Analysis of Stocks from 1 Year Ago

Well, I pulled out my trusty slide ruler today and did a little bit of number crunching. I took a look at my spreadsheet underlying my listing of the top 200 stocks a year ago. I wanted to test how MFI did in the past year and also try to quantify the impact of the Chinese RTOs.

So I took all the stocks in my file from a year ago (about 3,200) that were sorted by MFI ranking. I then tried to calculate how much the stock changed year-over-year and then look at the decile results similar to JG's book. Finally, I pulled out every stock that was listed at being in China, to see how that changed things.

Before I show my findings, I will caveat that this is not a simple exercise (especially on a slide ruler). Many stocks may have had special dividends, splits, been sold, gone bankrupt, been spun into two etc over the course of a year. I made an honest effort to correct for these items, but I am but a single man (actually married). If anyone would like to try it themselves, I'd be happy to shoot people a file of stocks just needed the final price filled in.

I do believe that my results are directionally correct. It is likely that errors by decile offset each other. Any certainly the numbers in total (down about 8% year over year), is not far off from what the Wilshire index of total market was.

Here are the deciles (a bit more that 300 stocks per decile):

Decile 1	-8.96%
Decile 2	-2.95%
Decile 3	-5.14%
Decile 4	-6.09%
Decile 5	-12.55%
Decile 6	-9.95%
Decile 7	-6.87%
Decile 8	-6.86%
Decile 9	-12.67%
Decile 10	-10.20%

So Decile 1, which would have the MFI stocks was actually worse than the overall average (-8.7%). Otherwise, we do see the progression Greenblatt showed in his studies with 2, 3 and 4 being the best three. Now, let us pull out Chinese stocks.

Decile 1	-1.91%
Decile 2	1.44%
Decile 3	-3.10%
Decile 4	-5.01%
Decile 5	-10.49%
Decile 6	-7.51%
Decile 7	-5.04%
Decile 8	-5.44%
Decile 9	-11.27%
Decile 10	-9.06%

Wow! Pretty interesting stuff. That pretty much normalized the list (-5.55% overall). Let us try one more cut, pretty much remove all emerging markets. So only countries are the following:

Row Labels	Count of Country
Canada	135
France	9
Germany	5
Italy	5
Japan	15
Luxembourg	4
Netherlands	17
Norway	1
Portugal	1
Spain	3
Sweden	2
Switzerland	13
United Kingdom	21
USA	2,588
Grand Total	2,819

Column1	Column2
Decile 1	-0.12%
Decile 2	2.92%
Decile 3	-1.83%
Decile 4	-3.62%
Decile 5	-9.35%
Decile 6	-4.92%
Decile 7	-3.33%
Decile 8	-3.58%
Decile 9	-12.56%
Decile 10	-8.49%

What do I make of all this? The Magic Formula may be working better than we're giving credit. On my top 200 lists going forward, I will include country as that seems to be a crucial element. As always I am interested in people's comments.