early January 2021. This portfolio generally consists of the 20 stocks included in the T&T Blended Portfolio that have the better current dividend yields. However, sometimes there are stocks in the T&T Income Portfolio that are not included in the T&T Blended Portfolio. These stocks generally have higher current dividends than the average of the S&P 500, and an estimated five-year total annual return greater than our estimate of the five-year total annual return of the S&P 500, but were not included in the T&T Blended Portfolio because there were other stocks with higher estimated five-year total annual returns that we chose to include in the T&T Blended Portfolio instead.
How T&T Uses the Model Portfolios to Create Client Portfolios​
When a client transfers money and/or securities to an account at Schwab on which they grant us discretionary authority to choose the investments, we discuss with the client which T&T model portfolio we believe they should use for the account. We then sell any securities transferred and invest the funds in the accounts in the same stocks in the same percentages as set for the model portfolio chosen. The client account should realize approximately, but not exactly, the same returns as the chosen model portfolio during the same period. The main reasons for any differences are set out here:​
(1) The client’s account will be initially invested promptly after the funds are transferred to the account in the goal percentage for each stock. Since we only purchase whole shares of each stock, the initial allocation for a stock may be slightly different than its goal percentage. For instance, we will only be able to purchase 8 shares of a stock with a 4% goal percentage that is selling for $440 in a $90,000 which is 3.91% of the portfolio rather than the 8.18 shares that would make an even 4% allocation. Therefore, at the start the client’s portfolio will not have the exact same allocation as the goal allocation.
(2) The T&T Model Portfolios are rebalanced in the first month of each calendar quarter as are the client accounts based on that model portfolio. The actual allocation of the T&T model portfolio will vary from the goal allocation as stock values change each trading day. Therefore, the stock selling for $440 might have gone up substantially since the last rebalancing, so that its allocation is, say 4.7%, of the model portfolio at the time the client’s account is invested. Thus, the allocations of the model account and the client account will differ somewhat on the day the client’s account is invested even though the client’s account will have the same stocks as the model account.
​(3) At the beginning of the next calendar quarter, both the client’s account and the model portfolio are rebalanced based on the goal percentage for each stock. However, the rebalancing program is set to only change the allocation of a stock if the stock’s actual allocation is more than 20% higher or lower than its goal allocation. So, if in the example the $440 price of the stock and overall value of the portfolio hasn’t changed at the time of the rebalance, the model portfolio would continue to hold 4.7% and the client account would continue to hold 3.91% of that stock after the rebalance. If this stock does poorly compared to the other stocks for the next quarter, then the client’s return will be slightly better than the model portfolio’s return because of the higher allocation to that stock.
​(4) As a result of the potential initial small differences in allocations and the small difference in allocations after each rebalance, the return realized by the client will be close to but not the exact same as the results of the model portfolio.
Performance of the Model Portfolios
Both model portfolios have performed very well on an absolute scale and compared to the S&P 500 Index as a benchmark. Note that we use the two portfolios flexibly, depending on our return expectations. For example, at the beginning of 2023, we shifted clients from T&T Income to T&T Blended because we expected the T&T Blended portfolio to perform significantly better in 2023.
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The time-weighted annual returns for each fund for year-to-date (YTD), 2021, and from inception to the period ending as indicated below were as follows (please note, these returns are before our fees, which are no more than 0.6% for portfolios under $1 million, and less for portfolios over $1 million):
Past success does not guarantee future performance. T&T cannot and does not make any guarantee of performance for any client.
As of July 31st, 2024 | 2020* | 2021 | 2022 | 2023 | Year-to-Date | Since Inception | Volatility |
|---|---|---|---|---|---|---|---|
T&T Blended Gross Returns (1) | 43.24% | 39.43% | -8.00% | 24.78% | 15.36% | 24.64% | 18.06% |
Fees & Costs (2)
| -0.47% | -0.62% | -0.62% | -0.62% | -0.36% | -0.62% | |
Net Returns | 42.77% | 38.81% | -8.62% | 24.16% | 15.00% | 24.02% | |
S&P 500 (1) (3) | 47.10% | 28.79% | -18.17% | 26.40% | 12.90% | 19.67% | 17.49% |
Excess Net Returns | -3.85% | 10.63% | 10.17% | -1.62% | -2.10% | 4.34% | |
T&T Income Gross Returns (1) | 33.40% | -2.86% | 11.33% | 12.08% | 14.35% | 16.05% | |
Fees & Costs (2)
| -0.62% | -0.62% | -0.62% | -0.36% | -0.62% | ||
Net Returns | 32.78% | -3.48% | 10.71% | 11.71% | 13.73% | 16.64% | |
S&P 500 (1) (3) | 28.79% | -18.17% | 26.40% | 12.90% | 12.04% | ||
Excess Net Returns | 4.61% | 15.31% | -15.07% | -1.18% | 1.69% |
*T&T Blended inception: April 1st, 2020. T&T Income inception: January 1st, 2021.
(1) The gross returns assume reinvestment of dividends for T&T portfolios and the S&P 500 Index.
(2) The fees and costs are a total of 0.62%, of which 0.6% is what T&T charges on the first $1M under management and the 0.02% is the estimate of costs. The fees and costs for the year-to date column is the 0.62% prorated for the number of months.
(3) S&P 500 Index measured by Vanguard S&P Index ETF (ticker: VOO) with fees added back.
(4) The T&T Blended Model Portfolio has a higher volatility of annual returns than the S&P 500 Index as shown above. Both the T&T Blended and T&T Income Model Portfolios contain very few stocks (about 25-30 for T&T Blended and about 20 for T&T Income) compared to the 500 for the S&P 500 Index; cover fewer industries (about 23-28 for T&T Blended and about 18 for T&T Income compared to 74 for the S&P 500 Index); and cover fewer sectors (about 6-8 for T&T Blended and 5-7 for T&T Income compared to 11 for the S&P 500 Index). These differences mean that an investment based on a T&T Model Portfolio is riskier than an investment in the S&P 500 Index. Volatility is measured for both the model portfolio and the S&P 500 Index by the annual standard deviation in returns from the inception date of that model portfolio.