As my readers know, I have developed several tools to help my analysis. I first developed a tool that could calculate the MFI statistics (Earnings Yield and Return on Capital) for any individual stock. I got pretty comfortable that my tool was correct as in the olden days the official Magic Formula (Magic Formula Investing) site published the key statistics in ranges for stocks on their list.
This tool was then expanded to calculate the MFI stats on multiple stocks in an automated fashion. This meant that if I had a list of tickers, I could rank them in the same fashion as the book. I pull in tickers every now and then from FINVIZ and do just that. It does take a couple hours and my macro can only do 400 stocks at a time.
The second leg of my analysis stool has been my Monthly Tracking Portfolios. Once a month, I import the 50 stocks from the official list with a market cap greater than $100m. I mark down the starting price in a spreadsheet. I then look to see how that portfolio has performed one year later and compare that against the Russell 3000. As a corollary to this, I have created a daily MFI index that looks at the performance of those 50 stocks daily and is rebalanced once a year.
The third leg of the stool is my own (real money) MFI portfolio. I was a bit haphazard about this at first, though my results certainly in total were consistent with the tracking portfolios. I am now following pretty much to the letter of the law, and (sadly) I am still very consistent with the tracking portfolios.
Top Micro Cap List
One beauty of doing my own work is that I am not beholden to the official website. Earlier this week, I ran the MFI stats for stocks under $50m in market cap. This would really be a starting point for further analysis. Obviously with stocks so small, you have to be very careful.
| Ticker | Rank | Date | Stock Price | Market Cap | Earnings Yield | ROIC | Yahoo Yield | Country |
| DVOX | 1 | 3/12 | 0.55 | 6 | 266% | 476% | 0.0% | USA |
| MSN | 2 | 3/12 | 1.63 | 44 | 8400% | 73% | 0.0% | USA |
| GPRC | 3 | 3/12 | 1.60 | 17 | 487% | 54% | 0.0% | China |
| MNDO | 4 | 3/12 | 2.16 | 41 | 19% | 642% | 0.0% | Israel |
| INTT | 5 | 3/12 | 3.05 | 32 | 23% | 55% | 2.6% | USA |
| DEER | 6 | 3/12 | 0.14 | 5 | 8727% | 32% | 0.0% | China |
| MAG | 7 | 3/12 | 12.03 | 39 | 58% | 37% | 0.0% | USA |
| GVP | 8 | 3/12 | 2.19 | 40 | 20% | 49% | 0.0% | USA |
| EDS | 9 | 3/12 | 1.44 | 47 | 813% | 21% | 0.0% | Hong Kong |
| COOL | 10 | 3/12 | 0.58 | 23 | 69% | 35% | 0.0% | USA |
| EVI | 11 | 3/12 | 1.44 | 10 | 14% | 458% | 41.7% | USA |
| JCTCF | 12 | 3/12 | 16.16 | 25 | 23% | 40% | 0.0% | USA |
| CSPI | 13 | 3/12 | 5.65 | 19 | 147% | 24% | 3.5% | USA |
| HMNY | 14 | 3/12 | 3.16 | 7 | 11% | 174% | 2.9% | USA |
| PNTR | 15 | 3/12 | 2.80 | 13 | 14% | 45% | 0.0% | Israel |
| FFI | 16 | 3/12 | 0.23 | 3 | 10% | 1484% | 0.0% | USA |
| BORN | 17 | 3/12 | 1.60 | 41 | 71% | 18% | 0.0% | China |
| FFN | 18 | 3/12 | 0.64 | 20 | 10% | 710% | 0.0% | USA |
| DOM | 19 | 3/12 | 4.91 | 39 | 13% | 42% | 10.7% | USA |
| ELSE | 20 | 3/12 | 3.99 | 14 | 17% | 26% | 4.0% | USA |
MSN (for example) is interesting. It is a 44m market cap, yet they have $58m of cash and no debt. They trade at 60% of book. Obviously they have some hair on them. But I think a person could literally buy the entire company, lay everyone off and probably have some money left over as profit.
Tracking Update
| IWV Performance | ||
| ITD | Annual | |
| 2006 | 11.40% | 11.40% |
| 2007 | 15.96% | 4.09% |
| 2008 | -27.00% | -37.05% |
| 2009 | -3.27% | 32.51% |
| 2010 | 14.50% | 18.38% |
| 2011 | 13.87% | -0.56% |
| 2012 | 32.52% | 16.38% |
| 2013 | 45.94% | 10.13% |
| MFI Index Performance | ||
| ITD | Annual | |
| 2006 | 15.03% | 15.03% |
| 2007 | 7.34% | -6.69% |
| 2008 | -33.42% | -37.97% |
| 2009 | -3.34% | 45.18% |
| 2010 | 18.67% | 22.77% |
| 2011 | 6.25% | -10.47% |
| 2012 | 16.56% | 9.70% |
| 2013 | 27.50% | 9.39% |
The table above shows my MFI index performance by year and inception to date since the start of 2006. This is compared with the Russell 3000. As you can see, MFI hung in there through 2010. But has under-performed the past three years. This (in my opinion) has been driven by being over-weight in For Profit Education Stocks (like APOL), Home Healthcare (like AMED) and Chinese RTOs (like CAST). Interestingly, these are all areas Jim Chanos shorted, which is why I listen so closely to him when he is on TV.
My Current Tranches
I currently have three tranches of 5 MFI stocks each on-going right now. While they are not horrible (as hopefully I have avoided the value traps listed above); I am still under-performing the broader index. AAPL and MSFT are the two lead weights.
| 8/15 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| DLB | $34.43 | $32.97 | $4.00 | 7.4% | 13.7% |
| KFY | $13.98 | $18.11 | $0.00 | 29.5% | 13.7% |
| MSFT | $30.19 | $28.04 | $0.46 | -5.6% | 13.7% |
| NSU | $3.62 | $3.86 | $0.05 | 8.2% | 13.7% |
| UIS | $19.96 | $24.04 | $0.00 | 20.4% | 13.7% |
| Totals | 12.0% | 13.7% | |||
| 11/15 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| AAPL | $537.62 | $443.66 | $2.65 | -17.0% | 17.2% |
| ABC | $40.21 | $48.89 | $0.21 | 22.1% | 17.2% |
| LPS | $23.89 | $24.66 | $0.20 | 4.1% | 17.2% |
| VIAB | $49.12 | $63.14 | $0.55 | 29.7% | 17.2% |
| WU | $12.77 | $14.67 | $0.25 | 16.8% | 17.2% |
| Totals | 11.2% | 17.2% | |||
| 2/1 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| AAPL | $450.60 | $443.66 | $2.65 | -1.0% | 3.7% |
| GA | $6.10 | $6.28 | $0.00 | 3.0% | 3.7% |
| STRZA | $16.06 | $20.94 | $0.00 | 30.4% | 3.7% |
| CA | $25.07 | $25.44 | $0.25 | 2.5% | 3.7% |
| NUS | $41.94 | $41.10 | $0.30 | -1.3% | 3.7% |
| Totals | 6.7% | 3.7% |
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