The New 2020–2021 Uber Cannibals

In late December 2016, I co-wrote an article on Forbes.com that introduced the "Uber Cannibals," a 5-stock investing strategy that invests in businesses aggressively buying back their own stock. This is a "set it and forget it for one year" strategy that rebalances every April when 5 companies are selected for the portfolio for the upcoming year. 

We are now ready for the April 2020 picks.

Recap of 2019 Uber Cannibals:

As a recap, in my 3/31/17 blog post, we met Ms. Sonia Patel, who had embarked on her Uber Cannibals investing journey with $100,000 from her IRA account at Interactive Brokers. Sonia invested in the first 5 Uber Cannibals on 1/3/17, and then rebalanced her portfolio annually in April. The 2019 - 2020 Uber Cannibals were:

1. Sleep Number (SNBR)
2. Corning (GLW)
3. Asbury Automotive Group (ABG)
4. Quanta Services (PWR)
5. Allison Transmission Holdings (ALSN)

 
As of 3/30/20, Sonia's $100k was worth $90,609 (after trading costs), down 9.4%. If Sonia had instead invested in the S&P 500 over that period, she would be up 25.1% and her portfolio would be worth $125,142. Uber Cannibals were down 34% over the last 12 months and the S&P was down 6%.

Sonia's portfolio fell considerably in the Coronavirus-driven market sell off in the first few months of 2020. As of 12/31/19, Sonia's portfolio was neck-and-neck with the S&P 500, with her $100k worth $153,400 (after trading costs), up 53.4% since inception, while the same investment in the S&P 500 was worth $153,200, up 53.2%. Since then, Sonia's portfolio has fallen 40.8% year-to-date in 2020, while the S&P 500 has fallen 18%.  The Uber Cannibals 5-stock portfolio is far more concentrated than the indices, so our lag here is not surprising. Over time, the Uber Cannibals portfolio should recoup these losses and then some. The Uber Cannibals strategy makes sense if you intend to follow it for at least a decade or two (or longer).

	Last 12 Months	Since 1/3/17	Value of $100k invested on 1/3/17	April 2019 - Dec 2019	Inception till Dec 2019	YTD 2020
Uber Cannibals	-33.7%	-9.4%	$90,609	12.3%	53.4%	-40.8%
S&P 500	-5.5%	25.1%	$125,142	15.7%	53.2%	-18.3%
Small Dogs of the Dow	-25.2%	-4.1%	$95,922	-2.0%	25.7%	-23.7%

 

Corning, Quanta and Allison Transmission paid dividends totaling $1,177. Per our rules, Sonia reinvested those dividends back into the same businesses.

Please note, the Uber Cannibals performance includes trading costs and also assumes that stocks are bought at the high price of the day and sold at low price of the day, whereas S&P 500 and Small Dogs of the Dow performance does not include trading costs and assumes that stocks are bought at last close.

Below is the 12-month return of the 2019-2020 Uber Cannibals:

Company	1 year return
Sleep Number Corp.	-55.8%
Corning Inc.	-33.8%
Asbury Automotive Group	-20.3%
Quanta Services	-18.8%
Allison Transmission Holdings	-25.0%

 

The New Uber Cannibals:
 
We made a few tweaks to the Uber Cannibals strategy that will be implemented in this rebalance. The changes are summarized below:

• Insurance companies are allowed to enter the portfolio.
• We no longer have Price to Sales ratio or Share Buyback over the dividend yield ratio as a screening condition.
• We added a new quality condition and now select the top 5 Uber Cannibals with the highest five year average return on invested capital (ROIC).
• Existing Uber Cannibals in the portfolio that have shown a consistent commitment to buybacks over the time get a preference during the selection process.

For 2020 - 2021, our algorithms selected the following five Uber Cannibals:

1. Assured Guaranty (AGO)
2. Primerica (PRI)
3. Globe Life (GL)
4. Navient (NAVI)
5. Discover Financial Services (DFS)

                                                                                                                                                                   Sell all the 2019 Uber Cannibals and invest the proceeds equally among the new kids. If you are a new investor to the Uber Cannibals, you can just equal weight the five stocks (i.e., invest the same amount of money in each of these five) and keep that portfolio until April 2021, when I'll provide the 2020 - 2021 portfolio on www.ChaiWithPabrai.com. Happy Cannibal Investing!If you invested in the Uber Cannibals in April 2019 in a taxable account, try to sell after no more than 364 days, to realize short term losses.
 
The five-stock Uber Cannibals strategy can be combined with the five-stock Shameless Cloning and Spinoffs strategies into the 15-stock Free Lunch Portfolio. While the Uber Cannibals rebalance in April, the Shameless Cloning and Spinoffs rebalance in December. You can find the 2020 picks for Shameless Cloning and Spinoffs in my post from December 2019.  

Note, anyone who invests in any strategy needs to do their own research/due diligence and are themselves fully responsible for the outcome.