Splash of Cold Water

Always good to read opposing views. I found this article in Barron's that suggests that MFI isn't quite as good as JG claims. (Barron's Article)

The good news is that the article does admit that they think MFI will outperform the market. And in reality isn't that all we (the small investors) can really ask for? The article also discusses the difficulty in replicating and back-testing the model as JG certainly doesn't place all his cards on the table in his book. Finally, the article questions whether the formula was tested on enough data to draw the conclusions drawn. Good stuff. As investors we should never get complacent.

JG in his book discusses a 71 variable model by Robert Haugen. Here is a link to his model:
http://www.quantitativeinvestment.com/

A cool feature of this site is that you can enter your portfolio and Haugen's formula wll predict (based on his model) whether you will out-perform the S&P 500. Good stuff again. I will try it today and try and post my findings. One key point is that Haugen just used the 1000 largest stocks in his reviews. It is pretty clear reading JG's book that the smaller stocks was where the small investor gets the bang for his/her buck. Onwards!

Hmmm, I did try to enter my portfolio, but I received an error message that their database was full or something like that. Perhaps I'll try again tomorrow (hey "tomorrow" sounds like a great theme) as I now has a csv file of my portfolio set up per their instructions.

Well, the day has ended and it was another bloodbath for me. Down 2.5%, I am "trouncing" the indices, but in the wrong way. Funny, it doesn't "seem" less risky. Let me quote from the book:

"In short, the magic formula achieved better results with less risk than the market averages."

Mr. Greenblatt also comments than in his test that the MF never lost money over any three year tretch. There also has to be an exception to make a rule!

Late evening update on my portfolio. If we assume $10,000 per stock, I am now about 20K in the hole versus 11K. Pretty soon we'll be turning the corner on this correction. I am considering adding another MFI stock to help me on the way back up.

Stock	Cost	Current	Gain
NCOG	$19.39	$27.05	39.5%
UST	$39.36	$45.03	15.8%
MGLN	$38.34	$42.46	10.7%
PGI	$7.71	$7.79	1.0%
CHKE	$37.55	$36.96	0.0%
PNCL	$6.68	$6.66	-0.3%
NSS	$45.89	$44.55	-2.9%
PCU	$78.13	$72.77	-3.3%
PTEN	$27.74	$26.32	-5.0%
ELX	$17.85	$16.91	-5.3%
KG	$17.60	$16.19	-8.0%
IVII	$10.93	$10.04	-8.1%
MSTR	$94.36	$86.60	-8.2%
ANF	$61.13	$55.87	-8.3%
PACR	$32.53	$29.55	-8.7%
MTEX	$13.11	$11.96	-8.8%
OVTI	$28.50	$25.56	-10.3%
FDG	$34.90	$31.20	-10.6%
FTO	$57.52	$50.14	-12.8%
PONR	$32.97	$28.02	-15.0%
ORCT	$12.17	$10.26	-15.7%
DLX	$26.36	$21.36	-17.5%
TGIS	$10.65	$8.66	-18.7%
TBL	$34.50	$27.08	-21.5%
RAIL	$60.94	$47.40	-22.2%
PTSC	$1.39	$1.01	-27.3%
HW	$37.42	$24.83	-33.6%
Total Gain/Loss			-$20,669
Benchmark Gain/Loss			-$11,243
Annual IRR			-46.7%