Tuesday, July 31, 2012

Reconsidering

I had mentioned over the weekend that I was thinking about winding down my mfi blog. I was frustrated by the sub-par results and the fact that the cut and paste from the official website no longer worked.  I also felt that my readership had been diminishing over time.

The good news is that I have figured out a way to pull in the data without typing. It is a bit convoluted, but workable once a month. So I am going to continue (for the time being) creating tracking portfolios.

I am also reconsidering moving money back into the mfi space. I am traveling right now, but I did do a little research over the weekend that showed that subsets of the mfi space are working okay ( essentially dividend stocks and stocks approaching one billion in market cap).  So my thought is to take a fixed amount per quarter (say $75,000 as an example) and then buy a basket of the larger dividend stocks in the mfi screen with the latitude to exclude one stock. I would simply track these baskets within my broader dividend portfolio with naming convention 2013a, 2013b and so n.
One "risk" of this approach is that I will likely get overweight certain stocks as some stocks are very regularly on such a scen (such as DLX).
Anyway, that is a basic plan. Not sure if I will start in the fourth quarter or in 2013.

We will see.

Saturday, July 28, 2012

Winding Down

Winding Down

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%

As readers know, I like to also track how a hypothetical $100,000 invested over first 12 portfolios would be doing. I also look at this with two sub-portfolios, one being based on dividend stock and the other based on "new" stocks in past 12 months.

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%.
Here is my current portfolio (recall shares etc are multiplied by a mystery factor):


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%


Here are the current yields:


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