Tuesday, March 03, 2015

VEC As In Wreck

VEC isn't actually a wreck. I will let my readers figure out the title derivation. That being said, I looked at VEC off me today. I was stunned to see that on an absolute dollar basis it is #3 all time for me in the profit I have made from the stock. Now before we get all excited, GNW and GTAT at one point were #1 and #2 for me,  so if one still owns the stock, it is possible to give it back.

Part of it is that I did make an outsized bet on VEC on 10/20 when it dropped to $19.71.  I sold those shares a month later for a very quick and very sizable 30% profit. I guess I didn't really notice it as everything else was crashing and burning around me in the fourth quarter (shudder).

Then I rebought it at the start of the year at $25 and moved into my MFI portfolio 2/1.  So it is up another 35% for me.  VEC is an interesting stock that made both Greenblatt lists, spinoff and MFI.

I am sitting on the most cash (in absolute terms) in my investing "career". A bunch of it is earmarked for my next two MFI Formula tranches. The rest will be used to either


  1. Pay down mortgage
  2. Stay in cash
  3. Bonds/income stocks as I try my retirement glide or
  4. Something altogether new (perhaps a big cap MFI tranche). 
Exciting times indeed. 

Warren Buffett Bet

I was reading yesterday about the famous Warren Buffett bet.  This was a $1 million bet between Buffett and Ted Seides, a hedge fund manager. It was made in 2008 and Buffett wagered that a simple S&P index fund would outperform, over a ten year period, a portfolio of hedge funds.

Even with a 40% drop in the index the first year, it is a stomp. Buffett's approach is up 63% versus a paltry 20% for the hedge funds. A big part of the differential is fees. Hedge funds have a lot more frictional costs than a simple index. The hedge funds, x fees are up 44%. So still trailing.

Now for the irony. The bet was for $1 million. It seems the $1 million was put aside at the very beginning and was earmarked for the charity Girls Incorporated of Omaha.  There was discussion at the outset what to do with the $1 million. It was decided to put into into zero coupon treasury bonds. Even they have beaten the hedge funds!  The $1 million is now worth $1.5 million (I do think they recently took out of zero coupons).

You hear buy and hold is dead. You see people frantically trading and wonder if you would do better. But it appears that my comment, "Step Away from the Batter" does hold true. Just as you can stir pancake batter too much and make the pancakes tougher (appropriate today as it is National Pancake Day), you can also trade too much and be your own worst enemy.

Monday, March 02, 2015

Looking Ahead to Next Formula Tranche

well, my first two Formula MFI tranches are off to exceedingly solid starts, each beating benchmarks by eight points or so. And now it is time to start the countdown to my third tranche, which I intend to buy on March 31st.

There is exceedingly little to think about, that is why it is a formula. I am not supposed to think. If fact I am specifically expected not to think. There is really only one decision to make.

For those that have not memorized my formula approach it is:


  1. Start with the 50 stocks > $100 MFI screen. 
  2. Use Yahoo finance to determine the dividend yield on all fifty stocks. 
  3. Pick a subset of stocks greater than $600m market cap and with a 2.4% yield or larger. 
  4. From that subset, I can discard one stock. 
  5. Then I run a randomized and select randomly five stocks from the subset. I then buy and hold for one year. 

The keenest of my readers will note that step four is where I have discretion. Twice now, my discard has been PDLI as my understanding of this stock is that is has a royalty stream whose days are winding down.  The stock has fallen of late, so perhaps that is being priced in. I will need to investigate. The problem is that there are two other stocks that have a decent chance of being on the list but also not really being deserving of being on the list.  PPC and EGL are two stocks that I suspect will be there at the end of March. The issue is that both of them this quarter have paid an unusual, large "one time dividend". This is reflected in the stock prices, but is likely not reflected in that data MFI uses to determine whether a stock should be on the list. That is because the balance sheets are only updated once a quarter. 

So I will need to decide which of these three names is more egregious and strike from the list.  And if I then get one of the others, well it is supposed to be a simple formula, and I will just grin and bear it. 

Sunday, March 01, 2015

February 27th, 2015 Monthly Tracking Portfolio

For The Record

Here are stocks that qualify for dividend, new and dogs portfolios.

Stock  Initial Price   52 week low   Mkt Cap  Yield
BKE              50.30                41.96         2,433 7.3%
CA              32.52                25.25       14,254 3.1%
CLCT              22.77                17.53           202 5.8%
CSCO              29.51                21.27     150,708 2.6%
GME              36.97                31.69         4,041 3.6%
GORO                3.46                 2.70           187 3.5%
IQNT              14.75                10.06           494 4.1%
KING              15.79                10.68         5,084 2.9%
MSB              17.43                16.06           229 10.6%
MSFT              43.85                37.49     360,359 2.7%
PBI              23.17                21.15         4,657 3.2%
PDLI                6.98                 6.52         1,125 8.6%
PETS              15.39                12.07           312 4.4%
PPC              27.43                17.14         7,104 21.0%
RGR              51.96                33.60           974 3.1%
SPOK              18.59                12.93           403 2.7%
WILN                2.64                 2.62           317 6.2%


Stock Initial Price 52 week low Mkt Cap New
CLCT              22.77                17.53           202 1
ENTA              35.82                31.22           666 1
GILD            103.53                63.50     155,192 1
PPC              27.43                17.14         7,104 1
PSDV                4.40                 3.26           129 1
REX              54.36                46.77           435 1
SMT                1.27                 1.10           155 1

Stock Initial Price 52 week low Mkt Cap Dog Flag
RGR              51.96                33.60           974 1
PDLI                6.98                 6.52         1,125 1
NSR              26.52                23.82         1,461 1
LQDT                9.88                 7.32           296 1
APOL              27.65                23.30         2,996 1

February 28th, 2014 Monthly Tracking Portfolio

2/28/14 Monthly Tracking Portfolio

Another month has zipped by. As my faithful readers know, I have been tracking the Magic Formula Stocks as described by Joel Greenblatt in The Little Book That Beats the Stock Market since January 2006.  Every month I take the top 50 stocks over $100m market cap from his website and track how that portfolio of stocks fares versus the Russell 3000 for the next 12 months.  It has been an uphill struggle as the tracking portfolios have under-performed, driven in part by Chinese reverse merger fiascos, for-profit education stocks and home health care stocks all being proverbial albatrosses.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak.  I am pleased to report are now on a 3 month winning streak.  It was close, up 15.4% versus 13.9% for R3K. Here are the 50 stocks in descending performance order:

Stock  Initial Price   End Price   Percent Change   52 week low   Mkt Cap 
GTIV      10.71     19.19 79.2%      7.35           336
AAPL      73.78   128.46 74.1%     73.05     469,641
PRSC      26.59     46.00 73.0%     23.91           358
EBIX      15.98     26.28 64.5%     12.12           617
MO      34.60     56.29 62.7%     35.84       72,284
CRUS      19.25     30.11 56.4%     16.80         1,210
RAI      48.58     75.62 55.7%     50.54       27,349
QCOR      60.32     93.60 55.2%     47.71         3,653
BAH      19.70     29.76 51.1%     20.65         3,039
SAIC      36.36     54.68 50.4%     34.04         1,828
LO      47.14     68.42 45.1%     49.76       17,907
NOC    118.58   165.71 39.7%   116.11       26,336
CSCO      21.14     29.51 39.6%     21.27     113,164
CHE      83.90   116.48 38.8%     80.94         1,474
USNA      73.17   100.01 36.7%     63.22         1,014
DGX      51.89     70.14 35.2%     51.86         7,632
TTWO      19.77     26.49 34.0%     18.45         2,007
SPOK      14.21     18.59 30.8%     12.93           313
XLS      18.64     24.20 29.8%     14.86         3,869
STRA      47.77     60.87 27.4%     41.52           516
ATVI      19.17     23.32 21.6%     17.73       13,448
KRFT      52.84     64.06 21.2%     53.33       32,988
DHX        7.36      8.76 19.0%      6.73           402
BKE      42.32     50.30 18.9%     41.96         2,193
HPQ      29.35     34.84 18.7%     28.75       56,372
SWHC      11.50     13.53 17.7%      9.03           643
MSFT      37.30     43.85 17.6%     37.49     317,973
PETS      13.14     15.39 17.1%     12.07           279
AGX      27.97     32.43 15.9%     26.09           406
EGL      41.73     47.50 14.4%     30.22           719
RTN      95.57   108.77 13.8%     89.17       30,842
IQNT      13.43     14.75 9.8%     10.06           450
SNDK      73.34     79.93 9.0%     73.03       16,736
GME      36.11     36.97 2.4%     31.69         4,335
CA      32.40     32.52 0.4%     25.25       14,846
NATR      13.27     13.05 -1.7%     12.66           245
MYGN      36.21     34.07 -5.9%     31.56         3,012
COH      47.17     43.55 -7.7%     32.72       13,547
APEI      35.42     32.40 -8.5%     26.24           623
RPXC      16.02     14.58 -9.0%     11.94           875
PDLI        8.01      6.98 -12.9%      6.52         1,453
RGR      61.94     51.96 -16.1%     33.60         1,233
APOL      33.33     27.65 -17.0%     23.30         3,756
NSR      35.82     26.52 -26.0%     23.82         2,185
SPRT        2.51      1.71 -31.9%      1.63           147
PFMT        7.91      5.25 -33.6%      3.65           382
HLF      66.60     31.01 -53.4%     27.60         6,733
LQDT      25.62      9.88 -61.4%      7.32           825
PTIE        5.65      1.90 -66.4%      1.61           257
ESI      31.03      7.40 -76.2%      3.66           725

I did find another site that has been tracking since 2006 this week.  It uses a different approach, just 5 stocks picked randomly every quarter. They have had better results than me (TrackJGreenblatt's Stock Picks). I found it very interesting and would encourage people to take a looksee.

Here is a listing of every portfolio I have tracked:

Date MFI R3K Lead
1/6/2006 16.0% 10.9% 1
2/17/2006 21.2% 14.6% 1
3/29/2006 13.0% 9.6% 1
4/7/2006 10.3% 12.1% 0
5/12/2006 20.4% 18.6% 1
5/31/2006 29.2% 23.3% 1
6/30/2006 22.4% 20.0% 1
7/31/2006 19.7% 17.3% 1
8/31/2006 13.0% 13.3% 0
9/28/2006 12.7% 14.6% 0
10/27/2006 10.3% 12.0% 0
11/29/2006 -0.3% 4.8% 0
12/28/2006 -6.9% 3.4% 0
1/26/2007 -10.2% -6.6% 0
2/27/2007 -3.7% -1.0% 0
3/26/2007 -9.8% -5.5% 0
4/27/2007 -10.9% -5.0% 0
5/29/2007 -11.5% -6.3% 0
7/3/2007 -30.0% -15.6% 0
7/30/2007 -19.9% -11.5% 0
8/30/2007 -12.5% -8.7% 0
9/27/2007 -19.0% -18.2% 0
11/2/2007 -40.4% -34.3% 0
11/28/2007 -40.1% -38.3% 0
12/28/2007 -36.3% -40.0% 1
1/25/2008 -36.4% -35.9% 0
2/26/2008 -51.7% -41.5% 0
3/24/2008 -40.9% -36.8% 0
4/25/2008 -25.6% -31.0% 1
5/28/2008 -22.2% -33.6% 1
7/2/2008 -11.7% -25.3% 1
7/29/2008 -10.5% -20.9% 1
8/29/2008 -13.8% -17.9% 1
9/26/2008 -4.3% -10.0% 1
10/31/2008 18.7% 13.9% 1
11/26/2008 50.9% 27.7% 1
12/26/2008 48.9% 32.3% 1
1/23/2009 59.3% 36.4% 1
2/27/2009 92.8% 55.6% 1
3/27/2009 85.8% 48.1% 1
4/24/2009 69.7% 45.8% 1
5/29/2009 31.8% 22.8% 1
6/29/2009 21.3% 24.0% 0
7/29/2009 19.5% 15.9% 1
8/28/2009 7.4% 8.8% 0
9/25/2009 12.6% 12.4% 1
10/30/2009 22.7% 18.3% 1
11/27/2009 24.3% 13.6% 1
12/31/2009 23.7% 18.1% 1
1/22/2010 19.0% 20.6% 0
2/26/2010 18.6% 23.6% 0
3/25/2010 10.0% 15.4% 0
4/23/2010 7.1% 11.4% 0
5/28/2010 19.3% 25.4% 0
6/29/2010 16.7% 25.7% 0
7/29/2010 5.4% 20.1% 0
9/2/2010 7.3% 10.1% 0
9/24/2010 -4.3% 0.3% 0
10/29/2010 -2.9% 10.4% 0
11/26/2010 -8.5% 1.4% 0
1/3/2011 -11.4% 0.1% 0
1/28/2011 -7.6% 4.9% 0
2/25/2011 -5.5% 5.0% 0
3/24/2011 -4.4% 7.4% 0
4/21/2011 -16.0% 3.2% 0
5/27/2011 -12.0% -0.4% 0
6/24/2011 -9.5% 5.0% 0
7/29/2011 -4.3% 8.1% 0
8/26/2011 12.0% 21.6% 0
9/30/2011 23.5% 29.6% 0
10/28/2011 0.4% 11.5% 0
11/25/2011 13.9% 24.0% 0
12/29/2011 9.9% 15.9% 0
1/27/2012 7.4% 16.6% 0
2/24/2012 7.8% 13.3% 0
3/23/2012 9.1% 15.2% 0
4/27/2012 10.5% 15.3% 0
5/25/2012 26.5% 27.5% 0
6/22/2012 26.1% 24.6% 1
7/27/2012 30.4% 25.7% 1
8/24/2012 26.0% 19.8% 1
9/28/2012 39.3% 22.1% 1
10/26/2012 48.3% 28.9% 1
11/23/2012 45.7% 32.1% 1
12/31/2012 52.3% 33.0% 1
1/25/2013 39.5% 22.0% 1
2/22/2013 46.5% 26.4% 1
3/28/2013 40.1% 21.2% 1
4/26/2013 35.0% 20.5% 1
5/24/2013 20.4% 19.2% 1
6/28/2013 26.9% 24.1% 1
7/29/2013 17.8% 19.0% 0
8/30/2013 17.5% 24.6% 0
9/27/2013 12.9% 17.7% 0
10/25/2013 11.8% 15.4% 0
11/29/2013 12.3% 15.6% 0
12/31/2013 12.7% 11.9% 1
1/31/2014 14.2% 13.0% 1
2/28/2014 15.4% 13.9% 1
3/28/2014 6.7% 14.4% 0
4/25/2014 5.2% 14.3% 0
5/30/2014 7.5% 10.8% 0
6/27/2014 2.1% 8.2% 0
7/25/2014 5.1% 7.7% 0
8/29/2014 5.4% 5.8% 0
9/26/2014 11.7% 7.4% 1
10/31/2014 9.2% 5.3% 1
11/28/2014 4.9% 2.7% 1
12/31/2014 2.5% 2.8% 0
1/30/2015 6.7% 5.6% 1
Average 10.1% 9.6% 0

You can see my three month winning streak is at risk as 3/28/14 is trailing big time. 

Subsets

I also have tracked 2 subsets of the larger portfolios:  (1) dividend stocks (those with a yield per Yahoo of at least 2.6%) and (2) new stocks (those new to the tracking portfolios in past 12 months.  I am going to try to add a third one today, which I call "dogs".  It is like the dogs of the Dow in that you take the worst five performing stocks from the prior year that renew or all those that dropped more that 29%. The dividend portfolio was solid, up about 18.9%.  The new portfolio was just ok, up 10.7%. Finally, I like to track cash as it is more "honest" than percentages as if you go up by 25% and then down by 25%, that is a different result than up by 5% then down by 5%.  So I track what you would have today if you had spread $100,000 over the first twelve portfolios evenly.

Category Value
Total     191,286
Total Russell 3K     197,634
New     201,075
Dogs     290,047
Dividend     458,148


The dogs approach is interesting.  I wrote about it some yesterday, though I expanded it here to be bottom 5 as with just the -30% criteria, I had significant stretches with just 0 or 1 stock (while other stretches, say the March 2009 portfolio had many).  The Dogs approach is more volatile. So only go that way if ye have a strong stomach.