2019 Free Lunch Portfolio
In December 2017, I co-authored an article in Forbes about The “Free Lunch” Portfolio, which combines the power of Uber Cannibals, Shameless Cloning and Spinoffs. As a recap, our algorithms selected these 15 companies for 2018:
The Free Lunch portfolio was down 17% in 2018, vs. -2.9% for the S&P 500. Our backtests show that the Free Lunch Portfolio outperforms the S&P 500 over a 17+ year period (17.1% annualized for the Free Lunch vs. 5.4% for the S&P 500), but it does not do so every year. In fact, the Free Lunch Portfolio underperformed in 6 out of the 17 years we tested.
Keep the faith and do not overreact to short-term negative performance. This is a long-term “set it and forget it” strategy. We don’t recommend putting more than 10-20% of your nest egg into this strategy. And we think it only makes sense if you follow it for a decade, or two, or longer. Ideally, you would use this strategy in your IRA, so you wouldn’t have to worry about realized gains.
The New 2019 Free Lunch Portfolio
We are now ready to rebalance the Free Lunch Portfolio for 2019. Here are the constituents for the upcoming year:
If you are a new investor to the Free Lunch Portfolio, you can just equal weight these 15 stocks (i.e., invest the same amount of money in each of these 15) in early January 2019.
If you invested in the Free Lunch Portfolio at the beginning of 2018 and rebalanced the Uber Cannibals in April 2018 when we published the New Uber Cannibals, then you would sell all of the 2018 Spinoffs and Shameless Cloning companies except for Micron, and invest the proceeds equally among the 9 new kids. You can do this in early January 2019 (or now if you’re investing in a taxable account and you’d like to capture losses for 2018).
As a reminder, the Uber Cannibals get published for rebalancing every April, while the Spinoffs and Shameless Cloning ideas rebalance in January. When we publish the new Uber Cannibals in April 2019, sell the Ubers that are no longer on the new list and invest the proceeds equally across the new Uber Cannibal picks. Then in January 2020, you’ll rebalance the Spinoffs and Shameless Cloning ideas.
Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome.
12/19/2018 06:28:54 pm
Sir free please provide something similar for Indian markets too..Thank you.
1/23/2019 05:50:16 am
1/23/2019 05:53:26 am
If you have any suggestions, pls feel free to share. Generally all recommendation should come with a disclaimer. INvesting is a risky business and a lot of time stock moves downward after recommendation by a celebrity investor.
12/19/2018 06:39:02 pm
Any indian counterpart of Corning?
12/19/2018 07:06:10 pm
Bang on with research and analysis part Mohnish, keen for your article for Indian market too
12/20/2018 01:07:53 am
We would appreciate if such work is done for Indian companies and markets.
12/21/2018 05:50:28 am
Kindly do some work on Indian markets
12/21/2018 07:03:21 am
Interesting picks Pabrai. I'm also interested to see where this portfolio ends up heading over the next few years. This year has been pretty bad so far for the markets but just means it's a good time to buy.
12/21/2018 11:13:40 am
What is it that you dont recommend putting in more then 10-20% of your investable nest egg in to this strategy?
12/21/2018 11:23:10 am
Thank You! Love your works and passions. Very grateful that we can look at some of the same Businesses' you are entertained by.
12/22/2018 02:18:29 pm
Thanks Mohnish. Great write as always.
12/22/2018 08:14:30 pm
How do you determine which shameless clones get selected?
12/26/2018 05:24:41 am
mr. pabrai can we count just dail under uber canibals
Mohnish! When did you make the jump from fundamental analysis of a situation to back testing securities prices as basis for a conclusion? If the business is poor, any amount of cannibal-ling is not going to help continuing holders. See, IBM, etc.! The methodology you described doesn't appear to separate 'good' from 'bad' businesses. It *might* still work, but I don't think we've answered the question "why" it should work.
12/30/2018 07:12:56 am
1/4/2019 10:55:58 pm
1/7/2019 01:59:18 pm
Why publish Uber Cannibals now if a new lot will be given in April 2019?
1/8/2019 03:21:30 am
i am not impressed-no original thoughts
1/8/2019 11:28:27 pm
I don't understand the consecutive years of picking Micron. Super high cycle, bound to turn south (actually it's already been). Samsung, SK Hynix and Micron all invested heavily in capex in 2017-2018, signs of glut is apparent. 3x P/E may just turn 10x in few quarters. I know it's shameless cloning, but did your team do any work on it at all?
1/23/2019 05:55:10 am
Its very easy to question the work done by the analyst. Also its very difficult to list every parameter in a short blog post.
4/27/2019 04:34:12 am
Micron has $10Bil approved for shared buy back in 2019. that is 20% value of current shares outstanding at $40 per share. If they were to spend that money today you would get a 20% increase in value. If the stock is set go lower in price, the buyback would be way more valuable to the investors. The company is aggressively reducing their debt and positioning themselves to survive the storm. With such low PE and the buyback protecting value, this stock over the years has a low risk high reward scenario.
1/21/2019 12:28:59 pm
Such a great blog is very difficult to get. I am very happy to join this Blog in today
2/6/2019 05:58:51 pm
This stinks of curve fitting. It will be a miracle if it even keeps up with the S&P 500 going forward. It lost by a mile in 2018 setting it up for a huge hole to dig out from.
2/7/2019 03:17:50 pm
This is so short on logic
2/18/2019 09:08:23 pm
The question is, how much of your money have you invested in these companies?
3/12/2019 08:48:21 am
The question is, how much of your money have you invested in these companies?
3/20/2019 12:59:31 pm
I know this portfolio is suggested to be used in a nontaxable account. But seems terrible in a taxable account. If this is already obvious to others I apologize ahead of time for my ignorance.
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4/13/2019 01:55:33 pm
Please ignore previous calculations as I was taxing the entire investment amount instead of solely the profit(capital gains)
4/29/2019 01:33:11 pm
5/8/2019 04:15:49 am
Hi, is it rite to simply study from publications not to pay a quick visit web for latest updates, what you say guys?
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I really enjoyed your blog Thanks for sharing such an informative post.
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We would appreciate if such work is done for Indian companies and markets. Keep it up.
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Mohnish Pabrai is the founder and Managing Partner of the