I have been blogging for over 6 years. I have over 1,000 posts. But I think it is time to begin officially winding down. I am not actively in the MFI space any longer. And the official website (Magic Formula Investing) is making it more difficult for me to track things.
July 2011 Tracking Portfolio
My plan is to keep blogging until all my tracking portfolios have hit their one year anniversary. But I will not be adding new portfolios. I may retain my MFI Index (which is a once a year thing), but I haven't decided. With that intro, the July 29th 2011 tracking portfolio (50 stocks > 100m in market cap) hit their one year anniversary this weekend. It was one of the worst portfolios every, losing to the Russell 3000 by about 12 points. For education schools and nursing homes torpedoed the portfolio. It is ironic, these were sectors being targeted by short sellers such as Einhorn and Chanos a year or two ago and they were absolutely right. Ignore these guys at your peril.
| Stock | Initial Price | End Price | Percent Change | Mkt Cap |
| CRAY | 6.04 | 12.48 | 106.6% | 219 |
| PRX | 32.39 | 50.09 | 54.6% | 1,172 |
| AGX | 10.37 | 15.54 | 49.9% | 141 |
| NSR | 26.04 | 35.66 | 36.9% | 1,925 |
| LPS | 18.44 | 24.83 | 34.7% | 1,587 |
| VPHM | 18.08 | 23.49 | 29.9% | 1,372 |
| RTN | 43.07 | 55.67 | 29.3% | 15,861 |
| RIGL | 8.69 | 11.20 | 28.9% | 454 |
| LO | 101.24 | 127.45 | 25.9% | 14,765 |
| DLX | 22.53 | 27.90 | 23.8% | 1,210 |
| ARO | 16.85 | 20.35 | 20.8% | 1,360 |
| ADI | 33.34 | 39.37 | 18.1% | 10,307 |
| HRB | 14.23 | 16.21 | 13.9% | 4,568 |
| MDP | 28.42 | 32.26 | 13.5% | 1,359 |
| NOC | 58.34 | 65.80 | 12.8% | 16,821 |
| PRSC | 11.85 | 13.33 | 12.5% | 154 |
| MSFT | 26.67 | 29.76 | 11.6% | 229,502 |
| TER | 13.49 | 14.97 | 11.0% | 2,499 |
| EGY | 6.66 | 7.35 | 10.4% | 380 |
| NVMI | 8.54 | 8.96 | 4.9% | 217 |
| cmtl | 25.98 | 27.25 | 4.9% | 703 |
| KLIC | 9.20 | 9.61 | 4.4% | 661 |
| CSCO | 15.72 | 15.69 | -0.2% | 87,851 |
| SNDK | 42.53 | 42.44 | -0.2% | 10,136 |
| IPXL | 21.18 | 20.77 | -1.9% | 1,378 |
| TSRA | 15.60 | 15.05 | -3.5% | 803 |
| CHKE | 14.86 | 14.27 | -4.0% | 135 |
| PETS | 10.43 | 9.70 | -7.0% | 233 |
| MRX | 36.80 | 33.36 | -9.3% | 2,215 |
| AFAM | 25.27 | 22.41 | -11.3% | 237 |
| USMO | 15.37 | 13.44 | -12.6% | 365 |
| MNTA | 17.66 | 14.79 | -16.3% | 897 |
| LTXC | 7.19 | 5.99 | -16.7% | 356 |
| ASTX | 3.06 | 2.47 | -19.3% | 185 |
| GNI | 90.82 | 72.87 | -19.8% | 157 |
| UNTD | 5.52 | 4.28 | -22.5% | 526 |
| DEPO | 7.56 | 5.65 | -25.3% | 406 |
| DELL | 16.24 | 12.03 | -26.0% | 30,840 |
| GME | 23.24 | 16.14 | -30.6% | 3,332 |
| STRA | 116.66 | 77.09 | -33.9% | 1,461 |
| PWER | 7.21 | 4.61 | -36.1% | 747 |
| CPLA | 42.75 | 26.24 | -38.6% | 656 |
| TNAV | 10.03 | 5.95 | -40.7% | 419 |
| APOL | 50.83 | 28.39 | -44.1% | 7,002 |
| MANT | 39.67 | 21.88 | -44.8% | 1,498 |
| ESI | 85.67 | 43.43 | -49.3% | 2,315 |
| amed | 25.86 | 12.19 | -52.9% | 761 |
| GTAT | 13.64 | 5.02 | -63.2% | 1,714 |
| MPAA | 12.91 | 4.58 | -64.5% | 156 |
| CECO | 22.69 | 4.99 | -78.0% | 1,762 |
That made this the 19th straight monthly portfolio to "lose".Of the remaining 11 open portfolios, only one is winning. Here are all the portfolios ever:
| 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% | -41.5% |
| 3/24/2008 | -40.9% | -36.8% |
| 4/25/2008 | -25.6% | -31.0% |
| 5/28/2008 | -22.2% | -33.6% |
| 7/2/2008 | -11.7% | -25.3% |
| 7/29/2008 | -10.5% | -20.9% |
| 8/29/2008 | -13.8% | -17.9% |
| 9/26/2008 | -4.3% | -10.0% |
| 10/31/2008 | 18.7% | 13.9% |
| 11/26/2008 | 50.9% | 27.7% |
| 12/26/2008 | 48.9% | 32.3% |
| 1/23/2009 | 59.3% | 36.4% |
| 2/27/2009 | 92.8% | 55.6% |
| 3/27/2009 | 85.8% | 48.1% |
| 4/24/2009 | 69.7% | 45.8% |
| 5/29/2009 | 31.8% | 22.8% |
| 6/29/2009 | 21.3% | 24.0% |
| 7/29/2009 | 19.5% | 15.9% |
| 8/28/2009 | 7.4% | 8.8% |
| 9/25/2009 | 12.6% | 12.4% |
| 10/30/2009 | 22.7% | 18.3% |
| 11/27/2009 | 24.3% | 13.6% |
| 12/31/2009 | 23.7% | 18.1% |
| 1/22/2010 | 19.0% | 20.6% |
| 2/26/2010 | 18.6% | 23.6% |
| 3/25/2010 | 10.0% | 15.4% |
| 4/23/2010 | 7.1% | 11.4% |
| 5/28/2010 | 19.3% | 25.4% |
| 6/29/2010 | 16.7% | 25.7% |
| 7/29/2010 | 5.4% | 20.1% |
| 9/2/2010 | 7.3% | 10.1% |
| 9/24/2010 | -4.3% | 0.3% |
| 10/29/2010 | -2.9% | 10.4% |
| 11/26/2010 | -8.5% | 1.4% |
| 1/3/2011 | -11.4% | 0.1% |
| 1/28/2011 | -7.6% | 4.9% |
| 2/25/2011 | -5.5% | 5.0% |
| 3/24/2011 | -4.4% | 7.4% |
| 4/21/2011 | -16.0% | 3.2% |
| 5/27/2011 | -12.0% | -0.4% |
| 6/24/2011 | -9.5% | 5.0% |
| 7/29/2011 | -4.3% | 8.1% |
| 8/26/2011 | 9.0% | 19.2% |
| 9/30/2011 | 17.2% | 24.1% |
| 10/28/2011 | -0.7% | 8.8% |
| 11/25/2011 | 15.3% | 20.7% |
| 12/29/2011 | 5.4% | 10.5% |
| 1/27/2012 | -2.9% | 5.2% |
| 2/24/2012 | -6.5% | 1.2% |
| 3/23/2012 | -8.8% | -0.9% |
| 4/27/2012 | -1.6% | -1.4% |
| 5/25/2012 | 5.1% | 4.9% |
| 6/22/2012 | 2.8% | 3.9% |
None of the three approaches were effective in this portfolio, but overall the dividend approach continues to do well (and is beating the R3000 in 5 of remaining 11 open portfolios):
| Category | Value |
| Total | 110,572 |
| Total New | 101,916 |
| Total Dividend | 235,497 |
| Total Russell 3K | 122,371 |
My New Approach
My revised approach, which is based on reinvested dividends is working pretty well. My portfolio is up 12.2% this year (my MFI Index is up 5.3%). It has been a much more stable portfolio. I have sold some stocks, but they have generally been good moves. My most recent material buy has been ENH, which is Endurance Insurance Company. They have a 3.6% dividend yield and have dropped from $41 to $34 since mid-May. The catalyst for their drop has been their crop insurance book, which obviously has the potential to be adversely impacted by the recent drought. But here are a few facts to keep in mind:
- Ace has the largest crop book of any company, and in their earnings call they think it will still actually make a bit of money. So I think the street is over-reacting.
- I saw a schedule of ENH state spread the other day, and 36% of their business is in Texas. That state is fine this year.
- ENH also is a very large property cat writer, and while their have been localized cats (such as tornados); there hasn't been anything large (such as last year's quakes and Tsunamis).
- They trade at 73% of book value; while most of their peers are around 90%.
| Stock | Shares | Avg Cost | Current Price | Dividends Received | Pct Change | R3K Change | Diff |
| BHK | 2,994 | 12.59 | 15.22 | 2,466 | 27.4% | 3.0% | 24.4% |
| CPL | 1,530 | 22.61 | 23.50 | 877 | 6.5% | 13.9% | -7.5% |
| CSCO | 4,230 | 17.19 | 15.69 | 825 | -7.6% | 3.4% | -11.0% |
| CSQ | 5,293 | 8.22 | 9.93 | 3,368 | 28.6% | 18.6% | 10.0% |
| ENH | 2,000 | 34.80 | 34.20 | - | -1.7% | 1.3% | -3.0% |
| FCX | 1,021 | 37.54 | 33.47 | 749 | -8.9% | 7.4% | -16.3% |
| FSC | 2,677 | 9.78 | 10.21 | 755 | 7.3% | 1.5% | 5.8% |
| HFC | 1,069 | 33.80 | 36.43 | 1,117 | 10.9% | 0.1% | 10.7% |
| INTC | 1,291 | 19.69 | 26.02 | 1,269 | 37.2% | 20.5% | 16.7% |
| JPM | 1,661 | 35.18 | 36.89 | 494 | 5.7% | 3.3% | 2.4% |
| JQC | 4,717 | 8.86 | 9.32 | 3,736 | 14.1% | 5.5% | 8.6% |
| KMF | 1,817 | 21.86 | 27.85 | 2,847 | 34.6% | 14.8% | 19.7% |
| KSS | 909 | 47.61 | 49.27 | 289 | 4.1% | 3.0% | 1.2% |
| KSW | 13,673 | 3.78 | 3.70 | 6,633 | 10.8% | 17.8% | -7.1% |
| LNC | 2,443 | 24.30 | 20.32 | 789 | -15.1% | 13.0% | -28.0% |
| MPC | 575 | 43.84 | 47.04 | 142 | 7.9% | 1.1% | 6.8% |
| MSFT | 959 | 26.80 | 29.76 | 1,036 | 15.0% | 12.4% | 2.7% |
| O | 546 | 18.93 | 41.29 | 6,969 | 185.5% | 64.8% | 120.7% |
| OIBAX | 3,838 | 4.90 | 6.44 | 6,273 | 64.9% | 64.2% | 0.7% |
| PGR | 2,000 | 20.48 | 19.78 | - | -3.4% | 1.8% | -5.3% |
| PM | 444 | 46.38 | 90.30 | 2,621 | 107.5% | 27.9% | 79.6% |
| PRE | 1,023 | 61.86 | 74.81 | 1,552 | 23.4% | 7.5% | 15.8% |
| PVD | 417 | 64.11 | 87.20 | 2,737 | 46.3% | 15.0% | 31.2% |
| SAI | 3,929 | 13.04 | 11.16 | 821 | -12.8% | -2.1% | -10.7% |
| SBS | 857 | 40.65 | 83.85 | 4,441 | 119.0% | 20.1% | 99.0% |
| STO | 1,040 | 23.82 | 24.28 | 1,121 | 6.5% | 16.7% | -10.2% |
| TROX | 2,022 | 24.13 | 24.79 | 500 | 3.7% | 1.6% | 2.2% |
| VIVHY | 2,896 | 17.01 | 19.20 | 4,841 | 22.7% | 0.0% | 22.7% |
| WBK | 508 | 105.89 | 121.95 | 6,166 | 26.6% | 12.8% | 13.9% |
| XOM | 223 | 52.56 | 87.45 | 1,084 | 75.6% | 19.0% | 56.7% |
| Total Open | 66,517 | 17.7% | 9.4% | 8.2% | |||
| Closed | 6.1% | 7.5% | -1.4% | ||||
| Combined | 11.1% | 8.3% | 2.8% | ||||
| IRR Since 12/31/10 | 12.0% | ||||||
| 2012 Gain | 12.2% | ||||||
| Estimated Dividends for Next 12 Months | |||||
| Stock | Shares | Ann Dividend / Share | Yield | Projected Dividend | Sector |
| BHK | 2,994 | $ 0.88 | 5.8% | 2,623 | Bond |
| CPL | 1,530 | $ 1.76 | 7.5% | 2,693 | Utility |
| CSCO | 4,230 | $ 0.32 | 2.0% | 1,353 | Tech |
| CSQ | 5,293 | $ 0.84 | 8.5% | 4,446 | Hybrid |
| ENH | 2,000 | $ 1.24 | 3.6% | 2,480 | Insurance |
| FCX | 1,021 | $ 1.24 | 3.7% | 1,266 | Resources |
| FSC | 2,677 | $ 1.15 | 11.3% | 3,077 | Hybrid |
| HFC | 1,069 | $ 0.90 | 2.5% | 962 | Resources |
| INTC | 1,291 | $ 0.92 | 3.5% | 1,187 | Tech |
| JPM | 1,661 | $ 1.20 | 3.3% | 1,993 | Finance |
| JQC | 4,717 | $ 0.80 | 8.6% | 3,774 | Hybrid |
| KMF | 1,817 | $ 1.72 | 6.2% | 3,125 | Pipelines |
| KSS | 909 | $ 1.28 | 2.6% | 1,163 | Consumer |
| KSW | 13,673 | $ 0.20 | 5.4% | 2,735 | Construction |
| LNC | 2,443 | $ 0.32 | 1.6% | 782 | Insurance |
| MPC | 575 | $ 1.00 | 2.1% | 575 | Resources |
| MSFT | 959 | $ 0.80 | 2.7% | 767 | Tech |
| O | 546 | $ 1.72 | 4.2% | 939 | Services |
| OIBAX | 3,838 | $ 0.34 | 5.3% | 1,301 | Bond |
| PGR | 2,000 | $ 0.41 | 2.1% | 820 | Insurance |
| PM | 444 | $ 3.08 | 3.4% | 1,366 | Consumer |
| PRE | 1,023 | $ 2.56 | 3.4% | 2,619 | Insurance |
| PVD | 417 | $ 5.13 | 5.9% | 2,140 | Finance |
| SAI | 3,929 | $ 0.48 | 4.3% | 1,886 | Services |
| SBS | 857 | $ 3.03 | 3.6% | 2,597 | Utility |
| STO | 1,040 | $ 0.98 | 4.0% | 1,019 | Insurance |
| TROX | 2,022 | $ 1.25 | 5.0% | 2,527 | Insurance |
| VIVHY | 2,896 | $ 1.30 | 6.8% | 3,765 | Consumer |
| WBK | 508 | $ 8.13 | 6.7% | 4,126 | Finance |
| XOM | 223 | $ 2.28 | 2.6% | 508 | Resources |
| Total | 4.6% | 60,615 | |||
Finally, upcoming dividends (money in my pocket):
| Upcoming Dividends | |||||
| Stock | Shares | x Date | Div/Share | Est New Shares | Amount |
| OIBAX | 3,838 | 7/30/12 | $ 0.02 | 12.0 | 81 |
| O | 546 | 7/30/12 | $ 0.15 | 1.0 | 80 |
| INTC | 1,291 | 8/3/12 | $ 0.23 | 11.0 | 290 |
| CSQ | 5,293 | 8/9/12 | $ 0.07 | 37.0 | 370 |
| XOM | 223 | 8/10/12 | $ 0.57 | 1.0 | 127 |
| BHK | 2,994 | 8/12/12 | $ 0.07 | 14.0 | 219 |
| FSC | 2,677 | 8/13/12 | $ 0.10 | 25.0 | 256 |
| JQC | 4,717 | 8/13/12 | $ 0.07 | 33.0 | 316 |
| MPC | 575 | 8/14/12 | $ 0.25 | 3.0 | 144 |
| MSFT | 959 | 8/15/12 | $ 0.20 | 6.0 | 192 |
| PRE | 1,023 | 8/17/12 | $ 0.62 | 8.0 | 634 |
Posts
8 comments:
Thanks for all of your blogging. It's been very informative and much appreciated. I do still enjoying reading about your dividend portfolio and hope you will keep blogging about that, as well as the yearly MFI index. I agree with you that the MFI methodology has not been beneficial the past 6 years. Even if it begins working again, I'm not sure it is worthwhile given its seemingly inherent volatility. At the beginning of the year, you were considering following MFI with the dividend requirement. Are you planning to track that next to your own dividend portfolio? Although the sample set is only 6 years, it does seem that the MFI dividend portfolio is promising and may be worth dedicating a portion of one's portfolio. Best of luck and thanks again.
Eric - thanks for the kind words. I do not intend to track anything new going forward, unless I can find a simple way to copy and paste from the MFI website. It is funny, the dividend stocks in MFI have done great, but the few times I have taken a subset, I haven't done so well (CHKE, PETS and STRA for example). So I guess I don't have the somach for it, even though I have the data to show it works. I am in my mid 50s, so I am starting to look towards retirement and this is realy money to me. I just feel better in the INTC, CSCO and PMs of the world.
Marsh - I understand what you're talking about regarding the need to stomach even the dividend MFI stocks. Still, it would be a shame to stop the tracking and miss out on seeing if the dividend MFI still works. If you have Adobe Acrobat Professional on a PC, an easy way to copy and paste from the MFI website is to print the website page into a pdf file. Then using Adobe Acrobat, highlight the table you want to copy, right click the highlighted portion, then choose 'open table in spreadsheet'. For the last step, you could also choose 'copy as table' and then paste into a spreadsheet. Both ways, the stock symbols should show up in the 2nd column of the spreadsheet. There may be other ways to copy from a pdf into a spreadsheet if you don't have Adobe Acrobat. I hear the upcoming version of Microsoft Word allows one to work with pdf files. If one could convert a table in a pdf file into a Word table, then you could highlight the table and paste into a spreadsheet.
Marsh - I was reading the last year's worth of your posts to understand your rationale for switching from MFI to a dividend portfolio. I completely agree with you and have been implementing that myself, although mainly with ETFs rather than individual stocks. You had asked about return of capital from CEFs. I used to invest in CEFs 20 years ago when ETFs were few and far between. I've pretty much stopped, unless I spot a CEF trading at a wider than normal discount to NAV.
There are pros and cons of CEFs that return capital as part of their distributions. The pro is that, as long as the CEF is trading at a discount to NAV, the return of capital (and dividend or capital gains distribution) results in a slight widening of the discount immediately ex-div that almost always immediately returns to its pre-ex-div discount. So you get a little extra when the distribution is made. The opposite occurs if the CEF is at a premium. You can model this on a spreadsheet and it's one of the reasons I always avoided a CEF trading at a premium.
Another factor is that, because of the return of capital, the asset base of the CEF decreases or at least doesn't increase as much as if there was no return of capital. Some CEFs make up for this by utilizing a rights offering, which has the opposite effect of a return of capital for a CEF trading at a discount that doesn't change before and after the rights offering. A rights offering is the worst disadvantage, since you're paying money that then begins trading at a discount. Because a rights offering is usually at a discount to NAV, you're even worse off if you do not participate. I typically avoid any CEF managed by an Asset Management Company that has done a rights offering on any of the CEFs they manage, since it is the ultimate abuse of the small investor. Unfortunately, that information requires a lot of effort to find.
Yet another disadvantage is that the CEF may reduce or eliminate the return of capital, which reduces the distribution and usually leads to a widening of the discount as investors sell the CEF. This happened with the Boulder and Royce CEFs a couple of years ago. Even if the distribution is later increased, the discount can sometimes persist.
Even if you buy a CEF at the wider end of the typical discount range (hoping that the discount will narrow and you will book a capital gain), the discount can occasionally get worse. That happened in 2008/9, where some CEFs were trading at a 20-40% discount to NAV. They all bounced back eventually, but if one owned them going into the Great Recession, the draw down would have been much worse than if one had owned an equivalent ETF/mutual fund. On the other hand, that was the time to buy a CEF, when the discounts were 20-40%.
CEFs are interesting in that they are an area cited by academicians as a true example of an inefficient market. Unfortunately, I don't find too many good, low risk opportunities for capitalizing on the inefficiencies in the last couple of decades, other than 2008/9.
Marsh,
Would also like to pass on my thanks for your blogging and my wish that you will continue on the dividend stocks.
I had sent you a list of the stocks my wifes broker has her in, all high dividend yields which have done very well for her in the last 10 months. Here is the current list of what she owns:
ABT
BMS
CAG
COP
DD
DOW
EMR
GE
GIS
HCBK
HD
HNZ
INTC
JNJ
JPM
KMB
KO
MCD
MRK
MSFT
NYB
PEP
PG
PSX
RTN
STWD
SYY
T
TOT
TRI
VOD
VZ
WM
WMT
WY
A couple of stocks that I personally like both with a dividend, although not as big as most on that list, are CAT and STX. STX has gone up considerably, but even so, when I do my screening, it still shows as something to consider.
Best of luck to you.
Thanks for all the blogs, Marsh.
I will continue to check in and see what you're up to.
I am committed to at least another 18 months of the MFI. I'm up around 2% versus around 8% on the market for my 18 months thus far.
This has thus far been a (not too costly) lesson in the challenges of using backtested results as the basis for a strategy -- it's better we just do our homework and keep our eyes open!
thanks for everyone's thoughts and encouragement. AndrewsDad, I actually have been following your dividend portfolio after you posted it last fall and it has done quite well. STX has probably been a great pick for you.
Eric, thanks for CEF thoughts. I am not sure what to do with mine (I have 4 and they are up an average of 26%, versus 10% for broader averages)
Marsh - congrats on your CEFs. Now that you have a substantial gain, the tax advantages of holding on may tip the balance in favor of keeping them. In any event, it appears it's a small percentage of your overall portfolio and thus probably not a big deal either way.
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