The Muhlenkamp Stock Screen: High ROEs at a Reasonable Price
by John Bajkowski
Ronald Muhlenkamp has devoted his entire business career to the professional management of investment portfolios. Muhlenkamp started his career over 30 years ago as a portfolio analyst and soon was managing assets directly. In the early 1970s, Muhlenkamp undertook an extensive study of both fundamental and technical investment philosophies and practices and developed a proprietary method for evaluating both stocks and bonds—he still uses it today. Muhlenkamp founded Muhlenkamp & Company in 1977 to manage accounts for individuals and institutions and launched the Muhlenkamp Mutual Fund (MUHLX) in 1988. The Muhlenkamp fund has averaged a 10.4% annual rate of return over the last 10 years while the S&P 500 has returned 8.5%.
Muhlenkamp takes a total return approach to investing, seeking out investments that offer the best return prospects relative to their risk. While Muhlenkamp is normally invested in stocks, he can invest in bonds if they are attractive relative to domestic or foreign stocks, and small or large companies. The complete public market makes up his investment universe.
In this article
- Benchmark Returns
- Building Our Screen
- Reasonable Price
- Secondary Factors
- Timing Buys and Sells
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Muhlenkamp uses a bottom-up approach to selecting stocks, but adjusts his benchmarks based upon the broad economic environment. Muhlenkamp begins by looking for companies with a return on equity (ROE) above 14%. Muhlenkamp indicates that since World War II, the average ROE in the United States has been 14%, plus or minus 1%.
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