Dichotomy

Anyone following MFI has to be struck by the dichotomy of the market recently. Examples are all over the place. Since I started the stock picking contest on the 1st of July, the median MFI portfolio is down 8.66%. Meanwhile, the broader indices are down 3.46%. That is a big differential in a month + a few days. JG told us that the MFI approach would under-perform 5 months out of 12. But I am surprised it is by 5 points.

Today was an extreme example. The broader indices were up about 1.7%. The median in my contest was down 0.16%. That is a humongous differential for a single day. It would be an interesting phenomenon if I was an uninterested observer. I expect it is being caused by several things (today at least).

1. There does seem to be a general flight to quality, meaning larger cap stocks.
2. I suspect financials out-performed today and they are not within MFI.
3. I suspect many MFI stocks were buyout candidates due to their financials and had gotten a premium (hoping they'd be bought out). With the credit market in turmoil, buyouts are on hold for the time being, thus the premium is being stripped away.

I suspect these are short-term changes. If you are not in MFI, this would likely be a wonderful time to jump in as the stocks have been beaten down unmercifully (and unfairly in my mind). The exact thing happened last June/July.

I did get some good news on several stocks:

THO - Announced solid sales, a great backlog and a "one time" special dividend of $2 (Thor Announces Record High Backlog, Cash at $345 Million; Sales for Quarter, Year; Declares $2.00 per Share Special Cash Dividend). I put the one time in quotes as they did this last year. This plethora of good news caused the stock to spike 7%. The news was released at 12:23, but if you were watching the newswires closely, you could have made some "fast money".

ASEI - announced their earnings after the bell. They were nothing short of outstanding (American Science and Engineering, Inc. Reports First Quarter Fiscal Year 2008 Results). This is a real feast or famine stock. They are now paying a 20 cent quarterly dividend as well. I had forgotten that. The stock is up 9% AH. That means I am up 40% on these guys as their one year draws to a close in September.

PACR - was upgraded by Bear Stearns (Pacer Intl upgraded by Bear Stearns). I guess they had fallen so far that someone had to admit they were a pretty good value.

Outside of MFI, Cramer is making people's head spin on TMA. I posted one headline where he said they were good to buy as they only sold mortgages to the rich (You Ask, Cramer Answers). That was July 31st.

Then on August 1st, an entire day later here is what he said: (Jim Cramer's Stop Trading! Sell Thornburg).

Today he sung from a different hymnal (Jim Cramer's Stop Trading! Don't Short Thornburg). As you might gather, I own TMA and yes, I am confused.

I do wonder, deep inside of me whether Cramer gets some information and tries to help the little guy. He was right, on July 31st, one should have sold TMA and yes, one then should have not shorted or even bought TMA this morning. I wonder whether he knew some big player was about to unwind their position on the 31st and tried to warn people ahead of time? Pure supposition, but it is uncanny how it has worked out. Here is the 5 day chart for TMA:



It was huge volume on the 1st, suggesting a big player could have been unwinding a position. Of course, I have held through the whole ordeal. Hmmm.