Wednesday, July 23, 2008

Pinch Me II

Another good day, I just need 40 more straight like today and I'll be back to even. I have to give Steve A at http://www.magicdiligence.com kudos. He has hung in pretty well through the massacre. He is up 3.5% and beating the S&P by a very healthy 7.2%, One of his early picks, EPAX shot up a ton today.

RHI reported earnings after the bell this evening (Robert Half reports higher 2nd-quarter earnings). I thought their numbers were pretty darned good. This is a stock that is down 30% off their highs... assumably because people thought things were going to get worse... but they haven't so far. Are things not as bad as people think? Or is the shoe yet to fall?

A lot of the out-of-favor stocks are really cooking recently. My July 2nd tracking portfolio is up over 10% already, driven by stocks people weren't wern't touching with the proverbial 10' pole. Then some of the popular stocks (like BPT and EGY) are in freefall.

I do know if oil continues to crater that the stock market will continue to rise. Hard to say absolutely what will happen, but if demand keeps dropping, logic says the price will fall. Could be the catalyst the bears have over-looked. Also, if housing prices start to stabilize (I don't think we're there yet as the ratio of median house price to median income is still way out of whack vs the long term trend) then the banks and associated businesses could really start to pop as the write-offs dry up. I did see where the CEO of WB bought 1 million shares yesterday. Does make me think if WB pulls back a bit in the next two weeks, I may jump on with the CEO.

Quickies

Other MFI stocks in the news today:
NTRI - seems to have had decent earnings after the bell and stock is up about 5%. I think they're up about 30% since July 1st.
SWIR - gave poor guidance this evening and is off about 20% ah.
SCSS - not sure if any one still owns this nightmare, but they had a narrower loss than expects and are up 10% AH. Of course if you bought them last summer, you'd still be down 90%.

3 comments:

N said...

Marsh:

Why do you suppose the MF has done so poorly these last few years - and especially the last 12 mos?

Are you convinced that the website formula is identical to that in the book ... and therefore the results should start improving soon?

Ed Hawley

Marsh_Gerda said...

Ed, I did a study where I looked at returns of MFI stocks purely by market cap. Since January 2006 there has been a tremendous correlation between market cap and return. If you had been picking from $2b and higher you'd find MFI has worked great.

So what has happened is that MFI has failed on small cap value stocks. Part of that is simply a macro trend, many small/micro cap mutual funds and ETFs have been crushed and part of it is that there have been more than the normal share of clunkers.

Besides the clunkers (like SCSS) I do think that when credit tightens (as it has severely recently) that hurts small cap value stocks as they will become the last in pecking order to be able to obtain credit (Ken Fisher writes at length about this). Also, when the credit markets tightened, M&A came to a standstill and M&A had really benefited Smaller MFI stocks the first 18 months. So what had been (for many stocks) a premium as a buy out candidate became a discount. That will change and that is one signal I am realy watching.

Finally I do think the formulas are right. I do believe the book set expectations a little too high. Third parties have backtested MFI and found that it did outperform, but not by as much as JG showed.

MG

DaveinHackensack said...

Marsh,

It's worth mentioning that not all micro caps need to access the capital markets -- some are profitable, require relatively little tangible capital, and are flush with cash.