Second Year Anniversary

I have completed my 2nd year at MFI. Up until July of last year, I was pleased. But since then, it has been pretty much straight downhill. In total, I think David Winters put it best when he said, "there has been a lot of indiscriminate selling at any price".

My tracking portfolios also tell the story quite well. In statistics we look at stretches of how fitted data does against actual data. If it is a good fit, you'll get random patterns of higher or lower than the actual data with the fit.

In the tracking portfolios I have been running since January 2006, until September 2006 all but 2 or 3 beat the benchmarks. Since then, starting with October 2006 every single tracking portfolio is doing worse than the benchmarks. It is not random. Not just a few sour portfolios or bad picking on my part. I think it goes to "indiscriminate selling at any price".

What to do? You can just quit. Or you can view it as a tremendous opportunity with tons of stocks on sale. The choice is based upon whether you believe the data Greenblatt laid out in his book. It is frustrating. It isn't easy. But I think to quit now would be a horrendous mistake, despite my being behind the benchmark by about 11% (sorry, I don't have the graphs today).

Are their lessons learned? I think so.

1. Have humility, none of us are as smart as we think.
2. Consider buying MFI stocks that someone you trust recommends. For me, that might be Jubak, Klarman, Greenblatt or Pabrai.
3. Don't invest money that you'll need for a while. While I am down, I am fortunate to have a good job and a long time horizon. That will give me time to ride out rough stretches.
4. Follow the formula and don't make it more complicated. Nothing wrong with picking stocks at random or with analsyis or horoscopes or whatever. But don't buy or sell if they go up or down certain amounts. Take emotions out of it. I know I am as guilty as the next person here... but it is a lesson learned.
5. View your portfolio as a portfolio. Individual stocks will shine and bust, but it is the total that matters.

Not much else, I am not going to ramble. I am sorry to everyone about TGIS melting down last week. That was the single worst day I have ever had with a stock. It does highlight the problem of smaller companies with limited customers. Perhaps another lesson learned. That being said, I had a decent week last week as my refiners caught fire (not literally). The fire at ALON will likely help my refiners (WNR especially?) as it reduces capacity.

Take care everyone. May year #3 be a proserous one.