No way to sugar coat it. Ever since almost exactly a year ago, my MFI portfolio has dropped straight down. It has dropped so much, I haven't had the heart to calculate a percentage. While I have undoubtedly done worse than most, it has to be noted that the method itself has struggled mightily, unless you bought stocks > 1b... in which case it has held up moderately well. The fact is that small cap value stocks have been horrendous in the past year, MFI or no MFI.
At some point, you have to wonder when the small cap value stocks will hit bottom. I have said before that the signal to me will be M&A activity picking up. I still think this is the case. I did find it interesting that Dow bought R&H this week... not exactly a small cap stock, but it shows that deals can still occur.
But some of these stocks that are down 50%+ can go up sharply with as simple a catalyst as positive earnings. One of my holdings is CHCG, and it has been a disaster. But I am unconvinced that it is a disaster for any rational/logical reason, rather it is a classic case of the market going nuts. CHCG has made 42 cents per share in the past 4 quarters. Going into today, it was trading at $1.21 less than 3x trailing earnings... and I think they have about 35 cents per share in cash to boot with no debt.
Anyway, this Chinese retailer/distributor of electronics that is partnering in China with the likes of Best Buy, Wal Mart and Carrefour, announced yesterday that they made 14 cents per share this quarter with revenues and income (China 3C Group Reports Preliminary Second Quarter 2008 Financial Results), about a 27% increase. Well, if a company is growing 25%, they deserve a greater multiple than 3. We'll see if they can follow up with a few more good quarters and show they're for real. But suppose they do. Then 42 cents becomes 53 cents a share a year from now. And perhaps the multiple moves to 10x or even 15x earnings. That would be $5 to $7 share price... well up from $1.73 (up 43% today) that CHCG closed at today.
This is all conjecture, but it does show that some MFI stocks have been beaten down so much that they have significant upside potential.
So I will Grin And Bear It and stay with the formula. And the good news, at least I don't own Fannie Mae.