Anatomy of A MFI Stock

I had a great night last night here in the big apple.  I went to the Lincoln Center and attended a Piano Quartet concert.  It blew me away.  I was able to get a 1/2 price ticket for $28 and then have 90 minutes of music by some of the best musicians in the world in a fabulous concert hall.

While I was listening to Brahms and Mozart being played, my mind wandered thinking about MFI.  I think one item that makes it difficult as investors is that a stock can stay on the screen for a long time and for a couple of years can be a real bow-wow dog.  That makes it less likely that you buy it as it approaches the bottom and you miss the spring back.  I am going to look at a couple of examples to illustrate my point:

ESI

Date	Initial Price	End Price	Percent Change
3/23/2012	65.52	13.78	-79.0%
1/27/2012	66.83	16.16	-75.8%
2/24/2012	74.21	18.63	-74.9%
4/27/2012	65.59	17.74	-73.0%
12/29/2011	57.56	17.31	-69.9%
10/28/2011	66.87	21.49	-67.9%
11/25/2011	51.52	17.00	-67.0%
5/25/2012	57.90	24.80	-57.2%
6/22/2012	55.53	24.40	-56.1%
8/26/2011	70.91	31.41	-55.7%
7/29/2011	85.67	43.43	-49.3%
9/30/2011	57.58	32.23	-44.0%
7/27/2012	43.43	27.25	-37.3%
11/27/2009	92.10	59.99	-34.9%
12/31/2009	95.96	64.86	-32.4%
10/30/2009	90.35	64.53	-28.6%
6/24/2011	76.62	57.45	-25.0%
5/27/2011	70.87	57.90	-18.3%
8/24/2012	31.41	28.81	-8.3%
9/28/2012	32.23	30.97	-3.9%
9/27/2013	30.97	32.01	3.4%
8/30/2013	28.81	32.01	11.1%
7/29/2013	27.25	32.01	17.5%
5/24/2013	24.80	32.01	29.1%
6/28/2013	24.40	32.01	31.2%
10/26/2012	21.49	32.01	49.0%
2/22/2013	18.63	32.01	71.8%
4/26/2013	17.74	32.01	80.4%
12/31/2012	17.31	32.01	84.9%
11/23/2012	17.00	32.01	88.3%
1/25/2013	16.16	32.01	98.1%
3/28/2013	13.78	32.01	132.3%

Now if you look at the top row.  Suppose you bought ESI in your MFI portfolio on March 23, 2012.  It proceeded to crash 79%. Yeow!  Then you are doing your next tranche in March of 2013 (bottom row).  How many people would have the stomach to re-balance and take on ESI for a second year?  It would be difficult.  But it would have been exactly the best thing to do.  If your re-balance had the same dollar amount, you would have actually been a net gainer with the 132% increase 9thus far).

GME

Date	Initial Price	End Price	Percent Change
6/29/2009	22.17	18.59	-16%
7/29/2009	21.87	20.05	-8%
12/31/2009	21.94	22.91	4%
1/22/2010	20.03	20.98	5%
2/26/2010	17.20	19.85	15%
3/25/2010	21.78	21.73	0%
4/23/2010	25.22	26.54	5%
5/28/2010	22.79	28.21	24%
6/29/2010	18.32	26.12	43%
7/29/2010	19.74	23.11	17%
11/26/2010	20.50	22.36	9%
1/28/2011	20.98	24.32	16%
2/25/2011	19.72	22.73	15%
3/24/2011	21.59	23.62	9%
4/21/2011	26.37	21.09	-20%
6/24/2011	25.74	17.32	-33%
7/29/2011	23.24	16.14	-31%
11/25/2011	20.92	27.07	29%
12/29/2011	23.46	25.09	7%
1/27/2012	23.43	23.71	1%
2/24/2012	22.05	24.82	13%
3/23/2012	22.66	27.97	23%
4/27/2012	21.76	34.62	59%
5/25/2012	18.87	32.11	70%
6/22/2012	16.96	42.03	148%
7/27/2012	15.48	45.39	193%
8/24/2012	17.90	50.21	181%
9/28/2012	20.30	49.65	145%
10/26/2012	22.23	51.66	132%
11/23/2012	26.16	51.66	97%
12/31/2012	24.48	51.66	111%
1/25/2013	23.13	51.66	123%
2/22/2013	24.21	51.66	113%
3/28/2013	27.59	51.66	87%
4/26/2013	34.15	51.66	51%
5/24/2013	31.67	51.66	63%
7/29/2013	45.14	51.66	14%

Maybe not as extreme.  But think if you bought in June 2009.  After one year, you are down 16%, which is pretty poor as the R3K was up 24% in that stretch.  But you belly up and buy it a second year, doing the whole re-balance thing (which is actually critical in my mind).  Guess what? It zooms up 43%!  You are now in the black (R3K was up 25%, so you are still trailing the benchmark).  You re-enlist for a third year.  Down 33%!  Everyone saying GME is going the way of the do-do bird.  The r3K is up 5% and you are trailing big time.  Do you have the conviction to buy again in June of 2012?  I doubt I would.  But then you miss the payoff.  Up 148%!

I expect I could replay this for many MFI stocks on the screens.  Yes, there are likely stocks that never rebound, but I'd wager most of them do eventually.  And psychologically it is difficult to buy after you see it bruised and battered for a year or two.

Maybe for November, I should buy the most down beaten stocks?  Ones that cross my mind are EGY, STRA, APOL and ENZN.  Hmmm. I don't think I could do that.