Wednesday, September 30, 2009

September 26th 2008 Tracking Portfolio

Just thought I’d provide a quick update on the September 26th 2008 tracking portfolio which ended over the weekend when I was between computers. It was the 23rd consecutive portfolio to finish in the red at the anniversary date. That being said, it did beat the benchmark Russell 3000 soundly, ending up down 4.3% versus the benchmark dropping 10%. The good news is that it appears likely that the October 2008 portfolio will end the streak at 23 as it is up a snappy 26% at this writing. In fact, all 12 open portfolios are beating the Russell 3000 benchmark, along with the 6 most recently closed portfolios. So the MFI approach does appear to be streaky.

There were some winners. Here are the 50 stocks (recall I take the top 50 greater than 100m) in descending order:

SPSS $28.87 $49.91 72.9%

MLNX $9.53 $15.76 65.4%

BVF $9.44 $14.77 56.5%

ICFI $19.91 $28.65 43.9%

KBR $16.04 $22.30 39.0%

USMO $9.27 $12.66 36.6%

MRX $15.45 $21.09 36.5%

DLX $13.06 $17.01 30.2%

VCLK $10.14 $12.73 25.5%

NVDA $11.69 $14.50 24.0%

COH $25.92 $31.67 22.2%

PPD $42.73 $51.99 21.7%

DEPO $3.51 $4.16 18.5%

TRA $29.88 $35.19 17.8%

CSKI $12.20 $13.11 7.5%

KG $9.76 $10.45 7.1%

LRCX $32.07 $33.75 5.2%

MDP $27.65 $28.97 4.8%

ELNK $8.04 $8.41 4.6%

VIA-B $25.43 $26.60 4.6%

MNST $16.68 $17.23 3.3%

PRM $2.46 $2.54 3.3%

BARE $11.20 $11.54 3.0%

FRX $28.44 $28.51 .2%

SWIR $9.92 $9.30 -6.2%

CF $91.22 $84.29 -7.6%

EGN $46.31 $42.32 -8.6%

EME $27.82 $24.55 -11.8%

UNTD $9.17 $8.0 -12.8%

VALU $35.39 $30.50 -13.8%

tpc $24.18 $20.62 -14.7%

KFY $17.94 $15.20 -15.3%

HLF $38.45 $31.89 -17.1%

HSII $29.16 $23.61 -19.0%

NTRI $19.44 $15.37 -20.9%

CALM $36.38 $27.78 -23.6%

BBSI $14.21 $10.70 -24.7%

MHP $32.78 $23.67 -27.8%

SCMP $8.29 $5.80 -30.0%

TTWO $16.16 $11.25 -30.4%

MLHR $24.61 $16.68 -32.2%

VPHM $13.72 $8.95 -34.8%

EGY $7.16 $4.66 -34.9%

VRGY $17.92 $11.51 -35.8%

IBAS $3.59 $2.14 -40.4%

WFR $29.17 $17.29 -40.7%

MTW $17.44 $9.52 -45.4%

KHD $21.80 $10.29 -52.8%

PACR $15.64 $3.60 -77.0%

IDAR.PK $1.23 $.08 -93.2%

I am starting to track the totals versus the benchmark not by average returns, but rather by absolute dollars. This is necessary as the MFI portfolios have been more volatile. And a portfolio that goes +10% then -10% (which averages 0%) is different from a portfolio that goes +25% and -25%, which also averages 0%. But you’d have less money in two years with the more volatile portfolio. So I measure by assuming you invested 100,000 in 12 equal parts in the 12 portfolios of 2006 (my first year). Today, here is how the 12 open portfolios stand:

10/31/08

6,925.01

6,986.21

11/26/08

7,769.03

6,738.30

12/26/08

8,423.71

7,234.04

1/23/09

9,089.57

7,538.59

2/27/09

8,103.83

8,586.67

3/27/09

7,892.73

7,564.57

4/24/09

9,097.88

8,091.82

5/29/09

9,228.65

7,467.87

6/29/09

7,570.14

7,312.69

7/29/09

8,137.25

8,210.71

8/28/09

7,724.45

7,329.88

9/25/09

7,455.07

7,142.96

97,417.32

90,204.30

The left column is the MFI amounts and the right column assumes Russell 3000. So we’re still about 2.5% under water in total. As a side note, my actual portfolio is about 6% down. I think the difference is primarily explained by timing. I wasn’t fully invested in 2006, which was a “good” year. I added quite a bit in 1st half of 2007, which was right at the precipice of the 23 straight down months. So adjusting for timing, I think I am actually doing slightly better than “average”, which doesn’t really make me feel better.

Here are all the open and closed portfolios for those of you who want to dig deeper:

Average of Percent Change

Date

Total

IWV

1/6/2006

16.0%

10.9%

2/17/2006

21.2%

14.6%

3/29/2006

13.0%

9.6%

4/7/2006

10.3%

12.1%

5/12/2006

20.4%

18.6%

5/31/2006

29.2%

23.3%

6/30/2006

22.4%

20.0%

7/31/2006

19.7%

17.3%

8/31/2006

13.0%

13.3%

9/28/2006

12.7%

14.6%

10/27/2006

10.3%

12.0%

11/29/2006

-0.3%

4.8%

12/28/2006

-6.9%

3.4%

1/26/2007

-10.2%

-6.6%

2/27/2007

-3.7%

-1.0%

3/26/2007

-9.8%

-5.5%

4/27/2007

-10.9%

-5.0%

5/29/2007

-11.5%

-6.3%

7/3/2007

-30.0%

-15.6%

7/30/2007

-19.9%

-11.5%

8/30/2007

-12.5%

-8.7%

9/27/2007

-19.0%

-18.2%

11/2/2007

-40.4%

-34.3%

11/28/2007

-40.1%

-38.3%

12/28/2007

-36.3%

-40.0%

1/25/2008

-36.4%

-35.9%

2/26/2008

-51.7%

-36.0%

3/24/2008

-40.9%

-35.7%

4/25/2008

-25.6%

-30.8%

5/28/2008

-22.2%

-33.6%

7/2/2008

-11.7%

-25.3%

7/29/2008

-10.5%

-13.3%

8/29/2008

-13.8%

-17.9%

9/26/2008

-4.3%

-10.0%

10/31/2008

26.4%

13.9%

11/26/2008

56.3%

25.0%

12/26/2008

46.9%

26.1%

1/23/2009

57.5%

31.8%

2/27/2009

85.2%

48.2%

3/27/2009

61.2%

33.3%

4/24/2009

36.7%

24.6%

5/29/2009

24.5%

16.7%

6/29/2009

20.1%

15.9%

7/29/2009

13.8%

9.5%

8/28/2009

8.7%

3.6%

9/25/2009

2.5%

1.5%

Grand Total

3.2%

-0.1%

What do I make of all of this?

  • The method is outperforming, though no where close to “as advertised” so far.
  • It is not for the impatient
  • You can have long stretches of underperformance (JG discusses this in his book regarding his hedge fund friend).
  • Individual stocks are excessively volatile, so you have to let the portfolio work.
  • Predicting the stocks that will do the best, may be impossible for ordinary people. I think if you subscribe to a Magic Diligence, you “may” get a portfolio that is less volatile, but I do not know if you’ll be maximizing gains.
  • The only pattern I have seen to make things better, is to be as mechanical as possible and get your emotions and stock picking out of the way. Early on I saw larger cap stocks did better, that has reversed. Early on, I saw that stocks that had been on the screen for 6 months and were down at least 20% out performed, but that hasn’t held out. Might as well pick several letter you like and pick stocks with ticker symbols starting with those letters.
  • Churning, as far as I can tell, adds nothing. It doesn’t help to sell stocks after they are up x% or cut losses by selling stocks if they drop x%. It only adds to your frictional costs and bookkeeping.
  • I do think the rebalancing can be important. It seems that some stocks are on the lists for extensive periods (think VPHM) and where the tracking “wins” is that VPHM may be at $14 in Sept 2007, drop to $5 in Sept 2008 and end at $9. By being on the list twice in two different months, it shows up as down 40% for 2007and up 80% for 2008. That nets out to a “gain”. But if you don’t rebalance (that is if you carry a stock for a second year), you may miss out on that bounce.

Enough on the lecture. Here are my current holdings, note that I did add two new stocks today: jcom & prim. They are both “mechanical” stocks, I am just adding them a couple weeks late. Even with the additions, I am still 19% in cash (the FSUMF sale was rather large as it had gone up a lot). I also comment on my “non-mfimfi stocks. I am trying to wean off these, but until I run out the cash part of my mfi portfolio, I feel funny doing it.

WILC

159%

UEPS

68%

UTA

62%

CKSW

211%

QXM

13%

CBI

37%

HCKT

29%

ENDP

35%

BKE

27%

AIRV

14%

BR

22%

KHD

11%

AMED

21%

GME

18%

PFE

17%

FRX

27%

WH

9%

GTLS

11%

BIOC

8%

RTN

5%

GIGM

5%

WTW

5%

PVSW

2%

CSKI

1%

JCOM

1%

CEU

0%

QCOR

0%

PRIM

-1%

JTX

-6%

CMED

-18%

CHCG

-36%

Non MFI MFI

WILC – this is a very small cap Hebrew food importer. As you can see it is up a ton. They still have a great balance sheet, and can probably rise another 20 to 30%. I will not sell until needed.

WH – this is a Chinese manufacturer of oil & gas tubing. I think they would qualify on the low end as an MFI stock (they are cheap, but ROIC is just “ok”) but their financials have a few holes that I have tried to estimate.

CMED – this is a Jubak stock that makes equipment for Chinese hospitals. They are like WH, with a few holes (literally) on balance sheet that I have estimated. They’d be my first candidate to sell if I need to raise money.

Wow, are those my only three? I have done well paring back.