Wednesday, February 28, 2007

Good Drug, Bad Drug

Unhappy Day. Not quite sure what happened. Perhaps it was regression to the mean. My MFI portfolio was basically flat today, despite the general market doing well. Actually, I was down significantly this a.m. as VPHM & PNCL were getting whacked. VPHM came back a bit, but PNCL stayed down, which hurts as it is my largest holding.

VPHM struggled as they reported earnings this morning (ViroPharma 4Q Net Income Falls). Sales for the 4th quarter were a bit disappointing. But they re-affirmed guidance for 2007, which is why I think the stock recovered. Not sure I understand the PNCL drop. Other airlines held up well. Volume wasn’t that heavy. They did not drop much the day before when they announced their earnings.

KG had their earnings today as well (must be pharmaceutical day). They were quite nice (King's Better Than Expected) and the stock was up 5%. KG is now up 8% and I think they have some more upside before a year is up at the end of May.

I did buy additional HW today and it is now back as an MFI stock for me. A new year begins! I also bought a boatload of PTEN. It has disappeared from the MFI lists, but I think that has to be a technical glitch. Their recent quarter close was quite good (better than the year-ago quarter that fell off) and they were easily on the list in January. So I am calling the purchase a sidecar purchase. That makes my sidecar OVTI, SHOO, PTEN & RAIL. It should be in for some excitement tomorrow as I think OVTI & SHOO report earnings. Hopefully, it is a "shoo-in"

Current Portfolio

Stock

Purchase Date

Cost

Current

Gain

PNCL

5/4/2006

$6.68

$17.95

168.7%

VPHM

9/11/2006

$11.79

$16.00

35.7%

PGI

4/7/2006

$7.71

$10.41

35.0%

ISNS

7/7/2006

$13.17

$17.60

33.6%

ANF

3/2/2006

$61.13

$78.16

28.7%

BBSI

9/6/2006

$19.56

$24.37

25.3%

CHKE

5/16/2006

$37.55

$43.80

23.8%

DLX

4/3/2006

$26.41

$30.92

21.4%

TGIS

5/1/2006

$10.34

$12.15

19.9%

MTEX

5/22/2006

$13.11

$14.84

15.0%

BLDR

9/18/2006

$15.91

$18.02

13.3%

ASEI

10/5/2006

$45.85

$51.16

11.6%

KG

5/31/2006

$17.31

$18.67

7.9%

FTO

5/15/2006

$28.76

$29.49

3.0%

PONR

5/9/2006

$30.48

$31.00

1.7%

AVCI

2/20/2007

$8.65

$8.77

1.4%

EGY

2/5/2007

$6.42

$6.42

0.0%

TRLG

6/13/2006

$17.02

$16.98

-0.2%

HW

2/27/2007

$24.00

$23.64

-1.5%

DGX

2/26/2007

$52.11

$50.99

-2.1%

CREL

2/26/2007

$12.50

$12.20

-2.4%

LRCX

2/26/2007

$46.66

$44.66

-4.3%

PACR

2/26/2007

$28.26

$27.03

-4.4%

SHOO

1/17/2007

$32.36

$29.56

-8.6%

ORCT

6/2/2006

$11.83

$10.54

-10.9%

RAIL

5/26/2006

$58.18

$49.54

-14.6%

FDG

5/31/2006

$34.03

$25.11

-19.1%

TBL

3/15/2006

$34.50

$27.12

-21.4%

EZEN.OB

6/19/2006

$2.84

$2.20

-22.4%

OVTI

5/31/2006

$27.79

$12.96

-53.4%











Gain/Loss Open Positions ($):

$27,802

Gain/Loss Open Positions (%):

7.5%

Gain/Loss Closed Positions ($):

$14,438

Gain/Loss Closed Positions (%):

11.4%

Total Gain/Loss ($):

$42,241

Benchmark Gain/Loss ($):

$34,068

Annual IRR:

16.2%

Total Gain/Loss (%):

12.1%

Tuesday, February 27, 2007

Global Plunge

I know, I know… not a very enjoyable day. James Stewart had made a comment last week that we had not had a 2% decline in the S&P 500 since July 2006. That was an exceedingly long streak. I almost didn’t buy my new stocks yesterday as I felt it was about “that” time. But MFI doesn’t say much about timing the market, so I decided to be faithful and stay fully invested (except for the HW component, which I still actually own).

Thankfully, I had sold 60% of my sidecar portfolio (wish I had sold the other 40% as RAIL and OVTI both got hammered by 5%+). I did use the early morning drop to buy SHOO for my sidecar, I had mentioned I had my eye on it. They report earnings in a couple of days. SHOO held up quite well today, I am hoping that is a bullish sign about their earnings. I’ll think about how and when to invest the rest.

The good news (if there is good news) is that my MFI portfolio didn’t much lose ground to the benchmarks (my non MFI portfolio did as it is overweight in International stocks, which were slaughtered). I will say that I do not expect this to be a one day correction, but rather the start of a month or two. Perhaps in total about 10%. Greenspan did say the other day that he felt it was more likely than not that the US will still have a recession later in 2007.

I still have a ways to go until I hit my worst MFI week. The week ending June 9th I was down $21K. A week in mid-July I was down $18K (I think my posting had a picture of the Red Sea).

Wow, the dust has cleared. The Dow was off over 400 points. I only had two stocks in the green, SHOO (do I know how to pick ‘em?) and PVD (strange). In my non-MFI portfolio, IBN was my big loser. It has dropped 19% in the past week (ouch).

VPHM: -7.3%

OVTI: -6.5%

ORCT: -6.3%

EZEN: -6.7% and

DLX: -6.1% were my big MFI losers.

Stock News – Lost in all the noise of the day was earnings by 2 of my companies:

PNCL – They made a ton of $, but much of it was from getting $ they had written off from NWA. When you stripped out everything, it looked to me like they made 60 cents a share (Pinnacle Air profit climbs, helped by Northwest settlement). Pretty good for a $19 stock.

FTO – they made 47 cents a share vs. 55 cents a year (Frontier Oil earnings, revenue decline).It makes you realize how much the hurricanes of 2005 impacted many MFI stocks. FTO had lower earnings because in 2005 there were fewer refineries up and going because of Rita and Katrina. THO also had big sales in 2005 as people who lost their homes bought RVs. For a long time there was some roofing company on the lists as they had such good earnings post the storms.

OK, enough blogging today. I am going to go and cry in my beer.

Monday, February 26, 2007

Changing of the Guard

Today was my 1st day of massive MFI portfolio changes. Here is what happened:

  1. I sold PTEN, MSTR, UST and MGLN.
  2. I bought DGX, CREL and LRCX.
  3. I retained PACR and added shares to bring to my standard balance.
  4. I still have some cash from HW sale last week and haven’t decided what to do

Quest Diagnostics (DGX) – I felt this was a nice replacement for MGLN. Kept me in the healthcare sector. DGX is a large company that performs lab tests for hospitals and clinics. It is a nice business with few competitors and they do it well. Not a sexy stock, but should be a solid performer, not unlike MGLN. It has the added panache of being in Cramer’s Action Alerts Portfolio (that is just panache, not sure whether good or bad).

Corel Software (CREL) – again, this was a nice sector replacement for MSTR. I felt it would make sense to have at least one software stock in my portfolio. There is a certain irony in my buying CREL. They bought IVII last summer giving me a nice gain on that stock. So in essence I own IVII once again.

Lam Research (LRCX) – this was a bit of a play on my blue light special study. LRCX has been a “semi” (yuck, yuck) regular on the MFI lists for many quarters. They recently dropped sharply from mid-50s to mid-40s. I do think some semiconductor companies are making a bit of a comeback of late.

The PACR add-on was a little pre-mature (was due to come up in Mid March). But it was down today and seemed like a bargain. That’ll give PACR a common anniversary date next year.

I’ll miss UST. It ended up 59% for me. It is still on 50 over $1b MFI list. I will watch it and if it takes a tumble for some reason (unlikely as a steady performer) I may add it at later opportunity. Ditto for PTEN. I would have probably kept it, but for some reason it wasn’t on the list. If it re-appears, I may add it at later time. MSTR of course spiked up right after I sold it (not that I noticed). No complaints though as I made 36% for the year on this former dot-com darling.

I will probably sit on the HW cash for a week. ANF and TBL will likely be sold next week and with the HW cash I’ll have just about the right $ for two full stocks (remember, I have increased by 50% my investment per stock from February of last year).

FDG has really been marching up of late. This stock was pounded when the trust laws in Canada were changed effective in 2010. Then it got pounded more as anything to do with coal was out of favor. But they had their earnings when I was skiing and announced a $1.00 dividend. I think when you do the math, if you get $1.00 per quarter for 4 quarters that is pretty good for a $20 stock (20%), so the stock has bounced off its lows about 25%. Hmm, I think I mentioned that FDG could pay for itself in dividends in 5 years and that is was obscenely cheap in this blog a month or so ago.

Basically a flat day for my portfolio. In hindsight I sold MGLN & MSTR too early in the day, missing out on about $600. Oh well, who was to know? PGI built on its 8%+ gain on Friday with another 6% move today. That means that since January 23rd, PGI is p almost 24%.

Final joke of the day: I have decided that when Frontier Oil comes up to be sold I need to replace it with NOOF as NOOF is “New Frontier”. It just seems so appropriate. Out with the Old Frontier, in with New Frontier.

Friday, February 23, 2007

Paper Anniversary

This weekend my MFI portfolio celebrates its 1st year anniversary! While I didn’t get rich, I really can’t complain. My Annual Internal Rate of Return is at 22%. I don’t want to lecture or be considered an authority, but I thought I would go ahead and list some of the lessons I have learnt during the 1st year.

  1. MFI Works. I can’t say with complete certainty, but I am sure enough to have a big chunk of $ invested. Of course the LBTBTM did 17 years of back-testing. Barron’s ran their own tests validating it. And then my one year+ of monthly testing portfolios has outperformed the indices in 13 of the 14 months I have tracked. That can’t be chance.
  2. Relax. Since MFI works, you really need to relax and give it time. I am still scarred from the Bubble Burst of 2000-01. I have fears that my gains will be wiped away next week and am antsy to cash in the gains. I think I also get bored and feel that I need to micro-manage my portfolio. I don’t. Hold your stocks for the prescribed year.
  3. MFI Upside Down. I think about MFI for my non-MFI portfolio (about 50% of my total actively managed assets). If MFI is a technique to help you identify the stocks with the likelihood to perform best during the upcoming year, it also is a technique to help identify what stocks have the worst outlook. Essentially firms with negative yields such as start up bio-techs etc. We all see the homeruns that some investors get from these companies that can double overnight if their research pans out. But it is a sucker’s game.
  4. Be Patient. I know everyone thinks that a stock needs to be bought today, as tomorrow it’ll be “discovered”. That is rarely the case. Also be patient in selling the stock (wait your year). I was patient in PNCL and I made a lot because of that. I was impatient with PCU and missed a double.
  5. Blue Light Special. While I have not proven it, I do have evidence that shows that if an MFI stock drops 20% it is even a better candidate to buy (assuming that no disaster has befallen it). I bifurcated June 2006 portfolio after one month and the stocks that had dropped the 1st month have since outperformed. Also, if you had bought MFI stocks (from lists Jan-June 06) that had dropped 20% sometime thereafter when they were down 20%, you’d be doing quite nicely. Finally, I created a Blue Light Special Portfolio in mid January of MFI stocks (19 stocks) down 20% or more and it is up 10.3% since then compared to about a 2.7% gain for the broader indices.
  6. Don’t Sweat The Details. I see a lot of questions about how to follow MFI to the letter of the law. I think it is more important to follow MFI to the spirit of the law. If the amount invested in every stock isn’t exactly equal, that is ok. If you decide not to buy in 4 even quarters, but every two months instead, that is ok. If you decide to buy 40 stocks instead of 25-30, that is ok (as long as transactional costs are reasonable).
  7. Think Outside the Box. I have seen some blogs talking about buying options on MFI stocks rather than the stock itself. I don’t think that is unreasonable as long as you’re comfortable with increased volatility. Theoretically, it should work as long as you have some means of testing that the option prices are reasonable (I would think that overall if the stock price is depressed for some reason, the options will be as well). My most financially rewarding move has been my sidecar portfolio. This portfolio in size has usually been about 1/7th the size of my MFI portfolio, yet its gains have been about 50% of my MFI portfolio. Perhaps I have been lucky. But I am convinced from the Blue Light Special study above that there are optimal times to buy MFI stocks. So I am keeping money in the sidecar for those times. In fact, it has worked so well, that I am freeing up more $ for the sidecar. I only do this in my IRA to get rid of impact of short term capital gain taxes.
  8. Do a Little Research. I know JG says the system will work without research, and my monthly tracking portfolios support that. I do think that people should still check for two things: (1) Has the company been bought? PWEI and PLAY were on the lists long after being sold. They really have minimal chance of going higher (a counter bid) and risk of going lower (bid falls through). I don’t think we want to be involved in arbitrage. (2) Is the income of good quality?? I think this just requires a quick look at the quarterly income sheets and profiles of the companies. If the company had a large one-time (non-recurring) amount of income (like FORD had a one time deal), I’d avoid them. Also, if they are dependent upon one customer (like PLAY was with the Ipod), I’d think twice.
  9. Don’t Think Too Small. While in my portfolio, small stocks (under 1b marketcap) have done better than large cap, they do have their issues. I feel like I have moved the market when buying ISNS & EZEN. The microcap stocks are extremely volatile. In looking at my larger study of MFI stocks in my monthly tracking portfolios, large caps have outperformed the small caps. I am not saying never buy a stock under 100m, but do see what their average trading volume is like and don’t have your portfolio overweight in that area.
  10. Diversify. The MFI approach can give you stocks over-weighted in a sector. Be careful that you don’t pick 5 mining companies. Also, as MFI doesn’t have financial companies, utilities or insurance companies I hold some of those in my non-MFI portfolio.
  11. Have Fun! I really enjoy monitoring my portfolio and writing my blog. I actually am sad days the market is closed, like President’s Day. If it is too much work or stress for you, you can still do quite well with ETFs and Mutual Funds. I can tell you that IWV is a tough advisary!

Enough lecturing. Just my opinions. No guarantees, that is for sure. Now a graphical look at my Blue Light Portfolio. I set it up in Marketocracy which basically lets you pretend you're running a mutual fund. I have a couple other interesting portfolios percolating over there, but I am not sure how to give people access to view them. My name there is marshgerda.



I hope your paper anniversary is happy as well… with lots of Green Paper.

Give Me an "I"!

Wow what a day! All I can say is “cue the cheerleaders!”
  • “Give me an I!”
  • “Give me a S!”
  • “Give me a N!”
  • “Give me another S!”
  • “Whatdya got?”
  • ISNS!”

Yes this sleepy little (with the emphasis on little) company exploded upwards by 20% today with an upbeat earnings report. When I looked over lunch, ISNS was the 4th best stock (Friday's Small-Cap Winners & Losers ) on the Naz (just behind another MFI stock, VRGY which I lamented about last night).

Then let us not forget little old PGI. I kind of dismissed their earnings last night as I had just scanned the headlines (never a good practice), which just said they missed their target and re-affirmed for 2007. I didn’t think that sounded good, but Yee-Ha! PGI is up about 8% today (Premiere Global Surges on 4Q, Upgrade ), the 4th best stock on the big board (when I looked). I just read their release, to be honest I am not sure what was in there to cause the stock to spike 8%. If I wasn’t in MFI, I’d be thinking this was a selling opportunity.

PONR (yes, the Point Of No Return stock) went up about 6% today. Made an especially strong move the last hour… hmmm, someone must be buying it as volume is 2x normal.

So speaking of my “Rear View Mirror” from yesterday, today’s MFI burst has us looking in the rear view mirror at the Russell 3000. I now have about a 3% lead on them and dollar-wise am at my highest spread over them ever. Yee-Ha!

Yes it was a happy day. I think Mr Market was recognizing that I have now been at this for exactly one year. Tomorrow I shall pontificate about what I have learned. Be sure to check over the weekend for my pontification. Now for something completely different (I think that was from Bullwinkle).

Here is my weekly graph. It is very sweet as my magenta line has zoomed up!
Now for my stock listing. Note that HW is no longer on the list and shows up in the "sold" numbers. I plan on adding it back on Monday, but with more shares. I have not actually sold HW, this is just the way I have decided to keep score, so stocks don't stay on the list more than a year, they drop to "sold" at a year.

Current Portfolio
Stock Purchase Date Cost Current Gain
PNCL 05/04/06 $6.68 $19.49 191.8%
UST 02/24/06 $39.36 $60.31 59.0%
VPHM 09/11/06 $11.79 $17.95 52.2%
MSTR 02/24/06 $94.36 $127.95 35.6%
ISNS 07/07/06 $13.17 $17.50 32.8%
PGI 04/07/06 $7.71 $10.20 32.3%
ANF 03/02/06 $61.13 $79.76 31.3%
DLX 04/03/06 $26.41 $33.10 29.7%
CHKE 05/16/06 $37.55 $45.64 26.7%
BBSI 09/06/06 $19.56 $24.18 24.0%
TGIS 05/01/06 $10.34 $12.34 21.8%
MTEX 05/22/06 $13.11 $15.55 20.4%
ASEI 10/05/06 $45.85 $54.57 19.0%
BLDR 09/18/06 $15.91 $18.24 14.7%
MGLN 02/24/06 $38.34 $43.69 14.0%
KG 05/31/06 $17.31 $18.71 8.1%
PONR 05/09/06 $30.48 $32.86 7.8%
AVCI 02/20/07 $8.65 $9.28 7.3%
EGY 02/05/07 $6.42 $6.84 6.5%
FTO 05/15/06 $28.76 $30.24 5.6%
TRLG 06/13/06 $17.02 $17.46 2.6%
ORCT 06/02/06 $11.83 $11.30 -4.5%
RAIL 05/26/06 $58.18 $53.25 -8.2%
PACR 03/17/06 $32.53 $28.72 -9.9%
SHOO 01/17/07 $32.36 $28.96 -10.5%
PTEN 02/27/06 $26.72 $23.50 -11.4%
TBL 03/15/06 $34.50 $28.41 -17.7%
EZEN.OB 06/19/06 $2.84 $2.25 -20.6%
FDG 05/31/06 $34.03 $23.96 -22.5%
OVTI 05/31/06 $27.79 $13.83 -50.2%





Gain/Loss Open Positions ($):
$50,384
Gain/Loss Open Positions (%):
14.9%
Gain/Loss Closed Positions ($):
$6,233
Gain/Loss Closed Positions (%):
8.3%
Total Gain/Loss ($):
$56,617
Benchmark Gain/Loss ($):
$46,089
Annual IRR:
22.3%
Total Gain/Loss (%):
16.2%