I was reading a Greenblatt interview today. He mentioned that individual investors in mfi (such as myself) have underperformed the MFI index as investors try to pick the "safest" stocks on the list, which are often not the stocks that will have the best returns over the next twelve months.
What he says makes a surprisingly amount of sense. I ran some MFI contests on the yahoo groups board and I noted the same phenomena. The straight MFI index was generally in the top quartile against the results from the individual portfolios. That suggests we bring a negative bias to the results through our analysis ( which JG referred to as akin to running. Through a dynamite factory with a lit match).
I think I am going to try and do a little study and perhaps begin incorporating some new data elements in my monthly tracking portfolios. I think I am going to capture short ratio and price to tangible book to see if those are decent predictors. It may be difficult to build going back, but I plan to be around for a few more years, so might as well start now. Can anyone suggest any other statistics tha might be interesting?
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Marshall,
I like your idea, but I don't see how that addresses JG's issue that our personal 'screening' is handicapping us. Backtesting sets of MFI picks, say your quarterly portfolios vs straight MFI picks might show which blowup and why some are surprises that we screen out. For example, I have a hard time going for the educational picks but don't have the data to support that bias - yet they are consistently selected by the MFI criteria. Hope this makes some sense, Karl
Karl - my thought is that stocks with the higher short ratios in the screen are precisely those that we would be inclined not to pick due to our bias. But if I can show that those stocks do as well as the average (or perhaps better) then we know that the hairy stocks (on average) are okay or perhaps better than ok.
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