I don't know, I have now fallen more than 7% behind the benchmark. That is getting pretty frustrating. I know we're supposed to give it at least 3 years. I am now 20 months into the expirement. I will stay the course, but no more new money. I looked the other day and I was basically flat YTD in MFI and up 22% in my non-MFI portfolio.
Does everyone believe it works? Are we just seeing a bad stretch? Or is the fact that the book was written make it less likely to work? Or was the book not based on enough data?
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Marsh, when you say 20 months in, how long did it take you to fully invest in your position? I.e., did you invest in 5 stocks every 2 months, taking you almost an entire year to get the whole 30 stocks, or was it something different? Reason I ask is that, if it took you a year to get 30 stocks, then realistically, the portfolio has only been going for 8 months, and not 20, right? At least, comparing it to the MFI backtest of a 30 stock portfolio, that is.
Not sure whether the sale of the book makes the system less likely to work, but this may be why people will not stick with it. As an aside, what's your strategy for investing in the other part of your portfolio? Value-investing following anyone in particular?
I have been investing with the MFI system since March 2006, so 20 months as well. I have been using Iccara to track and my return is 20% and I am beating the S&P by over 7%. I pick stocks totally randomly. Zero research. I figure that my biases will hurt my returns because I will end up with "safer" picks. I follow your blog and I wonder if your analysis hurts your returns.
I don't know whether the analysis hurts, but my tracking portfolios in total are also lagging the benchmark by about a point. So I think we can state that overall it has been a bad stretch.
My non MFI portfolio is invested in Intl stocks from Vivian Lewis newsletter, insurance stocks and banking/utility stocks.
I know my 20 months has not been long enough. That is why I am not quitting. But I am not as enthusiastic either and will funnel new money elsewhere.
I have been using MFI for 15 months and I'm just barely lagging the S&P500, but when you take into consideration the tax impact of MFI versus buying and holding an index fund, MFI has performed even worse.
I'm not sure if it works. Ken Fisher, who I'm a huge fan, discovered Price/Sales in the 70's or 80's as a very effective way to outperform the market, but he says that the market eventually caught on and it got priced into the market and eventually was no longer effective. I think the exact same thing could easily happen to Greenblatt's earnings yield / ROWC filter. It may already have.
Even though it is a ranking system (Fisher's P/S approach was also a ranking system), all that has to happen to make the system a lot less effective is to prevent the stocks it identifies from hitting a much lower bottom. MFI could easily lose 50% of its return if this happened. I think this is a real possibility for small caps, the bread and butter of MFI, since all it would take is one or two hedge funds making $10 million bets, which is peanuts for most hedge funds.
But in MFI's defense, the past 12 months has been a pretty rotten investing period for both value and small caps. Ironically, I believe that MFI's only chance of really working long term is if the first several years of MFI returns after Greenblatt's book was published are lousy. Otherwise, everybody will be using it.
I started in Feb '06, buying one MFI stock about every 12 calendar days to get to 30 in a year. No new money since I had 30 positions in Feb '07, just effectively recycling the money from sales into new MFI positions. I calculated yesterday my avg position is up about 7 %, vs 9 % for VTI, had I bought/sold VTI on the same day as each MFI purchase/sale.
I just used the MFI top 25 list for 100 mkt cap and above, and went in 1-25-2-24-3-23... order, no further analysis.
I'm going to stay with it for a while longer but I am not too hopeful.
Random thoughts...
the system is too prone to catching stocks at peak earnings
the system is prone to catching accounting oddities
were it not for about 6 big winners in approx 50 total holdings, results would be horrible
we may just be going through just one of those periods when it doesn't work so well
small and value stocks have done poorly this year
I am sick of the dogs this thing buys. Sure doesn't seem to catch too many wonderful businesses
may be a data-mining system that will never repeat
it represents about 6 % of my invested funds so I can deal with whatever happens
it was good until this summer, at one point my sold after a year positions were up avg 28 % vs avg 14 % VTI
open positions stink out loud
Good luck
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