Stock Star Rating Performance Update--Page 2

It is also helpful to look at the performance of our star "buckets." These are constructed similarly to our strategies shown above. For example, the 5-star bucket can be thought of as a Buy at 5, Sell at 4, 3, 2, or 1 strategy. Although our 5-star stocks have outperformed our 1-star stocks since inception, this has not been the case so far in 2009. The market rally in March was driven largely by increases in no-moat, high-uncertainty companies, and those stocks dominate the 1-star group. We also entered March with only 45 1-star stocks, compared with 564 5-star stocks. The fact that a few 1-star calls, such as  Pier 1 Imports  (up 180%),  Sirius XM Radio (SIRI) (up 148%), and  Freddie Mac (FRE) (up 100%), went against us really hurt.

Annualized Trailing Period Returns
	5 Star	4 Star	3 Star	2 Star	1 Star	S&P 500	S&P 500 Eq-Weight
2009 YTD	0.7%	-7.3%	-8.6%	-14.6%	31.0%	-9.7%	-7.8%
Trailing 1-Year	-22.2%	-37.8%	-42.4%	-50.2%	-46.1%	-38.1%	-40.4%
Trailing 2-Year	-18.7%	-27.7%	-27.6%	-34.1%	-33.4%	-23.3%	-26.7%
Trailing 3-Year	-8.7%	-14.9%	-15.8%	-21.6%	-21.9%	-13.1%	-15.5%
Trailing 4-Year	-1.7%	-6.5%	-7.7%	-12.8%	-10.8%	-7.4%	-8.3%
Trailing 5-Year	1.6%	-2.1%	-4.0%	-8.0%	-7.3%	-4.8%	-4.9%
Since Inception	0.5%	2.8%	-1.1%	-5.3%	-6.2%	-3.5%	-1.2%
Data from Abacus Analytics, through 3-31-09. Morningstar began rating stocks on 08-06-01.

While our strategies and buckets may show outperformance, they are not what we would consider investable strategies (given the number of stocks involved). We run a number of actively managed portfolios, such as the Tortoise and Hare that appear in Morningstar StockInvestor, and the Dividend Builder and Dividend Harvest that appear in Morningstar DividendInvestor. These portfolios are real-world examples of our research in practice. In addition, our Wide-Moat Focus Index$MWMFT tracks the 20 cheapest wide-moat stocks in our coverage universe. Each of these portfolios has outperformed over the past year, and they are all beating the S&P 500 over their available trailing two-, three-, four-, and five-year time periods as well.

Annualized Trailing Period Returns
	Tortoise	Hare	Dividend Builder	Dividend Harvest	Wide-Moat Focus	S&P 500	S&P 500 Eq-Weight
2009 YTD	-10.7%	-2.4%	-21.5%	-6.5%	-9.5%	-9.7%	-7.8%
Trailing 1-Year	-28.3%	-32.0%	-37.3%	-29.7%	-26.6%	-38.1%	-40.4%
Trailing 2-Year	-15.9%	-15.7%	-20.5%	-21.0%	-16.4%	-23.3%	-26.7%
Trailing 3-Year	-7.5%	-6.8%	-10.1%	NA	-7.1%	-13.1%	-15.5%
Trailing 4-Year	-2.8%	-0.7%	-5.9%	NA	-2.3%	-7.4%	-8.3%
Trailing 5-Year	-1.4%	0.4%	NA	NA	0.7%	-4.8%	-4.9%
Data from Morningstar, through 3-31-09.

Conclusion
While the recent market rally has made valuations less attractive than they were at our last update in January, we still think stocks are cheap. The median price/fair value ratio of our coverage universe is 0.81, with our coverage in the hardware and energy sectors being the most attractive based on valuation. Despite the recent swing of the pendulum from fear toward greed, we believe there is still a large amount of uncertainty that could keep volatility high in the months to come. It is important for investors to remain informed about the risks that face each of their potential investments and we look forward to providing you with analysis that will guide you through these uncertain times.

Median P/FVs of Sectors
Sector	Median P/FV
Healthcare	0.69
Energy	0.73
Consumer Goods	0.80
Financial Services	0.80
Business Services	0.81
Hardware	0.82
Telecommunication	0.83
Consumer Services	0.85
Industrial Materials	0.87
Software	0.89
Utilities	0.94
Media	0.96
Total Morningstar Universe	0.81
Data from Morningstar as of 4-7-09.

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