Gone Fishing

Final post for a few days. Taking the family to New Hampshire and then Boston for the 4th of July. Hopefully all the rain will clear out. Still giddy from the big day yesterday. Maybe this MFI thing will work out.

I did watch some of the financial news this morning. I guess there was a key phrase removed from the Fed wording and that was the reason for the explosion upwards. With the MFI portfolio, I at least know what to do... nothing. With the rest of my portfolio... I am unsure. Jubak said to sell into rallies, he thinks the malaise will be with us throughout the summer. I will probably roll my 401K into cash today.

Here are some quotes from economists about the statement yesterday:

• "Both the structure and language of the statement are more dovish than in May and are perhaps surprising -- pleasantly -- in the light of the recent round of speeches from Fed officials."
• "We find ourselves in a tight spot. We have been arguing that the Fed will pause in August and, while one can find elements of this statement to support such a view, it seems clear to us that the data will have to shift to allow it."
• "Our view is that the Fed will stop hiking rates but there is still a burden on the economic data to indicate that recently high inflation readings were temporary. "
• "We judge this statement as consistent with the Fed moving the funds rate to 5.5% in the third quarter, however, we think the markets had gotten ahead of the Fed when they were pricing in a 86% probability of an August rate hike."

All this reminds me of the joke about economics. "Why was astrology invented? So that economics would be considered an accurate science."

MGLN - This has been one of my best performers, up about 17%. Magellan Healthcare just bought another company, but interestingly that caused their price to go up (Magellan Health Services to Acquire ICORE Healthcare). I do have a new nickname for Magellan - I'm Gellin' from those Dr Scholl's commercials.

Warning Waring Warning! The following section contains graphic violence!

Ouch. DLX crashed and burned today. It was chugging along kind of nicely today, up 2.5% when BAM! They announced all kinds of negative stuff (Deluxe Crashes and Burns):

1. They are abandoning a software project
2. They have performance shortfalls in each segment and
3. They have initiatives to improve cost structure.

The CEO also commented on impacts to corresponding cash flows. That can mean only one thing... a drop in their $1.60 dividend. Ouch.. again. DLX is now down almost 10%. It was strange, the announcement was at 2 pm rather than before or after market hours. If you had been on the ball and read this announcement quickly, you could have gotten out before the stampede for the exits began.

That means I have 3 stocks that have crashed and burned of my 28. HW and TBL also announced significant earning shortfalls. All three are down tons for me. DLX: -25%. HW: -32% and TBL: -22%. It does show that JG's approach of assuming that the past 12 month earnings is a good proxy for future is not without flaws. I will hold the stocks per the MFI approach, though I am sorely tempted to sell DLX as I expect it'll take another tumble when the dividend is axed. Wow, as I type, other people are figuring out the same thing and now DLX is down 17%. Heck, after that it'll probably still be on the MFI list.

In fact that raises an interesting point. If DLX is still on the list say at year end, would I be wise to continue to hold DLX? They do have a new CEO and he does seem to be taking some aggressive action. Perhaps it will be a turnaround play for those who are patient. Or should I sell now for the tax write off and buy back in 30+ days assuming it'll still be around? Not by the rules, but perhaps such a move makes sense... I do need some ST capital losses. Hmmm, no I says. I plays by the rules. For better or for worse. For richer or for (true in this case?) poorer. It is a shame as today was shaping up like such a good day, I was actually getting close to passing IWV.

Let us see what happened to HW & TBL post their C&B.

HW announced shortfall on May 18th. They dropped from $31.40 to $28.87. They are now at $25.54. Wow.
TBL announced shortfall on May 2nd. They fell from $34.56 to $30.82. They are now $27.09. Wow-wow.

There is precedent that it might be better to sell now. Hmmm. What do you think? Would you forgive me if I broke the rules?

Finally, here is weekly graph of my portfolio performance. Despite DLX, it was a nice week. Remember, the green line is my total investment (ie breakeven), blue is the benchmark IWV and magenta is my portfolio.

The Lady or the Tiger?

A neat story is the story of the Lady or the Tiger. I remember it as part of the broadway musical called "The Apple Tree" starring (believe it or not) Alan Alda (basically 3 stories of the battle of the sexes). In the story a princess is in love with a man. He beds her, but is caught by the king. The punishment is to go into an arena and choose between two doors. Behind one is a beautiful lady, who the man would get to marry. Behind the other is a tiger who will tear the man to shreds.

The twist is that the princess finds out which door has the lady and which door has the tiger. And she tells the man which door to open. But then he is uncertain whether to believe her as she is a very jealous woman. Perhaps she would rather him be killed than be with a beautiful woman. Good stuff, as I recall you never find out the answer. (The Lady or the Tiger?).

I feel like today we get to find out whether the lady or the tiger is behind our stock market door. The fed will announce what they are doing with the fed rate and more importantly give some indication on where it is going. I always feel that it is a little double-edged. If they signal that they are stopping the hikes, that really means that they feel that the economy is slowing which in of itself may have negative implications for stocks. But if they continue to raise, that hurts stocks for the reasons I gave yesterday.

I always find it fascinating to look at the minute by minute charts on fed day. Look for some roller coaster activity around 1:15. I once read an article on how the change gets communicated to the press and outside world as it is such a hot potato. Let me see if I can dig that up... no luck, I'll try more later. I do recall a few years ago it was very low tech. The memo was drafted and then there were like 10 fax machines and it got faxed on all of them simultaneously to various press outlets. Hold the presses! I found a blog that discusses it. Isn't the internet wonderful! This is a pretty cool posting that is amazing. The FOMC decision, which I sure either costs or makes various parties 100s of millions is subject to error and is very low tech, read all about it! (BLOG on FOMC Procedures and Snafu) .

Gadzooks! The day has just finished. The market was like a coiled spring, for you physics majors out there, that means there was a lot of potential energy stored. Let us see if I can get a graph:



My MFI stocks went up by a phenomenal 4.2%! The gap between MFI and IWV narrowed appreciably as IWV "just" went up 2.25%. Actually getting much closer to breaking even, now down just 1.8%. My big movers:

ORCT +16.2% (They had dropped too much... I believe that double comment will be true)
MTEX + 9.4%
CHKE +6.5%
FTO + 6.4%
OVTI +5.9%
HW, PACR, PCU, EZEN all right at 5%.

ANF was only stock in the red, down an inexplicable 0.5%. This was easily my best day of the year.

Back to my Lady and Tiger theme. I guess it was the lady. I have to admit that I read what the Fed said and I didn't really "get" it. It seemed like they said what has been said before, that future rate hikes are possible depending on the data. (FOMC statement). But I am not literate in Greenspeak, or whatever tongue they use. So I'll let Larry Kudlow explain it to me tonight.

Here is where my portfolio stands today (assuming $10,000 per stock):

Stock	Cost	Current	Gain
NCOG	$19.39	$27.05	39.5%
TGIS	$10.34	$12.67	23.7%
NSS	$45.89	$54.76	19.3%
MGLN	$38.34	$45.55	18.8%
UST	$39.36	$45.19	17.7%
PCU	$78.13	$88.97	17.4%
CHKE	$37.55	$41.49	12.1%
FTO	$28.76	$29.82	3.8%
PACR	$32.53	$33.31	3.3%
TRLG	$17.02	$17.33	1.8%
PNCL	$6.68	$6.77	1.3%
PGI	$7.71	$7.77	0.8%
MSTR	$94.36	$94.88	0.5%
PTEN	$27.74	$27.77	0.4%
EZEN	$2.84	$2.75	-3.0%
FDG	$34.03	$31.94	-3.5%
KG	$17.31	$16.57	-4.3%
RAIL	$58.18	$55.05	-5.4%
MTEX	$13.11	$12.14	-6.8%
ELX	$17.85	$16.21	-9.2%
ANF	$61.13	$54.92	-9.9%
ORCT	$11.83	$10.40	-12.1%
IVII	$10.93	$9.15	-16.3%
PONR	$32.97	$27.54	-16.5%
DLX	$26.36	$21.37	-17.4%
PTSC	$1.31	$1.03	-21.4%
TBL	$34.50	$27.09	-21.5%
OVTI	$27.79	$21.43	-22.9%
HW	$37.42	$25.30	-32.4%
Total Gain/Loss			-$5,308
Benchmark Gain/Loss			-$2,279
Annual IRR			-9.3%

Now I will just need to decide whether to heed Jubak's adcice on selling into rallies... this was certainly a king-sized rally. Have a good one!

Another Brick in the Wall

This graph pretty much says it all. We have had 16 consecutive 25 point rate hikes starting June 25th, 2003. Two straight years. And tomorrow, everyone expects another brick in the wall, #17.

I am no economist, but the increases hurt the market in so many ways. (1) people can now invest in T Bills with absolute safety at 5.25%. That deosn't seem so bad. (2) If one tries to value a stock by projecting their future earnings and cash flow, you now have to discount at a higher rate which lowers the net present value. (3) If businesses have to pay more to borrow money they are less likely to want to expand. (4) Finally, consumers have to pay higher rates on credit cards, borrowing for homes or cars etc. Most "experts" think this is the final hike... but if you rewind back to December 2005, they were saying the Fed would stop at 4.75%. So in reality no one really knows. Tomorrow, we should have a better clue.

Does it matter? Should we hold off on investing until we can forsee clear sailing? Jim Jubak does advise selling into rallies and being more into cash. He is a pretty bright guy (Jubak's View). I don't know. I don't want to sell my MFI portfolio, as I have a plan, a strategy. So that is off limits. I have sold some mutual funds and that is sitting in cash. Then I have the rest of my portfolio... I am hesistant to sell my winners in my brokerage account as I don't want to incur more taxes (I have plenty from Mutual Fund sales). I do have a few positions in IRA and work retirement (401K) that I could sell... hmmm. Maybe that is what I should do.

Weird day in the market. Can't say I understand it. The IWV was up 0.60% but my MFI was down by 0.27%. I can see why JG said you gotta believe and it is difficult to stick with the program. I have lost serious ground to the benchmark in June, I was 1.4% above it at the start of the month and now I am about 3% below it. This is real money we're talking about... none of this hypothetical nonsense. I can just imagine the pressure on mutual fund managers not to get too far below the benchmarks. I am smiling on the outside, but it is gut-wrenching on the inside just 3% below the benchmark.

My tech stocks continue to take a licking with ORCT down 3.6%, OVTI down 2.4% and IVII down 6.5%. Oh well, we'll catch up some other time (name where that lyric is from). It is probably best not to look every day (I can't help myself). Remember, "we don't need no thought control".

Lame Lehman

For like the past 100 years Lehman picks their 10 best stock ideas in the summer. Over time, their picks have generally done well. But check out the performance of their picks from the summer of 2005:

Symbol	Shrs	Price Paid	Trade	Gain
ALL	85	59.73	53.61	-520.20 $520.20	10.25%
AMAT	300	16.86	16.22	-192.00 $192.00	3.80%
BBBY	100	43.28	34.17	-910.99 $910.99	21.05%
DELL	130	39.57	23.84	-2,044.90 $2,044.90	39.75%
DJ	130	37.37	33.89	-452.39 $452.39	9.31%
FRE	80	65.64	57.29	-667.99 $667.99	12.72%
MSFT	200	25.15	22.82	-466.00 $466.00	9.26%
PFE	180	27.15	23.01	-745.20 $745.20	15.25%
PD	100	48.28	76.23	2,795.01 $2,795.01	57.89%
WMT	100	48.43	48.07	-36.00 $36.00	0.74%
Total (USD):	-	-	-	-3,240.66 $3,240.66	6.57%

Of their 10 picks, only one (PD) is in the green. I am sure the DOW and S&P 500 are up over the same period (actually, I show the S&P 500 is up 4.2%). Look at DELL, down almost 40%! Hard to believe. LEH has their experts from every area of research pick these stocks and they are known for good research. This is what they came up with... maybe they should try MFI this year! Now I remember, these are called their "10 Uncommon Values". Their new list should be coming out any day, always near the end of June. I will post it here and we'll track it and see if they can't improve a little bit.

Wait, wait, I found their picks for 2006 (Uncommon Values Portfolio for 2006):
ADP, COF, EXC, GLW, INTU, JNJ, OCR, PD, RGC and UTX. The picks were official June 20th. So I will begin my tracking as of that date. The 2005 picks ended up down 4.6% vs S&P up 2.6%. Where is a dart board when you need one?

Very little stock news for me this morning. FTO splits, hard to get excited about that. I will be curious to see if TGIS gets back in the nifty fifty with their 12% drop yesterday and whether that bumps the stock back up.

Hmmm, it is late in the day. TGIS does not appear to be on the list today. It did bounce back though (up 8%) despite a dreary day in the market. I am gaining ground on the benchmark indices, but it is a hollow victory when I lose ground on cash.

Stock Stories:

TRLG got some positive press from MF (Why This Stock Is a Winner) and was actually up 2%.
FTO split today and got an analyst upgrade (Frontier Oil upgraded by Friedman Billings) all good for +3.7%.
UST had an article run by MF discussing how dividend stocks do well. They have only run that story or some permutation of it 10,000 times, so I won't bore you with the link.

Rambling Thoughts - I heard where Google is going to enter Ebay's space. I am amazed that Google thinks they can do it all. I am unconvinced. Yes, they have a nice search engine. I do like Picasa. I hear their Gmail is nice. But Google Finance is so-so. Their willingless to download clones of Microsoft Office for free has actually already been done (openoffice). I think Ebay will beat them, that is tough turf to take. I wonder what is next? A Google Browser? I do see that Ebay was down 5% on the news.

Warning! Complaining Paragraph Ahead!

I re-visited the 5 stocks I added at the end of May, down an average of 14% in this carnage we call "June". The two "high fliers" are OVTI (-25%) and ORCT (-21%). Wow. You have to really work hard to drop that much in a month. ORCT just blows my mind. This stock was at $30 earlier this year. They did push back one order, but they still expect to earn between $0.68 & $1.20. Granted, that is a wide range... but $9.33 a share??? I may have to scrounge a few nickels from Mrs. Justadrone as that is a fire sale if I ever saw one. I will wager right now that ORCT doubles within the next 12 months. And don't get me started on OVTI. They are growing revenues at 20%, have their products in all the cool gadgets yet they're trading at under 12x next year's earnings? That is fine. I can wait. I knew OXY at $72 was cheap in October. I knew FMD was cheap at $27 in December. I knew PCU was cheap at $51 in October. Not to mention OMG at $13 in November (ok, you got me... I did mention it).
*********************************************************************************
Whew! That felt good. The stock market gets just so darned stupid from time-to-time, but I guess that is what gives us opportunities to do well. It just gets a little frustrating from time-to-time.

Final closing thought, I promise. I wonder if ORCT has dropped more because it is an Israeli stock and things are heating up there. CHKP is another MFI stock and is down sharply of late as is TEVA. Thoughts? Buying opportunity?

Hedge Fund of Hedge Funds

I think it was Charlie Munger of Berkshire who coined the phrase, "Hedge Fund of Hedge Funds". If a Hedge Fund is good, would not a Hedge Fund of Hedge Funds be better? Give me a break. I was watching Squawk box this morning and they were spouting some statistics:

• Over $1 Trillion in Hedge Funds
• Hedge Funds can account for 30% of trading volume
• Some Hedge Funds managers make $1b

You know what? I don't care. There is such a thing as too much gov't. If people want to give their money to a hedge fund manager, knowing that the manager is taking 20% of the profits and 1% of assets managed then I say, "let them". Now I do have a problem with the gov't bailing out a hedge fund if it gets in trouble. Markman (Why you'll feel the hedge funds' pain) and Jubak (Profit from short-sellers' problems ) have had some interesting things to say about Hedge Funds in the past. They have basically said that a number of the Hedge Funds trade using very similar approaches. With their computer-based trading, they cause momentum to over-react to the plus and negative sides. This is an opportunity for us, the small guys, if we are willing to buy and hold past the volatility. JG pretty much cuts to the chase (what a great phrase) in his book when he says:

"By law, most hedge funds can only accept investors who can afford to lose large amounts of money. But even if you qualify for this dubious honor, it's not clear that this is the smart way to go...

But most hedge funds charge huge fees - at least 1% of assets under management plus a 20% share of profits. No doubt attracted by the large fees, thousands of new hedge funds have been created in the past few years. Most will have no chance of justifying their fees. There just aren't that many great managers and your chances of finding one are quite slim."

Should be an interesting day in the markets today. Arcelor finally agreed to let MT buy them (I never thought I'd see this happen as the French don't like to see their companies sold). I always have a soft spot for Mittal as that is the single stock where I made the most money in the past 5 years getting a ten bagger. This merger will help boost other steel stocks, several of which are on MFI lists (NUE & CLF for instance). Then I saw PD was buying Inco. That along with the purchase of KMG on Friday shows that there is a bottom for the commodity stocks and we are very close to it.

The feel good story fo the weekend was Warren Buffett committing to donate $35b to the Bill & Melinda Gates Foundation. What a classy guy. I wonder what the foundation will do with all that money? I know they are big into education right now and that seems a worthwhile approach. I admire people who are charitable. At my church yesterday, they introduced about 40 people who have volunteered to travel to Romania with Habitat for Humanity. It makes me want to cry, what a wonderful gesture.

Ok, enough sentiment, back to MFI blog.

Tales of the Tapes

PTSC.OB - They announced today that they have licensed their patents to Epson (PTSC: Seiko Epson Agreement). PTSC did add some language to their boilerplate wording that perked my interest.

1. Seiko Epson is the third global leader to purchase an MMP license this month
2. "This not only confirms that our MMP licensing program is strong and gaining momentum, but it also adds to the continuing evidence of the strength of our jointly owned patent portfolio."
3. Latest reports from the licensing team indicate that now some 300 companies have been put on notice of likely infringement of one or more patents included in the MMP portfolio.
4. Remarkable level of success has produced advice from attorneys and independent accountants that licenses are no longer extraordinary events in the conduct of the company's business.
5. This means that the company finds itself in the difficult position of wanting to share the exciting details of license revenues at the time the licenses are announced, yet we are legally prevented from doing so.
6. Investors expecting to learn the dollar amounts of revenues received by Patriot Scientific in connection with recent and future licenses will find that such information will be available only as included in regular quarterly financial statements filed by Patriot with the SEC.
7. Based upon our positive business developments in calendar 2006, the Patriot Scientific Board of Directors is considering additional strategic moves intended to enhance the strength and profitability of the company for the benefit of our shareholders.
8. The revenue associated with the license agreements they have produced in the program thus far encourages our board and management team to continue to evaluate resources and further develop our dynamic business strategy to move the company forward with a look to considering related business opportunities in domestic and international markets and diversifying our revenue stream.

Perhaps I have rose-colored glasses, but I am seeing the glass as more than half-full for PTSC.

PCU is up over $4 today. I knew that the PD deal for N was a very positive signal on the fact that commodities had hit bottom.

TGIS is in a tight race for the worst performer on the Naz today. Absolutely no clue why that should be so. They did go up quickly and now dropping just as quickly. Not a stock for those with queasy stomachs. With them just upping their stock dividend, I believe that this is a buying opportunity.

Wow. It is the end of the day. Nice day for the market as a whole, but my MFI portfolio was essentially flat. TGIS was the lead baloon, dropping over 12%. Without that, I'd have been on par with the market (in early trading my MFI portfolio was up 1.2%). My non MFI stuff was up well over 1%, so in whole it was a nice day... actually my 5th straight winning day (stll down for the month of June, nothing to get excited about).

Final thought while I watch Cramer. He is lecturing on how people should do their research. I am glad he is making an effort, but I gotta believe that Cramer "dingleberries" are watching and listening to him so they don't have to do their homework. These are the people who bought Cliff Notes in college (do they still make those?).

In Greenblatt We Trust

Most people probably know "A Christmas Story", one of the funniest movies ever made. It is about a boy in Northern Indiana who wants a BB gun for Christmas. Fewer people probably know that "A Christmas Story" is actually an adaptation of a short story by Jean Sheperd from a book titled, "In God We Trust: All Others Pay Cash". A funny book if you get the time. Where am I going with this? Great question, I know you don't have all day. Of course you must have a little spare time, else you wouldn't be surfing the net reading my rambling blog... ok, ok.

One on-going debate about the magic formula investing site ( Magic Formula Investing) is whether JG looks out for our interests by weeding out a few companies that are truly bow-wows, otherwise known as "pigs with lipstick". He clearly says if you do it on your own that you need to toss out companies that have unusual earnings and to watch out for faulty data.

Now I do believe that JG is a good man. He didn't have to write the book. I don't think he wrote it for the royalties, but rather to give the little guy a hand. He is extremely successful and has been charitable with his money. That is nice, but does he have time to view the list and toss the pigs?

Can we put our trust in Greenblatt? Or do we need to be doing our own homework? As you might suspect, I have an opinion. I think JG has automated edits, but that he does not edit the list personally. If he did, I just don't believe WDLA would be on the listola. Why?

1. They are traded on the pink sheets and
   
2. I can't find financials beyond Sept 2005.

Maybe I am totally wrong (it would not be the 1st time). Perhaps WLDA is an up and coming 10 bagger. What do you think? Is JG looking out actively for our best interests?

Here is a quote from the book,

"now imagine deciding enough is enough. You're going to roll up your sleeves and investigate the companies you purchased and the outlook for the businesses you actually own. As we'll find out later. imagine your horror when you realize that if only you had investigated these companies for a few minutes before buying your shares, there is no way you would have touched many of them."

Actually, I have hit that point with MTEX. I googled them (yes, it is a verb) today and blech.

1. They are being sued for invasion of privacy (Mannatech Sued for Fraud)
2. Per this website, founders of MTEX have "questionable pasts". (Mannatech Reviewed)
3. This person calls MTEX a "scam" (Mannatech)
4. This link calls their studies "false". (MLM Survivors Homepage)

Hmm, I guess I need to re-read JG's quote in prior paragraph.

Okay, I am getting off my soapbox now. As always, I am interested in comments.

Justadrone... out! (of words).

To Tell the Truth

I about choked on my Chocolate Milk last night when a caller asked Cramer about RTP. He called it a great stock along with BHP, calling the two the "Whole Foods and something else" of the commodity companies. Wait a sec I thought... didn't Cramer just say one or two days ago that he didn't "like" BHP any more? I think he is going schizo. As they used to say in "To Tell the Truth", will the REAL Jim Cramer please stand up?

Today is the four month anniversary of my 1st MFI purchase. So far I am not obviously on the path to fame or fortune. Maybe my stocks just need to percolate for a little while, y'know let the cream rise to the top. Well as long as we're using food analogies, let us say that I have added the yeast and the bread is ready to rise.

Quick look at where I stand after Friday:

Stock	Cost	Current	Gain
NCOG	$19.39	$27.05	39.5%
TGIS	$10.34	$13.00	25.7%
UST	$39.36	$43.89	14.4%
MGLN	$38.34	$42.95	12.0%
NSS	$45.89	$50.63	10.3%
PGI	$7.71	$7.89	2.3%
PCU	$78.13	$76.87	1.9%
CHKE	$37.55	$37.40	1.2%
PNCL	$6.68	$6.69	0.1%
PACR	$32.53	$31.96	-0.8%
PTEN	$27.74	$27.31	-1.3%
EZEN	$2.84	$2.79	-1.6%
MSTR	$94.36	$92.85	-1.6%
TRLG	$17.02	$16.31	-4.2%
FTO	$57.52	$54.30	-5.6%
FDG	$34.03	$32.10	-5.7%
ANF	$61.13	$56.98	-6.5%
ELX	$17.85	$16.40	-8.1%
RAIL	$58.18	$53.26	-8.5%
KG	$17.31	$15.83	-8.5%
IVII	$10.93	$9.63	-11.3%
MTEX	$13.11	$11.32	-13.7%
ORCT	$11.83	$9.95	-15.9%
PONR	$32.97	$27.07	-17.9%
DLX	$26.36	$20.95	-19.0%
TBL	$34.50	$26.95	-21.9%
OVTI	$27.79	$21.63	-22.2%
PTSC	$1.31	$0.95	-27.5%
HW	$37.42	$24.87	-33.5%
Total Gain/Loss			-$14,174
Benchmark Gain/Loss			-$9,782
Annual IRR			-25.3%

Not a very pretty picture. But as they say in "Damn Yankees"

"You've gotta have....Heart! All you really need is heart!
When the odds are sayin' you'll never win, that's when the grin should start!
You've gotta have hope! Musn't sit around and mope.
Nuthin' half as bad as it may appear, wait'll next year and hope.
When your luck is battin' zero, get your chin up off the floor.
Mister, you can be a hero. You can open any door.
There's nothin' to it, but to do it. You've gotta have heart! Miles
and miles and miles of heart!
Oh, it's fine to be a genius of course! But
keep that ol' horse before the cart! First you've got to have heart!"

I know I have plenty of hope and heart! I "hope" you do as well.
Take care, have a nice weekend. If you like my blog, tell your friends.

Halfway Point

Well, it is almost the middle of the year. I can't complain, my overall portfolio is up 6.0% YTD. I was up as much as 19%, but I can't complain. I feel like complaining, but I won't complain. I did get some good news in my non MFI portfolio last night. CNX is being added to the S&P 500. Should be a nice 5% pop today (actually went up about 12%). CNX has been a solid performer, up 22% (now 37%) since I bought it just before I read about MFI on Febraury 12th.

Seems like there has been a lot of noise from the talking heads of finance lately.

• Will the Fed raise rates?
• Will the dollar weaken?
• Will there be inflation?
• Will there be a recession as predicted by inverted yield curve?
• What about the federal deficit?
• Will the democrats take congress?
• Does Bernanke know what he is doing?
• Did Marilyn Monroe really commit suicide or did JFK have her killed?
• Will you still need me, will you still feed me, when I'm 64?

What do you think? Does it matter? Should we worry? Listen to what the Oracle of Omaha has to say:

When asked about the recent stock market declines, Buffett said: "I find nothing frightening about it at all. If I own a good business, I don't really care whether the markets open tomorrow."

"I have no idea what business is going to do next month or next year," Buffett continued. "I don't think it's important whether you're confident about tomorrow or next week." Warren added that his confidence comes from taking a long-term view of the investment market and the economy.

"If the economy does well over a long period, markets will do well over a long period," he said. "In the short run, the market's a voting machine and sometimes people vote very unintelligently. In the long run, it's a weighing machine and the weight of business and how it does is what affects values over time."

Now don't you feel better? As Alfred E Newman says, "What Me Worry?" It might interest you to know that Buffett said that in 2002, but it really doesn't matter. The MFI approach is supposed to take us in the sweet spot Warren is talking about" "owning good businesses".

The week ended on an upbeat fashion for me. Overall I had a 4 day winning streak. I still trail the benchmark and cash, but the gap has narrowed. I saw where KMG was bought at a 40% premium today (Anadarko to buy Kerr-McGee). That is such a strong signal that some of these stocks have fallen too far and too fast. KMG was a MFI stock. I have noticed that MFI stocks seem to be bought more often than the average stock so far.

My best stocks of the week included:
FTO + 6.7%
NSS + 6.1%
TGIS +8.5%

The losers included:
PTSC -7.8%
ORCT -5.3%
OVTI -4.7%

The MFI approach is now a hold 'em approach. I have 28 stocks. At most for the rest of the year I'll buy 2, unless I sell one. I may add a little bit to a few as I did with seven earlier this month. But my investing will switch for a while to insurance companies and international banks and financial institutions as those are areas that MFI excludes.

Let us hope that I have picked a "good" 28. So far, to be honest, the jury is out on my stock selecting skills. A trusty dartboard would have beaten me.

Bringing Down the House

When we go to Las Vegas, everyone wants a system that gives them an edge. Sadly, we are not all MIT grads and do not all have such ability. That is why you see the lavish hotels there, built with the money left by gamblers.

It does not have to be that way with the stock market. Perhaps we can find a way to beat the house. MFI is my approach, but many want to see if there is a subset of MFI that will do even better.

Here is a hypothetical approach suggested in the Yahoo Groups board by vdicarmine. Start with a list of MFI stocks and then buy the ones a month later that are still on the list but have been beaten down the most. Interesting idea. I will try it with a hypothetical portfolio. I have 48 stock picks from June 1st. I will spilt in the 24 best and the 24 worst for the month so far. Then if the stock is still on the list, I will place it in a hypothetical portfolio and track for a year.

Not Very Smart Section
It is early still but when I went through my not so in-depth analysis to pick stocks near the end of May (5 stocks at the end: RAIL, OVTI, KG, ORCT & FDG) I have to say that I really sucked. It is still early, but here are some gut-wrenching stats:
(1) the entire universe of 50 MFI stocks since then: -3.2%
(2) the universe of 10 stocks I decided to pick from: -8.6%
(3) the 5 stocks I actually picked: -15.4%!!!!
(4) the benchmark: -2.4%

I am not sure that I could have done any worse. Humbling? You bet!

I think I have finally figured out how to get some graphics in my blog... while I am not proud of the graph below, I am proud of figuring out how to get it in... not bad for an old man. The horizontal axis represents time. The vertical axis is portfolio value. The green line represents my investment ($10,000 per stock, plus the few additions). The Blue line is the value of just investing in IWV. The magenta line is the value of my portfolio. In an ideal world, the magenta line would be above the green and the blue lines. Alas that it is not a perfect world. I will try and update this regularly along with my detailed tables.

Stock News

Crummy day in the market, though my MFI portfolio held up ok.

• TGIS continued its extraordinary run and has gone from $8.56 on the 14th to $12.70 today.
• MTEX paid a 8 cent dividend today!
• FDG announced a distribution at end of month of $1 Canadian. They did say some complicated stuff about taxes and withholdings. I hope I don't have to pay Canadian and US taxes on that dividend. Hmm, perhaps I need to consult my tax advisor.
• OVTI was bashed by Herb Greenberg today (Herb Greenberg OVTI Comments) . That offsets their praise from Markman a few weeks ago to some extent.
• HW - Motley Fool sounded like thy're tossing in the towel on HW (Headwaters in Need of a Bailout? - at Motley Fool). Man, this is one hated stock. Maybe that is a bullish sign!

Must Read! I just checked out what Cramer said on his show tonight. He interviewed the CEO of Trinity Industries. Check out what he said about railcars (good news for RAIL):

"Where are we in the capital equipment cycle for railcars? Cramer asked.

In the in railcar sector we see a replacement cycle that we're in the early stages of, said Wallace. We have more than 700,000 railcars that are 25 years old that are going to have to be replaced in the next 10 to 15 years."

Well, I believe I am done blogging for the day. I hope everyone has a great evening... all three of you who read this! (I keep waiting (and waiting) for the WSJ to pick this up).

Good Things Come in Small Packages

If you go back to the blog where I talk about Haugen, I mentioned that he did independently verify that MFI does outperform the indices. BUT he stated that the differential wasn't as great as JG inferred. I believe one difference is that Haugen ran his backtesting on just larger cap companies.

Below is the most recent MFI list of stocks $40m or greater:

Top 25 companies with a minimum market cap. of $40 million Companies are listed in alphabetical order
Name (in alphabetical order)	Ticker	Market Cap ($ Millions)	Pre Tax Earnings Yield	Pre Tax Return on Capital	Price From	Most Recent Quarter Data
Aduddell Industries Inc	ADDL	75.91	21%	> 100%	06/19	03/31
Alpine Group Inc	APNI	50.97	999%	> 100%	06/19	03/31
Bradley Pharmaceuticals Inc.	BDY	203.84	11%	> 100%	06/19	12/31
CallWave Inc	CALL	75.47	18%	75 - 100%	06/19	03/31
Deluxe Corp	DLX	1,063.49	13%	> 100%	06/19	03/31
EarthLink Inc	ELNK	1,086.80	17%	> 100%	06/19	03/31
Ezenia Inc	EZEN	41.97	11%	> 100%	06/19	03/31
Fording Canadian Coal Trust	FDG	4,774.56	16%	> 100%	06/19	03/31
FreightCar America Inc	RAIL	613.67	20%	> 100%	06/19	03/31
Intervideo Inc	IVII	123.39	27%	> 100%	06/19	03/31
King Pharmaceuticals Inc.	KG	3,882.42	17%	> 100%	06/19	03/31
Korn/Ferry International	KFY	819.90	12%	> 100%	06/19	04/30
Mannatech Inc	MTEX	299.01	18%	> 100%	06/19	03/31
NS Group Inc.	NSS	1,062.98	19%	75 - 100%	06/19	03/31
OmniVision Technologies Inc	OVTI	1,211.09	12%	> 100%	06/19	04/30
Orckit Communications Ltd	ORCT	152.29	13%	> 100%	06/19	03/31
PW Eagle Inc	PWEI	359.43	29%	75 - 100%	06/19	03/31
Patriot Scientific Corp	PTSC	356.32	19%	> 100%	06/19	02/28
Pinnacle Airlines Corp	PNCL	143.53	43%	> 100%	06/19	03/31
PortalPlayer Inc	PLAY	246.60	82%	> 100%	06/19	03/31
Syneron Medical Ltd	ELOS	474.69	13%	> 100%	06/19	03/31
United Online Inc	UNTD	715.64	14%	> 100%	06/19	03/31
Vaalco Energy Inc	EGY	432.04	17%	> 100%	06/19	03/31
ViroPharma Inc	VPHM	611.80	19%	> 100%	06/19	03/31
World Air Holdings Inc	WLDA	190.82	33%	> 100%	06/19	09/30

It is interesting that only 6 of the 25 have market caps over $1b. This MFI approach is truly a small/micro cap approach. Equally as interesting is that 16 of my 28 MFI stocks in my portfolio have market caps over $1b. Why is that? I think that the answer is that I am risk averse. I really struggle with myself to buy the small companies.

Looking at my returns, under $1b companies are at -2.3% while companies > $1b are at a depressing -7.0%. I haven't seen much market news this morning. I did laugh last night when Cramer said about BHP:

"The stock, which he owned for his charitable trust, is under tremendous pressure, Cramer said, adding that he's glad he sold it because he doesn't like it as much as he used to."

Is there a stock out there that he will like for a period longer than six months?

Keeping with my small package theme, I had to laugh as the MSN Strategy Lab kicked off a new challenge the other day. They invited Thomas Ko, an amateur who won the SquawkBox challenge, to compete. While the "professionals" picked an array of companies with their hypothetical $50,000, Mr. Ko lay down a $50,000 wager on a 10m small cap company (PFACP). Well, if you were to look at yesterday's big movers you'd see PFACP going from $4.25 to $5.90. Mr. Ko is already 12.7% in a single day. Nice. (I wasn't sure whether PFACP moved because he endorsed it or whether there was a real story... quick update: the stock rose another 27% today). Journal Entry: 6/20/2006

Tales of the Tape

TGIS (becoming my favorite stock) announced today that they are increasing their dividend by 50% from 5 cents a share per quarter to 7.5 cents. Some people go ho-hum about such things, but to me it signals that TGIS feels that their FCF is strong and growing.
TGIS Increases Dividend

CHKE was my big gainer today (up 4.2%) despite a weird MF article about them.
MF Calls CHKE Dividend Dangerous

Off Topic: I was bummed that my Mavericks lost to the Heat last night. Dwayne Wade was the difference, though the officials really give him the superstar calls (to be fair, Dirk gets his share as well). I suppose I will have to utter the call of the Brooklyn Dodgers, "wait 'til next year!".

How Do You Spell "Relief"?

M-F-I
Pretty clear looking at the action these past two days that this market will not be having any "relief" rallies any time soon. I don't try to "time" markets and I am not good at seeing the macro picture. But it seems to me that until Bernanke makes it clear that the rate hikes are over we will be trading sideways to moderately down. Bernanke has been taking a lot of grief lately, seems to me to be a little unfair. I think inflation, with emerging markets bidding up the prices of raw materials, is a real possibility. And then BB is also in charge of cleaning up the mess that Greenspan (The Maestro) made where he gave approval to the massive Bush tax cuts and increased Govt spending which have created an unwieldy deficit. Enough rambling about things I don't understand.

I have decided that I am going to take a good chunk of my investments in US financial institutions and move them abroad (India, Japan & Canada). I fully expect that after the tightening is complete that the US dollar will weaken against other currencies... so I'd rather be in foreign banks (MTU, IBN, RY).

My MFI stocks wandered upwards a little bit today.

• PGI had some good news (PGI New Stock Repurchase Program for up to 7 Million Shares) .
• IVII went up for no apparent reason except that it had perhaps been oversold.
• TGIS continued to move higher and has now become my "best" stock, up 16%.
• PACR paid a dividend

On the bad side, TBL continued to fall off the table, down another 3% and 24% to date. Please gentle reader, go out and buy some shoes, boots, anything.

HW dropped further proving that you have never dropped so much that you can't drop further. Good old HeadWind is now down 35%. Please write your congressman and tell him/her to begin subsidizing this poor company again. Where are my Utah voters when I need them?

Hey, I read Jubak's article today (Jubak's Article) and I was very happy to see him agreeing with me (well technically he isn't "agreeing" with me as I doubt he reads my blog, but rather we're on the same page). In his article about ideas for pessimists he talks about buying Berkshire Hathaway as people are too pessimistic about hurricanes and rates have gone up a ton. I think I said that about AXS. Then he says to buy MTU as they have cleaned up their balance sheet. Not exactly the reason I was going to buy them, but we're in the same book, if not on the same page! Footnote to my footnote: I just saw where Cramer gave a thumbs up to IBN. Of course Cramer and Jubak liked HW...

Of my 28 stocks, a mere 7 are in the black. Counting my gains on NCOG I am now 6.3% in the hole. Hmmm, where did I put those antiacid pills? Final two words... Go Mavericks!

Ezenia!

God Bless You! I added an exciting new stock today to my MFI portfolio. Ezenia! The name made me wonder how many companies have an exclamation point in their official name. Yahoo! immediately comes to mind. I think Yum! Brands is another. Let us see, how can I figure that out? Hmm, that is tough. Symbol look-ups don't seem to work. I'll have to come back to this question. Maybe I can use Ask.Com. Hmm, still no luck. I did find a PDF of the Russell 3000.

Ezenia! is easily the smallest cap company I have ever owned. A market cap just over $40m. I would have never, ever even known this company existed without MFI. But to be honest, I think this is where the opportunity lies to do well with MFI. Trust me, no one is following Ezenia!

Reading their profile it sounds like they help people/firms use the internet for video conferencing etc. Kind of made me think of WebEx. The neat thing is they are trading at 10x last year eps and they are growing 30% a year.

Another Blechhhh day on the market. I have created a snappy graph that tracks my (under)performance, but haven't been able to figure out how to upload it. So many riddles, so little time.

Justadrone Out!