Stock Star Rating Performance Update

We have good news and bad news to report about our star-rating performance in the first quarter. While our 5-star calls continue to outperform the S&P 500, our 1-star calls--few though they be--significantly outperformed our 5-star calls.

The recent rally in March, when the S&P 500 jumped 8.5%, has defied the flight-to-quality trend we saw in 2008. Last year, as investors ran for cover amidst fears that the credit market would seize and our financial system would collapse, wide-moat, low-uncertainty stocks became the favored investments. However, investor fear is beginning to subside and we have begun to see greater risk-taking behavior. Thus far in 2009 our no-moat stocks have outperformed our wide-moat stocks and our high-uncertainty stocks have outperformed our low-uncertainty stocks. Because our 5-star stocks have tended to be moatier and lower-uncertainty stocks, as detailed in our recent Stock Strategist articles about economic moat ratings and fair value uncertainty ratings, our star-rating performance has not lined up as well as we would hope in 2009. Still, the relatively poor performance of wide-moat stocks in the first quarter did not hinder the performance of our Tortoise, Hare, and Wide Moat Focus portfolios, which focus exclusively on moaty stocks.

The Numbers
Both of our hypothetical "Buy at 5" portfolios have extended their lead over the S&P 500 in first quarter of 2009. Some of our best calls in these portfolios in 2009 have been  Wal-Mart (WMT) (up 11%),  BlackRock (BLK) (up 49%), and  Iron Mountain (IRM) (up 31%).

Annualized Trailing Period Returns
	Buy at 5, Sell at 3	Buy at 5, Sell at FV	S&P 500	S&P 500 Eq-Weight
2009 YTD	-0.7%	-1.8%	-9.7%	-7.8%
Trailing 1-year	-31.2%	-33.4%	-38.1%	-40.4%
Trailing 2-year	-23.6%	-24.7%	-23.3%	-26.7%
Trailing 3-year	-12.6%	-14.2%	-13.1%	-15.5%
Trailing 4-year	-4.9%	-6.3%	-7.4%	-8.3%
Trailing 5-year	-1.2%	-2.7%	-4.8%	-4.9%
Since Inception	-0.4%	-1.5%	-3.5%	-1.2%
* Data from Abacus Analytics, through 3-31-09. Morningstar began rating stocks on 08-06-01.

We take a very rigorous approach to our moat ratings, and it has paid off well over time. If we filter out all narrow- and no-moat stocks from our "Buy at 5" strategies, we beat the S&P 500 by a much greater margin over all trailing periods greater than one year. However, no-moat stocks have outperformed thus far in 2009 as fear has waned and investors have purchased riskier assets.

Annualized Trailing Period Returns
	Buy at 5, Sell at FV, Wide-Moat Only	Buy at 5, Sell at 3, Wide-Moat Only	All Wide-Moat Stocks	All Narrow-Moat Stocks	All No-Moat Stocks	S&P 500	S&P 500 Eq-Weight
2009 YTD	-4.8%	-4.2%	-4.1%	2.4%	4.5%	-9.7%	-7.8%
Trailing 1-Year	-25.4%	-17.6%	-23.3%	-27.2%	-35.3%	-38.1%	-40.4%
Trailing 2-Year	-14.9%	-11.1%	-13.2%	-18.4%	-24.9%	-23.3%	-26.7%
Trailing 3-Year	-5.5%	-3.0%	-5.1%	-8.1%	-14.2%	-13.1%	-15.5%
Trailing 4-Year	0.0%	2.1%	-0.8%	-1.9%	-4.8%	-7.4%	-8.3%
Trailing 5-Year	2.7%	4.6%	1.2%	2.2%	-1.6%	-4.8%	-4.9%
Data from Morningstar, through 3-31-09. Morningstar introduced moat ratings on 6-26-02.

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