Recently, I wrote an article on Seeking Alpha called “How To Value Your Portfolio On Main Street Vs. Wall Street” that explains how our Friedrich algorithm can take any list of stocks, indices, or specific portfolios and analyze each on Main Street and Wall Street, using some unique free cash flow ratios.
Friedrich is the name given to our algorithm for analyzing companies that trade on the global stock markets. In creating Friedrich, we concentrated on analyzing each company’s Main Street operations and compared those results to Wall Street’s own valuation, as measured by market price. Through our Friedrich algorithm, we can analyze 10 years of balance sheet, income statement, and cash flow statement data for each company, all at once, and generate one final result in minutes. Friedrich was designed to be ultra conservative, and thus, will cut zero slack to any company under analysis and will do so with zero emotion.
In this article, we will be analyzing the Amana Growth Fund (MUTF:AMAGX) and compare its results to those of the S&P 500 Index (NYSEARCA:SPY) and the PowerShares QQQ ETF (NASDAQ:QQQ). Here is the link to the Fund Manager.
The following is a performance chart of the Amana Growth Fund versus the PowerShares QQQ ETF and the S&P 500 Index:
From a Wall Street performance point of view, the Amana Growth Fund has dramatically outperformed the S&P 500 Index and the Powershares QQQ ETF since 2000, almost doubling the performance of the S&P 500 Index and more than doubling that of the Powershares QQQ ETF. Now if we look at the following below you will see that what the Amana Growth Fund has achieved is very rare as only about 21.8% of mutual funds have been able to beat the S&P 500 index over the last 20 years, thus the Amana Growth Fund is in a very select group.
As an investor, it is very important to continuously analyze one’s holdings by measuring your portfolio’s Main Street performance versus its Wall Street valuation. Whether you are a portfolio manager in charge of $1 billion in assets or a small investor with a $10,000 portfolio, the concept is always the same. You, as an investor, should always know where your portfolio stands at all times, and thus, not be swayed by groupthink. By doing so, you are always practicing “Capital Appreciation through Capital Preservation.”
Well, how does one go about doing so? Before I present our final results for the Amana Growth Fund versus the S&P 500 Index and the PowerShares QQQ ETF, let us first explain how we compare Main Street performance to Wall Street valuation. We will do so by using our Friedrich Global Research System.
The Main Street ratio we use in our analysis is called FROIC, which can be defined as:
Main Street Analysis = FROIC
FROIC means “Free Cash Flow Return on Invested Capital”
Forward Free Cash Flow = [((Net Income + Depreciation) (1+ % Revenue Growth rate)) + (Capital Spending)]
* When doing our free cash flow calculation, please note that because Capital Spending is…