Monday, April 24, 2017

To Add Or Not To Add - That Is The Question

To Add Or Not To Add

At the start of 2017, I commented that I planned to increase my total allocation to the MFI tranches.  In part, this was because my tranches have done quite well (in aggregate) and in part I have some spare cash.

So January 1st, I bumped my 1/1/17 Formula tranche by 30% or so.  I continued with my February 1st Select tranche, around 35%.  Both those moves were good (thus far).  My February tranche is already up 25% and my January tranche is up 5%.

But for my April 1st tranche, I got cold feet.  Near the end of March, I got cold feet and liquidated some long time Dividend holdings and I put the kibosh on expanding my April tranche (which is essentially flat so far).  You do not have to look very far to find very smart people become bearish and so I pulled back.

Not So Sure

I am now at all time high of cash.  And I will likely remain relatively in that position.  But I am less sure that the market is going to fall off anytime soon.  There is a lot of cash out there and I just am not sure where it goes.  Every dip is bought with ferocity.

So I think I will stay with my reduction in my dividend holdings, but I will recommence plans to increase MFI positions.  I actually have some ideas I like for May 6th.  Stay tuned.



Actually, after writing this - I decided it was not too late on the April 1st tranche as in aggregate it is down -0.2%.   So I ended up with a 36% bump on those holdings.  You will see next week a slight movement in individual purchase prices (as I averaged the two purchases), but in aggregate it is essentially no impact.

What Is Up With May?

It is strange.  May has been my worst tranche in my Select approach.  In total (since the reboot), it is up a composite 48% (May 2013 was the start).  My other three quarters are up on average by 150%.  And May is the only quarter of my Select tranches to be trailing the benchmark.

No fault of the current tranche, up 26% at this writing.  But check out the previous May tranche (May 2015).  It was terrible:


 5/6/2015   Start   Current   Dividend   Pct Gain   R3K Gain 
 CBI  $50.38 $38.23 $0.14 -23.8% -0.9%
 PSDV  $4.12 $2.87 $0.00 -30.4% -0.9%
 TSRA  $38.94 $30.46 $0.80 -19.7% -0.9%
 KORS  $62.24 $50.87 $0.00 -18.3% -0.9%
 DEPO  $23.50 $15.51 $0.00 -34.0% -0.9%
 Totals  -25.2% -0.9%


You might wonder, "did these five stocks improve post selling"?  A fair question as Greenblatt has stated the 1 year timeframe is rather arbitrary.  The answer is no.  Hard to believe, but these five stinkers are down another 20% since May 2016.

Saturday, April 22, 2017

Weekend Update 4/22/17

Weekend Update

Happy Easter Weekend everyone.  Another week zips by. You have found your way to the MFI Diary.  This is my blog where I discuss many things related to "The Little Book That Beats the Market" by Joel Greenblatt.  I have been writing this blog since early 2006 and have tracked my performance with real money and tracking portfolios based on the official Magic Formula Investing (MFI) website.  I also have created an MFI Index, which is fifty MFI stocks and is reconstituted once a year.

I should mention that I am just a guy with a spreadsheet.  Not a CFA, not an expert... just a guy.  So please use what I write for information, but do your own diligence in making stock decisions.

So welcome!Good morning.  Sometimes I get tired of CNBC hype. "This is worst month for the Dow since January 2016" was the headline earlier this week.  I thought to myself, gosh has it been that bad?

Well,  the answer is no - it is simply some CNBC headline writer trying to capture your attention.  Here is the Dow movement month by month:


Month Change
Apr-17 -0.5%
Mar-17 -0.8%
Feb-17 4.8%
Jan-17 0.4%
Dec-16 3.2%
Nov-16 5.6%
Oct-16 -0.9%
Sep-16 -0.6%
Aug-16 -0.1%
Jul-16 2.9%
Jun-16 0.8%
May-16 0.0%
Apr-16 0.5%
Mar-16 7.1%
Feb-16 0.4%
Jan-16 -5.5%
Dec-15 -1.8%
Nov-15 0.4%
Oct-15 8.5%


The headline should really be "Virtually no downward volatility in Dow since January 2015".  Not a single month with a drop exceeding 0.9%.  I do not match their actual headline, but perhaps that was earlier in the week and we gained some back.

Past Week

It felt like a mediocre week to me.  But looking back that is because Friday was poor. It was actually a good week.  That lack of recall makes me think about a book I am reading, "The Undoing Project". It states that our projections are greatly impacted by what has most recently happened.  So right after a big hurricane, people are more likely to think big hurricanes have a higher probability than they really do.  Or after a big financial meltdown, we over estimate the odds of another meltdown.

Here are how my portfolios are faring:


 Component   YTD 
 Overall  +4.39%
 Select  +7.81%
 Formula  +3.60%
 Miscellaneous  -0.32%
 Dividend  +3.97%
 R3K  +5.18%
 MFI Index  -2.59%

Again, MFI Index continues to drag.  But my MFI Select had a strong week (it was 5.7% just last week) - we will have to see what the big movers were.  Miscellaneous did gain some ground, but still in the red.  Overall, I did gain some ground on the R3K index, despite largish cash position.

MFI Select

I have two groups of MFI stocks with real money.  The first (and oldest) is MFI Select. This is 4 baskets of 5 stocks that I buy and hold for a year.  I have been doing this since my reboot in August 2012.  

This approach has done very well for me.  Note I am trying to avoid stocks that are on the screen, but in my view are not a true Jake's Bubble Gum Shop (ie a one hit wonder).  To be fair,  I have also had several stocks that did very well..

Here is my month by month performance, assuming I put in $100,000 spread over the 4 baskets evenly:


 Date   Differential   MFI Value   R3K Value 
12/1/2012 -2.20%          99,765            101,965
1/1/2013 -1.78%        102,798            104,575
2/1/2013 -2.26%        102,594            104,856
3/1/2013 -2.23%        102,881            105,114
4/1/2013 -0.43%        106,804            107,234
5/1/2013 2.00%        110,423            108,423
6/1/2013 4.75%        115,831            111,085
7/1/2013 4.29%        114,888            110,597
8/1/2013 6.91%        124,799            117,889
9/1/2013 10.46%        124,536            114,079
10/1/2013 19.67%        138,655            118,990
11/1/2013 19.75%        143,514            123,764
12/1/2013 23.70%        150,105            126,405
1/1/2014 26.63%        157,138            130,503
2/1/2014 24.70%        150,619            125,918
3/1/2014 25.66%        158,116            132,458
4/1/2014 30.38%        162,991            132,616
5/1/2014 29.65%        162,428            132,779
6/1/2014 31.44%        167,001            135,559
7/1/2014 39.23%        177,971            138,740
8/1/2014 31.13%        167,054            135,922
9/1/2014 35.90%        177,792            141,892
10/1/2014 29.38%        168,321            138,944
11/1/2014 26.14%        168,810            142,666
12/1/2014 30.22%        176,420            146,198
1/1/2015 28.17%        174,306            146,140
2/1/2015 20.63%        162,833            142,201
3/1/2015 25.15%        175,476            150,324
4/1/2015 29.95%        178,565            148,612
5/1/2015 37.31%        186,655            149,348
6/1/2015 51.53%        202,897            151,371
7/1/2015 62.69%        211,437            148,743
8/1/2015 40.75%        192,117            151,369
9/1/2015 36.41%        178,603            142,195
10/1/2015 43.12%        181,175            138,052
11/1/2015 69.02%        217,959            148,936
12/1/2015 73.49%        223,435            149,946
1/1/2016 63.33%        209,514            146,186
2/1/2016 49.49%        187,428            137,934
3/1/2016 56.48%        194,415            137,934
4/1/2016 47.34%        195,770            148,430
5/1/2016 46.38%        194,301            147,923
6/1/2016 51.44%        201,999            150,558
7/1/2016 50.41%        201,092            150,680
8/1/2016 52.72%        207,223            154,501
9/1/2016 67.04%        222,481            155,446
10/1/2016 42.98%        198,563            155,582
11/1/2016 41.86%        195,726            153,863
12/1/2016 45.92%        202,775            156,859
1/1/2017 47.19%        209,503            162,313
2/1/2017 47.65%        212,330            164,675
3/1/2017 52.99%        222,583            169,589
4/1/2017 54.43%        224,094            169,663
Current 57.55%        226,670            169,120

A pretty nice move since 4/1, expanding to a 57.55% lead.  Here are the stocks during the week:


 Stock   Last Week   Current   Dividend   Change 
 RHI              44.49                   47.18                       -   6.0%
 ATHM              28.90                   32.40                       -   12.1%
 CA              31.65                   31.93                       -   0.9%
 AMGN            161.61                160.41                       -   -0.7%
 MPAA              28.49                   29.47                       -   3.4%
 AKRX              32.42                   32.91                       -   1.5%
 MSGN              24.30                   24.40                       -   0.4%
 VLO              64.68                   65.23                       -   0.9%
 BRCD              12.47                   12.56                       -   0.7%
 YY              43.99                   45.88                       -   4.3%
 CSCO              32.42                   32.82                       -   1.2%
 KLAC              95.33                   98.37                       -   3.2%
 RGR              56.85                   56.30                       -   -1.0%
 GILD              66.51                   65.93                       -   -0.9%
 CBI              28.94                   29.95                       -   3.5%
 GNC                7.30                     8.24                       -   12.9%
 WNC              19.74                   19.72                       -   -0.1%
 Average  2.8%

Wow, it was a very good week. GNC and RHI had good earnings.  Then ATHM for some reason went up a lot (as did YY). Perhaps the risk of a war with North Korea diminished.  Here are my tranches:


5/6/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 BRCD  $7.97 $12.56 $0.17 59.7% 17.6%
 CBI  $37.82 $29.95 $0.28 -20.1% 17.6%
 HSII  $18.51 $26.15 $0.39 43.4% 17.6%
 RHI  $38.51 $47.18 $0.90 24.9% 17.6%
 UTHR  $107.99 $120.98 $0.00 12.0% 17.6%
 Totals  24.0% 17.6%
8/15/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 CSCO  $31.20 $32.82 $0.26 6.0% 9.2%
 GNC  $19.79 $8.24 $0.38 -56.4% 9.2%
 VLO  $54.73 $65.23 $1.30 21.6% 9.2%
 MSGN  $16.68 $24.40 $0.00 46.3% 9.2%
 GILD  $79.33 $65.93 $1.46 -15.1% 9.2%
 Totals  0.5% 9.2%
11/15/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 MPAA  $26.55 $29.47 $0.00 11.0% 9.1%
 ATHM  $22.61 $32.40 $0.00 43.3% 9.1%
 AMGN  $145.14 $160.41 $1.00 11.2% 9.1%
 RHI  $43.23 $47.18 $0.46 10.2% 9.1%
 CA  $31.11 $31.93 $0.26 3.5% 9.1%
 Totals  15.8% 9.1%
2/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 AKRX  $19.10 $32.91 $0.00 72.3% 3.3%
 YY  $41.08 $45.88 $0.00 11.7% 3.3%
 KLAC  $85.11 $98.37 $0.54 16.2% 3.3%
 WNC  $17.65 $19.72 $0.06 12.1% 3.3%
 RGR  $52.75 $56.30 $0.44 7.6% 3.3%
 Totals  24.0% 3.3%

Wow, my February picks are scorching.  Up 24% in 2+ months.  November was strong as well. Nice to have some successes.


 Category/Tranche   August   November   February   May   Total 
 Initial Investment         25,000          25,000       25,000        25,000         100,000
 Current Tranche  0.5% 15.8% 24.0% 24.0% 16.2%
 Previous Tranche  2.8% 8.0% 10.7% -25.2% -3.3%
 Tranche -2  11.2% 69.4% -14.3% 18.3% 21.2%
 Tranche -3  41.4% 14.2% 8.5% 33.0% 24.3%
 Tranche -4  14.1% 43.7% 78.3% 0.0% 34.0%
 MFI Overall Gain  85.3% 248.1% 127.5% 45.8% 126.7%
 Current Balance         46,330          87,024       56,870        36,446         226,670
 R3K Current Tranche  9.2% 9.1% 3.3% 17.6% 9.8%
 R3K Overall Gain  82.5% 85.9% 67.1% 56.4% 69.1%
 R3K Balance         41,779          46,465       41,785        39,091         169,120
 Annualized IRR  14.1% 32.5% 21.5% 10.0% 19.5%

One might recall that IRR dropped below 19% last week. Back up to 19.5%. Sweet.  The May tranche will hit anniversary very soon. It feels tougher and tougher to find stocks that will do well.

MFI Formula

These are stocks picked by formula rather than my selecting. Formula is based on my backtesting - stocks have to have yield of 2.4% or greater and be in upper 2/3 in market cap.  I then randomly select 5 names.  I did start a new tranche on April 1st.

Same tables:

 Date   Differential   Value   R3K Value 
10/1/2014 0.00%        100,000            100,000
11/1/2014 1.63%        102,288            100,658
12/1/2014 0.30%        101,375            101,075
1/1/2015 -0.33%        100,664            100,995
2/1/2015 1.67%        101,281              99,611
3/1/2015 3.62%        106,073            102,454
4/1/2015 5.09%        106,781            101,695
5/1/2015 5.78%        107,859            102,077
6/1/2015 5.08%        108,213            103,134
7/1/2015 4.82%        106,423            101,604
8/1/2015 3.71%        107,112            103,404
9/1/2015 4.38%        101,523              97,139
10/1/2015 6.39%        100,703              94,312
11/1/2015 2.93%        104,835            101,907
12/1/2015 -3.48%          99,443            102,926
1/1/2016 -3.36%          96,830            100,012
2/1/2016 -0.72%          93,797              94,367
3/1/2016 4.07%          98,588              94,367
4/1/2016 0.34%        102,371            101,548
5/1/2016 -1.91%          99,774            101,200
6/1/2016 -0.42%        103,145            103,568
7/1/2016 -0.19%        103,022            103,216
8/1/2016 2.56%        109,419            106,857
9/1/2016 -0.34%        106,704            107,048
10/1/2016 -0.85%        106,377            107,230
11/1/2016 0.42%        105,421            105,003
12/1/2016 1.62%        110,705            109,088
1/1/2017 1.57%        113,406            111,832
2/1/2017 1.32%        114,809            113,486
3/1/2017 -5.09%        112,930            118,024
4/1/2017 -1.86%        116,227            118,091
Current -0.20%        117,381            117,585

After 2 1/2 years a virtual dead heat. 20 basis point difference.

 Stock   Last Week   Current   Dividend   Change 
 CPLA              84.85                   89.35                       -   5.3%
 GILD              66.51                   65.93                       -   -0.9%
 SYNT              17.37                   17.21                       -   -0.9%
 CSCO              32.42                   32.82                       -   1.2%
 TGNA              25.21                   25.83                       -   2.5%
 HPQ              18.20                   18.29                       -   0.5%
 CA              31.65                   31.93                       -   0.9%
 PBI              12.91                   13.11                       -   1.5%
 OMC              84.46                   83.25                       -   -1.4%
 BKE              17.90                   18.80                       -   5.0%
 LDOS              50.64                   52.21                       -   3.1%
 ILG              21.32                   23.07                       -   8.2%
 VIAB              43.77                   43.10                       -   -1.5%
 HRB              23.50                   23.08                       -   -1.8%
 GME              22.38                   23.19 3.6%
 Average  1.7%

SYNT had earnings last week.  The stock price was all over the place, but you can't see it in the weekly table. ILG has been just a great pick, as has CPLA.


7/1/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 ILG  $16.76 $23.07 $0.39 40.0% 13.0%
 VIAB  $44.00 $43.10 $0.60 -0.7% 13.0%
 CPLA  $53.22 $89.35 $1.21 70.2% 13.0%
 HRB  $23.62 $23.08 $0.66 0.5% 13.0%
 PBI  $17.69 $13.11 $0.56 -22.7% 13.0%
 Totals  17.5% 13.0%
10/3/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 CPLA  $58.15 $89.35 $0.82 55.1% 10.0%
 LDOS  $43.01 $52.21 $0.00 21.4% 10.0%
 GME  $27.70 $23.19 $0.75 -13.6% 10.0%
 PBI  $18.15 $13.11 $0.38 -25.7% 10.0%
 CSCO  $31.72 $32.82 $0.81 6.0% 10.0%
 Totals  8.6% 10.0%
12/30/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 GILD  $71.69 $65.93 $0.52 -7.3% 5.1%
 HPQ  $15.00 $18.29 $0.13 22.8% 5.1%
 TGNA  $21.33 $25.83 $0.14 21.8% 5.1%
 CA  $31.99 $31.93 $0.26 0.6% 5.1%
 SYNT  $19.79 $17.21 $0.00 -13.0% 5.1%
 Totals  5.0% 5.1%
4/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 BKE  $18.25 $18.80 $0.25 4.4% -0.4%
 CSCO  $33.91 $32.82 $0.29 -2.4% -0.4%
 GILD  $67.87 $65.93 $0.00 -2.9% -0.4%
 OMC  $86.24 $83.25 $0.00 -3.5% -0.4%
 SYNT  $16.80 $17.21 $0.00 2.4% -0.4%
 Totals  -0.4% -0.4%

You can see April 1st has bounced back. It was a little shaky out of the gate.  OMC also reported this week and sold off 2 or 3 percent.

 Category/Tranche   October   January   April   July   Total 
 Initial Investment      249,820        249,939     250,180      249,728         999,667
 Current Tranche  8.6% 5.0% -0.4% 17.5% 6.6%
 Previous Tranche  5.5% 9.3% 25.2% -12.5% 7.2%
 Tranche -2  0.5% 11.0% -0.2%                -   2.8%
 MFI Overall Gain  15.1% 27.3% 24.4% 2.8% 17.4%
 Current Balance      287,656        318,228     311,190      256,731      1,173,806
 R3K Current Tranche  10.0% 5.1% -0.4% 13.0% 6.9%
 R3K Overall Gain  24.2% 17.4% 16.2% 12.7% 17.6%
 R3K Balance      310,275        293,519     290,692      281,366      1,175,852
 Annualized IRR  5.7% 11.0% 11.2% 1.5% 7.3%

Ok, I am not getting rich, but no disaster either.


Dividends/Miscellaneous

I did add this week to my TGONF.  This is like a closed end fund that pays a 5.6% dividend and trades at 35% under NAV.  The ultimate steady eddie.  My miscellaneous did better this week.  I had a pretty big position in AUPH that did very well and when it spiked yesterday morning I sold some calls to lock in some gains. I also had a parallel GNC position here and I sold at $9.30 on the post earnings short squeeze. So I actually did a few things right.  My gold plays have been great for the year (up 44%) but have struggled recently.  Funny, I would have sworn BAC warrants were down for the week (closed at $10.54) but that was actually up 3%.  Finally, I did keep my TIME stocks from 4/1/16 tranche in off chance a deal happened (and I had sold some calls that expired on Friday). Not much seems to have happened - I will sell my TIME early next week.

Have a great weekend.