Before I blog about the Magic Formula today, I wanted to think back ten years ago. The attack on the United States was an event that changed us as a nation forever. I am sure everyone remembers what they were doing when they heard.
I was in New Orleans at a conference. At the time I was working for AIG, which is a New York-based firm probably within a mile of the site of the Twin Towers (though I was based in Dallas). I was in a seminar and the presenter was droning on about Medical Malpractice trends. The presentation was interrupted and an announcement was made that the airports were being closed on account of events in New York and that the hotel would allow people to stay longer. I asked the person next to me what these "events" were, and he said a plane had flown into the WTC. My response was, "and we're sitting here at this lecture?".
I immediately went to my hotel room to turn on the news. My wife was there and very upset. She had been trying call my cell phone, but I had muted it at the lecture. I got there just as the second plane hit the WTC. I still see the footage occasionally of the planes hitting the buildings and every time I just pray that it won't happen this time.
I went back down to the seminar and everything had stopped. Several hundred people were gathered around a TV watching the coverage in a big ballroom. Many of the people were from New York and virtually everyone knew people that worked in the WTC, as it was a common address for people in Insurance and Finance. Finally, I remember seeing the buildings pancake with the realization that thouands may have died. Easily the saddest moment of my life.
My wife and I decided to head back to Dallas to be with our children (who were with their grandmother). Luckily we had driven to New Orleans, so we had transportation. (as an aside, my boss from New York was there and he and two others ended up renting a U-Haul truck and drove from New Orleans to New York). We took my twin sister, who had been in New Orleans as well and was now stranded as she was living in Switzerland, and no one knew when Intl travel would start again.
My recollection of the drive was a bit surreal. We had talk radio on the entire trip. We were driving through Shreveport about the same time President Bush landed there and addressed the nation.
I don't see it written often, but I think Al Quieda got what they wanted post the attack to a large extent. You could make an argument that many of our economic problems late in the first decade had their roots at 9/11. That caused Greenspan to flood the economy with liquidity, which played a role in the housing boom and eventual bust. The large increase in govt spending (I read it is about six trillion) between the Iraq and Afghanistan wars and much higher friction costs of increased security everywhere as really pressured our growth of GDP and the relationship of govt debt to GDP. And the attacks largely split the world into Muslims and non-Muslims. I worry all the time about a world war III, which could be based upon religious lines.
I still have full confidence that we will rebound as a nation and as the world. We will get through the difficult economic times. The wars will eventually end. Healing will take place and at some point we will all realize that we are all humans and that we all share the same basic desire of life, to build a better life and world for our children, and their children.
Back to MFI
I want to post a few metrics that illustrate the problems of MFI.
- MFI Stock Contest - I started this contest back near the end of May. The average portfolio is down 18.1%. The S&P is down 12.7% and the Russell 3000 is down 13.8%.
- My MFI Index is down 13.5% so far in 2011 and is down 5.5% since I started it in February of 2006. The Russell 3000 is down 8.5% for the year and 7% since February 2006 (recall, my measurements are weighted by when I put money in, so it is not a point movement from February 2006).
- My open Mechanical Portfolio stocks (top 50) are down an average of 14.3% versus 6.5% for the S&P 500. My Top 30 have done even worse, down 18.3% vs 7.5% for S&P.
- My 12 open monthly tacking portfolios are down an average of 12.7% versus 7.7% for the Russell 3000.
- Finally, if you had put $100,000 evenly over the first 12 monthly tracking portfolios you would have $103,027. That is only slightly higher that the Russell 3000 at $102,470. I suspect if you included transactional costs in some fashion and perhaps taxes you might be worse off.
I am not bashing Greenblatt or the method. I am only rationalizing why I am no longer going to use it. I will still review MFI stocks. I will still likely hold many stocks on the lists, especially those that pay a dividend. But I am going to move away from the basic formulaic approach. It frankly isn't working per all my metrics.