“Hey Mark, I need for you to take a closer look at Lumber Liquidators (LL).Check the consensus forecasts and see what you think.”

Bernie said it with a conviction that commanded attention. It was a few weeks before Thanksgiving 2011 and I’d gathered once again with the stock pickers of Mid-Michigan at their annual breakfast. We shared some of their stories and discussed the outstanding results on these pages in the past.

Once again, we have to wonder about the water. What’s in the water? Because the guy nudging us to take a closer look at Lumber Liquidators was 2012 Groundhog Champion, Bernie Meister of Midland, Michigan. The Midland zone in central Michigan is home to 2009 individual cham-pion Paul Witt, Ken Kavula’s Wolves (2010 group champions) and last year’s group champions, Northern Traders of Traverse City, Michigan. Bernie is a long-time investment club partner and has participated for many years. There are several successful investment clubs in the Mid-land region with 30, 40 and more than 50 years since inception. There’s clearly something in the water and the long-term track records of posi-tive relative returns (and smiles) are a living testimonial.

Expected Returns Editor: Mark Robertson, Manifest Investing LLC Volume XXI, No. 2 Results, Remarks and References Regarding Investment Initiatives February 2013

In This Issue...

Qualcomm (QCOM) ............ 3

Fund Feature ................ 4

Buffalo Discovery (BUFTX)

Screening Results ....... 6

Tin Cup Model Portfolio ... 7

www.manifestinvesting.com

Groundhog Creed Staggered?2012 was unkind to our band of groundhogs. Does that mean it’s time to throw in the towel? Not. Even. Close. We know better than to focus on any single year. And yes, this is a silly little contest. But the glass continues to be more than half full, not half empty. We blew an opportunity presented when a mere 25.8% of all domestic stock funds outperformed the Wilshire 5000 during Groundhog VI (2012) by rolling in with our own (worst ever) 23.9% market-beating population. Over six years, our Groundhog Nation has beaten the domestic stock funds 4-out-of-6 ... with 51.6% of participating hogs beating the Wilshire 5000 since inception. The only towels needed around here are to towel off ... and jump back in the ring.

Groundhog Individual Champions2012: Bernie Meister (Midland, Michigan)

2011: Nick Stratigos (Pittsburgh, Pennsylvania)2010: Anne Manning (Houston, Texas)

2009: Paul Witt (Midland, Michigan)2008: Mark Robertson (Rochester Hills, Michigan)

2007: Steve Parham (Knoxville, Tennessee)

Group Champions2012: Broad Assets (St. Louis)

2011: Northern Traders (Traverse City, Michigan)2010: Wolves (Mid-Michigan)2009: Two Rivers (San Diego)

2008: Bower City (Janesville, Wisconsin)2007: Crow River (Minneapolis, Minnesota)

... continued on page 2 ...

2 - Expected Returns - February 2013

Apple Sauce & Circuses!

It was a year like many years -- except that it was inordinately challenging for our band of groundhogs. The culprits were the usual characters, the stocks that appeared in the majority of participant port-folios: Apple (AAPL) and Quality Systems (QSII). Coach (COH) can also shoulder some blame, break-ing down in the last several weeks.

Everything was fine during the early months, but Apple peaked in September ($705) and has been in a steady decline ever since ($454 on 2/1/2013) after reaching $440 on 1/25/2013 -- a drop of 37.5% dur-ing a period when the general stock market has gained approximately 10%.

Cy Lynch covered the perils of institutional concentration in Apple in the last couple of fund features ... and the im-pact is fairly significant when checking in on the S&P 500, Nasdaq-100 or Wilshire 5000 over the last 6-7 months (see accompanying image.) Widely-chosen Quality Sys-

... continued on page 8 ...

Impact of Apple Swoon. It’s not all due to Apple, but this com-parison of an equally-weighted S&P 500 (RSP) vs. cap-weighted S&P 500 (SPY) shows a pretty significant drift over the last few months. This provides some reinforcement for our argument for a Value Line 1700 proxy using equally-weighted components.

Groundhog Results: The Good Old Days. Groundhog Nation has now outperformed the Wilshire 5000 in four of the last six years, an admirable winning percentage. But we’d be lying if we didn’t admit that we yearn for results that resemble 2007-2009 when it comes to performance vs. an actively-managed universe of funds.

tems (QSII) also sagged significantly, turning into a 5-ring circus sometime during 1Q2012 and adding at least one more ring while dropping from $45 to $15 during 2012.

It would take some serious number crunching -- but we’re curious how Groundhog Nation would have fared with trail-ing stops on these two flame outs.

That said, we celebrate that 51.6% of all participating groundhogs (individuals AND clubs) have beaten the market over the last six years -- something to howl about, if a groundhog is permitted to howl.

Meet Success in St. Louis!

Speaking of clubs, our group champion for 2012 is the Broad Assets Investment Club of St. Louis, Missouri. The ladies definitely strayed from the well-trodden path that includes the Apples and Coaches of the world, instead se-lecting Dorman Products (DORM), Ituran Location & Control (ITRN), Vistaprint (VPRT) and Insperity (NSP). Transcend Services (TRCR) was acquired during the year. Four of the Broad Asset selections beat the market, delivering an an-nualized total return of 27.5% for the portfolio.

Once again, Ellen Hall’s Women Investment Network (Mary-land) was in something of a photo finish and Ellen finished #10 in the overall standings. Ellen and last year’s individual champion, Nick Stratigos, have consistently been among the leaders near the end of most annual contests.

Our own Cy Lynch finished #2 in the overall standings, so-lidifying his ranking on the All-Time Leader Board. The top five was rounded out by accuracy leader Richard Cardner and Chuck Brunell has held and challenged for the lead in each of the last few years.

Solomon Select

Qualcomm (QCOM)

February 2013 - Expected Returns - 3

In the realm of mobile communica-tions, it’s clearly a jungle out there. The battle among the major provid-ers is in full gear and profit margins (for most participants) show the impact. Enter Qualcomm (QCOM). QCOM has the #1 market share in application and graphics processing chips and 3G/4G/LTE modems used in smart phones. Let that sink in for a minute.

Qualcomm has revolutionized the mo-bile phone industry. Through a com-mitment to research and development and via a wide berth of partnerships with other firms, innovative solutions are built and distributed across the entire wireless industry.

Growth, Profitability, Valuation

The Manifest Investing sales growth forecast for QCOM is 11%. We’re using 33% for the projected net margin. The median P/E for the period 2006-2013 is 16.8x. We’re using 18x for the pro-jected average P/E.

At the time of selection, the stock price is $62.53, the projected annual return is 18-19%. The quality rating is 91.8 (Excellent, Top Shelf) and the financial strength rating is 98 (A++). The com-pany has no debt.

The company is now ranked #38 in the MANIFEST 40 and although a newcomer to our 40 most widely-followed stocks, investors in our community have studied, owned and profited from QCOM over the years.

And we close with an echo of last month’s closing remarks on Atwood Oceanics -- only this time we’re talking QCOM: globally diversified and serving a host of wireless companies ... feels like a pretty good hedge vs. geo-risk and a little like 1960s Corning, they sold the tubes to all the dueling TV makers. Placing a bet on red, black and green?

Qualcomm (QCOM): Business Model Analysis. The products are literally ubiquitous and although innovation continues (R&D budget is 20% of revenues) Qualcomm is somewhat mature with respect to life cycle ... and naturally lower (but still blue chip leadership) growth rates lie ahead.

Qualcomm (QCOM): P/E History and Trends. The median P/E for Qualcomm from 2007-2012 has been 16.8x. The projected average P/E, based on consensus estimates is 18x.

Qualcomm (QCOM): Profitability Analysis. The company is a profitability monster. The varia-tions are likely changes in royalty/licensing mix ... and the outlook is quite strong.

by Cy Lynchcelynch@att.net

The Hoard’s relative return since its inception (January 2009) slipped a bit over the last month, in large part to our relatively heavy concentration in technology-laden funds most of which are themselves heavily weighted in Apple (AAPL). It stands at 0.7% well below our long-term goal of at least 3% based on its total return of 11.7% versus 11.0% for the Herd (total stock market) during the same period. Ac-curacy also declined a tad, but re-mains good at 66.1%.

Decisions

Shifting to projections, as you see from the accompanying Hoard Dash-board, all key portfolio design charac-teristics for the Hoard Portfolio remain acceptable. Overall PAR (12.6%) is 5.3 points above current MIPAR (7.3%), comfortably exceeding our

Management Matters

As Manifest adherents, we often re-peat mantra-like George Nicholson’s articulation of what matters first in selecting an individual stock: Manage-ment, Management, Management. The same is obviously true when it comes to actively managed funds. Sadly, while we are always on the lookout for managed funds with managers who make a positive difference, it has proved to be a quixotic quest. Most managers actually have a negative impact as they underperform alterna-tive index-based investments.

Certainly there are solid examples of value-adding fund managers: Peter Lynch and more recently Ken Heebner are two that come to mind. Conse-quently, the Hoard portfolio is invested primarily in passively managed funds. The vast majority of our “fishing hole,” the monthly Fund Manifest is likewise populated mostly with passively man-aged options.

We hope to have found an excep-tion with this month’s selection, the Buffalo Discovery Fund (BUFTX). The fund’s managers seek long-term capital growth by investing in a “broad range of companies in a diversified group of industries that are expected to benefit from innovation.” We will

Fund Analysis: Hoard vs. Herds

Add Buffalo Discovery (BUFTX)

4 - Expected Returns - February 2013

February 2013 Funds. Top funds ranked by projected annual return (PAR).

Results (February 4, 2013). The average selection for the Hoard has outperformed the total stock market benchmark by +0.7% since inception. Accuracy, the percentage of selections outperforming the Wilshire 5000 since selection, is now 66.1%.

goal of MIPAR+3 percentage points. Overall quality is excellent at 71.2 and financial strength (82%) is very strong as well. Projected sales growth (10.3%) remains in the lower end of our target range of 10-12%.

appealing include its investments in multiple market capitalizations; active seeking to purchase stocks when neg-atively affected by short-term events and/or underappreciated; and perhaps most exciting to me personally, that the managers are not benchmark-driven in their stock selection.

The fund’s current PAR of 12.1 percent exceeds current MIPAR by 4.8 points clearly demonstrating the potential to continue its market-beating re-turns going forward. Overall quality is excellent at 68.4 with solid financial strength of 76.8. Its projected growth rate of 10.4% is attractive as well.

With a reasonable expense ratio of 1.01%, we find BUFTX to be a promis-ing addition to the Hoard portfolio and an attractive candidate for most inves-tors seeking a diversified managed mutual fund.

February 2013 - Expected Returns - 5

Hoard Dashboard. Our $90,417 invested so far is now worth $120,426. (2/4/2013) Vanguard Technology (VGT) and Nasdaq-100 (QQQ) continue as the best-performing active selections to date. http://www.manifestinvesting.com/dashboards/public/hoard-vs-herd

How They Do It

According to the summary on its website, BUFTX sees to identify “long-term, measurable secular growth trends (e.g., demographics, global market growth, increasing bandwidth) [and then find] companies that they believe should benefit from these trends [and] may have potential revenue growth in excess of GDP.” Those investment candidates are then “screened using in-depth, in-house re-search to identify those which we feel are attractively valued, demonstrate strong management, have little or no debt, free cash flow, scalable business models, and competitive advantage.”

The methodology sounds quite consis-tent with our approach of finding qual-ity, growing companies at attractive values doesn’t it? Other characteristics of the fund that we find particularly

look closer at their specific strategy in the next section, but their track record indicates that the fund is solidly man-aged.

BUFTX has a 14.3% compound annual total return for the 10 years ending 2/3/2013, solidly trouncing the S&P 500 (8.01%) and its Morningstar cat-egory (mid-cap growth with a return of 10.0%). It finished in the top 10% of its Morningstar category (mid-cap growth) in three of the last five years and just below the upper third in another. The fund outperformed its mid-cap growth peers for each of the 1-Year, 3-Year, 5-Year and 10-Year periods ending 1/31/2013. It’s also outperformed the broader market (S&P 500) for all of those periods ex-cept the 1-Year.

6 - Expected Returns - February 2013

Screening Results

Fundamentally Strong and Ready To Be LovedThis month features the top percentile of all stocks covered at MANIFEST on the basis of a combination of strong fundamentals (return forecast and quality) and some key technical fac-tors (relative strength index, senti-ment and momentum).

Overall Market Expectations

The median projected annual return (MIPAR) for all 2400+ stocks followed by MANIFEST (Solomon database) is 7.2% (1/31/2013). The multi-decade range for this indicator is 0-20% and an average reading since 1999 is 8.5%.

O Cupid, Doth Thy Arrow Sting?

Only when it misses.

With Valentine’s Day around the cor-ner, Body Central (BODY) a special-ty retailer for ladies from 18-35 might be worth a closer look. Be diligent. This one is down to $8 from $30 and has recently changed management while harvesting a weak quarter or

two. It could be a value trap ... or an oversold opportunity. From our van-tage, we’re hoping it’s Chicos II.

Qualcomm (QCOM) is always a wor-thy study and a well-diversified sup-plier to a number of the combatants in the smart phone and tablet wars. I still remember Christmas break 1999 when our largest holding at the time, QCOM, soared at an incredible rate.

The January Round Table audience selected AeroVironment (AVAV) following a brief summary and nomi-nation by Ken Kavula -- one of our leading knights on a relative return basis since inception.

Super Bowl weekend. Do you know where the remote is? Study Univer-sal Electronics (UEIC). You can order a new one if needed.

February 2013 - Expected Returns - 7

Tin Cup Model Portfolio

Sell Abbvie (ABBV), Buy Qualcomm & Gentex

Tin Cup managed to stay in 7-digit territory during January 2013, blow-ing through $1,000,000 on the first day of trading. We hope that milestone remains in our rear view mirror.

This demonstration portfolio invests the maximum allowable 401(k) in stocks situated at the upper end of the return forecast sweet spot. In the absence of choices within the portfolio, we shop outside the portfolio using the combi-nation of return forecast and quality rating to identify candidates to be added to the portfolio. Total assets reached $1,000,000 in a little more than 17 years — something we’d hope that a nation of retirement planners and future retirees would notice, heed and deploy.

Total assets are $1,033,034 (1/31/13) and the net asset value is $232.16. The model portfolio gained 5.41% during January 2013. The S&P 500 checked in at 5.18% for the month. Tin Cup has generated a 4.3% annualized total return over the trailing five years vs. 3.9% for the S&P 500 for a trailing 5-year relative return of +0.4%.

Tin Cup Dashboard: February 1, 2013. The holdings are ranked by PAR (last column on the right.) We add Qualcomm (QCOM) and Gentex (GNTX) based on their based on PAR and quality. http://www.manifestinvesting.com/dashboards/public/tin-cup

Gentex (GNTX). Excellent quality. Return forecast at 17%.

Tin Cup has outperformed the S&P 500 over the trailing ten years by +1.2% and the annualized total return since 1995 is now 19.0%.

Portfolio Characteristics

With MIPAR at 7.2%, our target for the minimum overall portfolio PAR is at least 12.2%. The overall portfolio PAR is 13.1% on 1/31/2013. Quality and financial strength are sufficient at the current lev-els of 80.0 (Excellent) and 88%. EPS Sta-bility is 85 for the portfolio. Sales growth is acceptable at 10.4%.

Decisions

Abbvie (ABBV) is a spin-off from Ab-bott Labs (ABT). We sold the ABBV position while the business model and forecasts “shake out” for this new Ab-bott child.

The proceeds from sale and our $1917 (and dividend stockpile) for February is destined and allocated to Qualcomm (QCOM) and Gentex (GNTX) — the two highest ranked candidates in the sweet spot at this time.

8 - Expected Returns - February 2013

(c) Manifest Investing LLC 2005-2013. 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 volunteers and chapters of NAIC nationwide. Manifest Invest-ing LLC staff may directly or indirectly hold shares in the companies or funds that are reviewed in this publication. 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.

Cover Story (continued)

MANIFEST 40: December 2012. The average annualized relative return for the current tracking portfolio is +4.5%.Our quarterly summary of the (40) most widely-followed stocks by Manifest Investing subscribers is available at:

http://expectingalpha.com/2012/12/31/manifest-40-december-2012/

Heavy Hogs (2013). This list of (21) stocks are the most frequently selected stocks for the individual and group entries in Groundhog VII. Qualcomm (QCOM) was the most popular stock this year and it’s clear that growth ranked pretty high on the screening criteria of this year’s combatants.

All-Time Return Standings

Bernie’s neighbor, Paul Witt (also of Midland, Michigan) con-tinues to lead the all-time annualized relative return stand-ings at +22.2% (2009-2012). His annualized rate of return for that period is 41.4%.

Mark Robertson checks in at #2 in the all-time standings with an annualized relative return of +18.3% since the in-ception of the Groundhog Challenge.

The top honors for our participating groups belongs to Su-san Maciolek and her Bower City ladies -- our 2008 group champions. Bower City has participated for the last five years and has an all-time relative return of +7.3%.

Larry Dix (of Cleveland) continues to lead the all-time accu-racy standings -- with 75% of his selections outperforming the Wilshire 5000 over the last five years.

The Year Ahead

We close the door on Groundhog VI and open the door to Groundhog VII. The accompanying chart provides the most frequently selected stocks by the participating individuals and groups. Qualcomm (QCOM) was the most frequently chosen for 2013. Other favorites in-cluded Apple (AAPL), Bio-Reference Labs (BRLI), Coach (COH) and FactSet Research (FDS).

Selections were much more dispersed than in previous years and it will be interesting to see how this unfolds on 2/2/2014.

Our Groundhog Challenge now has six years on the books and we’re hopeful for a return to the glory days with the relative returns and accuracy on display dur-ing those first three years. We’re pretty well convinced that you can’t have a shadow without a little sunshine. We do know this: the vast majority of selections are made with quality and exceptional (but reasonable) return forecasts in mind. That fact alone separates our wonderful group of courageous groundhogs from the field of average investors and bodes well for future shadows of success.