I have 3 tracking portfolios to share. All have done poorly, but we can learn as much from failure as success. The first was a Blue Light Special set up in January 2007. So it is essentially a year old. This was comprised of stocks that were down at least 15% when purchased and had been on the MFI list for sometime. Overall, this group was down 10.5%, although it was up over 20% in 2007. Dividends are not included.
| Symbol | Shrs | Price Paid | Trade | Gain |
|---|
-
| -
| 15.22
| 65.7
| 1,015.72$1,015.72
| ALDA | 65.7 | 15.22 | 15.46 | 15.77 $15.77 | 1.58% |
-
| -
| 20.28
| 49.31
| 637.58$637.58
| BVF | 49.31 | 20.28 | 12.93 | -362.43 $362.43 | 36.24% |
-
| -
| 27.45
| 36.43
| 807.65$807.65
| CECO | 36.43 | 27.45 | 22.17 | -192.35 $192.35 | 19.23% |
-
| -
| 23.35
| 42.83
| 673.72$673.72
| CONN | 42.83 | 23.35 | 15.73 | -326.36 $326.36 | 32.63% |
-
| -
| 15.22
| 65.7
| 741.10$741.10
| EGLT | 65.7 | 15.22 | 11.28 | -258.86 $258.86 | 25.89% |
-
| -
| 6.24
| 160.26
| 735.59$735.59
| EGY | 160.26 | 6.24 | 4.59 | -264.43 $264.43 | 26.44% |
-
| -
| 7.32
| 136.61
| 942.61$942.61
| ELNK | 136.61 | 7.32 | 6.90 | -57.38 $57.38 | 5.74% |
-
| -
| 21.34
| 46.86
| 1,740.38$1,740.38
| FDG | 46.86 | 21.34 | 37.14 | 740.39 $740.39 | 74.04% |
-
| -
| 26.62
| 37.57
| 1,438.56$1,438.56
| FTO | 37.57 | 26.62 | 38.29 | 438.44 $438.44 | 43.84% |
-
| -
| 9.71
| 102.99
| 1,256.48$1,256.48
| HNR | 102.99 | 9.71 | 12.20 | 256.45 $256.45 | 25.64% |
-
| -
| 23.27
| 42.97
| 482.55$482.55
| HW | 42.97 | 23.27 | 11.23 | -517.36 $517.36 | 51.74% |
-
| -
| 19.66
| 50.86
| 1,101.12$1,101.12
| JAKK | 50.86 | 19.66 | 21.65 | 101.21 $101.21 | 10.12% |
-
| -
| 11.33
| 88.26
| 1,210.93$1,210.93
| OVTI | 88.26 | 11.33 | 13.72 | 210.94 $210.94 | 21.09% |
-
| -
| 23.22
| 43.07
| 858.82$858.82
| PTEN | 43.07 | 23.22 | 19.94 | -141.27 $141.27 | 14.13% |
-
| -
| 55.12
| 18.14
| 577.03$577.03
| RAIL | 18.14 | 55.12 | 31.81 | -422.84 $422.84 | 42.29% |
-
| -
| 6.87
| 145.56
| 269.29$269.29
| WON | 145.56 | 6.87 | 1.85 | -730.71 $730.71 | 73.07% |
-
| -
| 13.81
| 72.41
| 720.48$720.48
| VCI | 72.41 | 13.81 | 9.95 | -279.50 $279.50 | 27.95% |
-
| -
| 82.44
| 1
| 81.31$81.31
| IWV | 1 | 82.44 | 81.31 | -1.13 $1.13 | 1.37% |
-
| -
| -
| -
| 15,290.90$15,290.90
| Total (USD): | - | - | - | -1,791.43 $1,791.43 | 10.49%
|
The second was similar portfolio set up in March of 2007. Down 13% even with FCX almost doubling.
| Symbol | Shrs | Price Paid | Trade | Gain |
|---|
-
| -
| 55.44
| 2
| 199.42$199.42
| FCX | 2 | 55.44 | 99.71 | 88.54 $88.54 | 79.85% |
-
| -
| 30.09
| 3
| 66.51$66.51
| CECO | 3 | 30.09 | 22.17 | -23.76 $23.76 | 26.32% |
-
| -
| 22.44
| 4.5
| 78.93$78.93
| CRYP | 4.5 | 22.44 | 17.54 | -22.05 $22.05 | 21.84% |
-
| -
| 12.87
| 8
| 77.76$77.76
| ODSY | 8 | 12.87 | 9.72 | -25.20 $25.20 | 24.48% |
-
| -
| 18.69
| 5.2
| 133.28$133.28
| WDC | 5.2 | 18.69 | 25.63 | 36.09 $36.09 | 37.13% |
-
| -
| 27.05
| 3.5
| 74.41$74.41
| CPSI | 3.5 | 27.05 | 21.26 | -20.26 $20.26 | 21.40% |
-
| -
| 28.42
| 3.3
| 55.94$55.94
| KSWS | 3.3 | 28.42 | 16.95 | -37.85 $37.85 | 40.36% |
-
| -
| 59.30
| 2
| 62.70$62.70
| LXK | 2 | 59.30 | 31.35 | -55.90 $55.90 | 47.13% |
-
| -
| 18.84
| 5.2
| 78.36$78.36
| MOT | 5.2 | 18.84 | 15.07 | -19.60 $19.60 | 20.01% |
-
| -
| 9.00
| 11
| 59.40$59.40
| NOOF | 11 | 9.00 | 5.40 | -39.60 $39.60 | 40.00% |
-
| -
| 40.38
| 2.5
| 85.63$85.63
| THO | 2.5 | 40.38 | 34.25 | -15.33 $15.33 | 15.18% |
-
| -
| 24.62
| 4
| 98.36$98.36
| VRGY | 4 | 24.62 | 24.59 | -0.12 $0.12 | 0.12% |
-
| -
| 16.65
| 6
| 59.70$59.70
| VCI | 6 | 16.65 | 9.95 | -40.20 $40.20 | 40.24% |
-
| -
| -
| -
| -
| WPCS | - | - | 9.41 | - | - |
-
| -
| -
| -
| 1,130.39$1,130.39
| Total (USD): | - | - | - | -175.25 $175.25 | 13.42% |
The final is my $10 special portfolio I set up in November. It was off to a great start, but recently was hit hard by the sell-off. This one is at least beating the IWV benchmark:
| Symbol | Shrs | Price Paid | Trade | Gain |
|---|
-
| -
| 7.88
| 1,269
| 11,382.93$11,382.93
| ALOY | 1,269 | 7.88 | 8.97 | 1,383.21 $1,383.21 | 13.83% |
-
| -
| 4.27
| 2,342
| 8,665.40$8,665.40
| CHCG.OB | 2,342 | 4.27 | 3.70 | -1,334.94 $1,334.94 | 13.35% |
-
| -
| 5.15
| 1,942
| 11,671.42$11,671.42
| GVHR | 1,942 | 5.15 | 6.01 | 1,670.12 $1,670.12 | 16.70% |
-
| -
| 6.45
| 1,550
| 9,873.50$9,873.50
| HLYS | 1,550 | 6.45 | 6.37 | -124.00 $124.00 | 1.24% |
-
| -
| 87.11
| 1
| 81.31$81.31
| IWV | 1 | 87.11 | 81.31 | -5.80 $5.80 | 6.66% |
-
| -
| 10.68
| 936
| 9,444.24$9,444.24
| KG | 936 | 10.68 | 10.09 | -552.24 $552.24 | 5.52% |
-
| -
| 4.98
| 2,008
| 10,843.20$10,843.20
| NOOF | 2,008 | 4.98 | 5.40 | 843.36 $843.36 | 8.43% |
-
| -
| 7.95
| 1,258
| 9,019.86$9,019.86
| PBH | 1,258 | 7.95 | 7.17 | -981.24 $981.24 | 9.81% |
-
| -
| 6.47
| 1,546
| 11,564.08$11,564.08
| TGIS | 1,546 | 6.47 | 7.48 | 1,561.46 $1,561.46 | 15.61% |
-
| -
| 8.73
| 1,145
| 9,366.10$9,366.10
| VPHM | 1,145 | 8.73 | 8.18 | -629.75 $629.75 | 6.30% |
-
| -
| 10.02
| 998
| 8,233.50$8,233.50
| WSTG | 998 | 10.02 | 8.25 | -1,766.46 $1,766.46 | 17.66% |
-
| -
| -
| -
| 100,145.55$100,145.55
| Total (USD): | - | - | - | 63.72 $63.72 | 0.06% |
Posts
5 comments:
Marsh, I'd love your opinion on a theory I have about MFI small cap stocks. I have a hunch that by appearing on the MFI list, an artificially high stock price bottom is created for small caps. Basically, that appearing on the MFI list creates artificial demand on the stock and that it will never reach the natural price bottom it would have prior to JG's book. This in turn really hurts the overall returns of MFI small cap stocks.
The following is an example that that explains this further:
First, assume it is the mid 90's and MFI does not yet exist:
1.) Say a stock dips from $150 down to $100 and appears in JG's list from the mid-90s.
2.) It is on the list for the next 12 months, falling further from $100 down to $65 and then rebounds back to $100 after 12 months and then falls off the list.
3.) The following shows the impact on the 12 month MFI returns of a stock dropping from $100 to $65 and then rebounding back to $100 at the end of 12 months and then hovering around $100 for the next 12 months:
Month Price YoY Return
January 100 NA
February 90 NA
March 80 NA
April 70 NA
May 70 NA
June 65 NA
July 65 NA
August 70 NA
September 70 NA
October 80 NA
November 90 NA
December 100 NA
January 100 0.00%
February 100 11.11%
March 100 25.00%
April 100 42.86%
May 100 42.86%
June 100 53.85%
July 100 53.85%
August 100 42.86%
September 100 42.86%
October 100 25.00%
November 100 11.11%
December 100 0.00%
Average Return: 29.28%
So on the above, the average return is about 30% for holding that stock for 12 months.
Now say it is 2008 and MFI exists and there are thousands of new buyers of that same stock, creating an artificial price floor so the stock never dips below $80. Here are the hypothetical 12 month returns:
Month Price YoY Return
January 100 NA
February 90 NA
March 85 NA
April 85 NA
May 80 NA
June 80 NA
July 80 NA
August 80 NA
September 85 NA
October 85 NA
November 90 NA
December 100 NA
January 100 0.00%
February 100 11.11%
March 100 17.65%
April 100 17.65%
May 100 25.00%
June 100 25.00%
July 100 25.00%
August 100 25.00%
September 100 17.65%
October 100 17.65%
November 100 11.11%
December 100 0.00%
Average Return: 16.07%
The average return of the above is only 16%. The impact of the artificial price floor ($80 versus $65) really has a huge impact on the overall return.
I have a gut feeling that MFI results really benefit in the long run by the MFI stocks taking a good beating while on the MFI list and then rebounding in the following 12-24 months and that MFI's dollar cost averaging approach really takes full advantage of this.
And therefore the slightest impact on demand for an MFI stock could really hurt overall MFI performance.
I may be smoking something ... I would love to hear what you think. By the way, I don't believe what I describe above explains what has been going in with MFI small caps for the past year ... it's just a terrible time for small cap value stocks. What I describe above is me playing devil's advocate for why MFI may not work if it actually becomes somewhat popular.
I'd agree with you if actual evidence supported your theory. But I have seen a number of MFI stocks that show no evidence of artificial demand. Many many of them have been in freefall.
MG
I think the problem with Ryan's theory is that MFI doesn't require you to buy at a stock's bottom for it to work -- or at least there's no evidence from JG that this is necessary. The stock appears on the MFI list starting in Jan according to the hypo. At that point it should become a "good stock at a cheap price." There should be no need to make sure the returns incorporate some type of continued buying as the price drops further.
Morover, the hypo necessarily assumes that the stock must remain on the list. Given that each quarter (at least) there is a new influx of financial information, the stock could easily drop from the list. In fact, with so many of the MFI stocks I've seen in the last year, as the stocks have dropped even 30, 40, 50% or more, they are no longer on the MFI list, because of a number of factors.
Marsh & Albert,
Thanks for the response. Marsh: yes, no doubt my theory has nothing to do with the returns we have been seeing. There's absolutely no evidence of an artificial bottom. My hypothesis is basically one of the reasons why I believe MFI will not be able to match JG's rosey predictions some day. That if it's successful and adopted by many people, the extra demand on the stocks will hurt returns.
Albert: my hypothesis isn't assuming that me, the investor, has to buy every month in order to benefit. I was trying to explain how I think a lot of MFI stocks behave (in good times!) and how added demand could hurt returns. It's been a long time since I read JG's book, but I think how he calculated returns is consistent with the monthly dollar cost averaging approach I described ... and that it really benefits a lot from scooping up MFI stocks as they go down further once on the list.
Anyway, my portfolio has gotten so destroyed over the past 6 months, I don't even know why I'm throwing out theories on "MFI may not work if it becomes popular". That should be the least of my concerns at this point.
Ryan,
I do agree with your basic premise that returns will not be as good as JG's backtest. I just think that the market is getting more efficient. That is what you're saying to some extent.
MG
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