Sunday, May 25, 2014

MFI Starting To Limp Along?

Limping Along

As I head into my 3rd straight week on crutches, limited to about 30 lbs weight on repaired knee - the word "limp" is never far from my mind.  I am sorry to observe that MFI, in the broad sense, appears to be headed for another period of limping along.  While my tracking portfolios have been on a nice streak, 11 straight wins and the upcoming portfolio closes next week and is likely to stretch streak to 12 - the open portfolios are nor faring as well. Of the nine most recent portfolios, only 3 are "winning".  Those 9 are up on average 5.5% versus 6.7% for the R3K.  As I have observed many times before, the MFI approach is extremely streaky.  While the past 11 to close have won, the previous 29 straight all lost. Another losing streak like that would not be fun.  Here is how my MFI index has done since the start (2006).  You will note it is pretty much a dead heat:

Annual Inception to Date
Year Russell MFI Russell ITD MFI ITD
2006 11.40% 15.03% 11.40% 15.03%
2007 4.09% -6.69% 15.96% 7.34%
2008 -37.05% -37.97% -27.00% -33.42%
2009 32.51% 45.18% -3.27% -3.34%
2010 18.38% 22.77% 14.50% 18.67%
2011 -0.56% -10.47% 13.87% 6.25%
2012 16.43% 9.70% 32.57% 16.56%
2013 33.01% 51.70% 76.34% 76.82%
2014 3.07% 2.86% 81.75% 81.87%

I will also note that while dividend MFI stocks over time have been superior, that may be chaning. Of the 9 most recent portfolio, the dividend stocks are up 5.3% (worse than the 5.5% overall average above). GNI, INTX and NATR have been huge drags.  I will also note those are all smaller dividend stocks.  If you went for just market cap > 750m and dividend stock, you are up an average of 11% - so that continues to be a superior strategy (it is not a coincidence that 3 of my 5 recent MFI stocks meet that criteria, CSCO, CA and RCII).


I have not read all of Barron's yet this weekend, but they did have an article about all the recent M&A activity (I have mentioned that several times here).  They also run some simple screen to identify potential M&A candidates.  Of the ten or so they mention, FLR did make the list.  I would suggest almost all my MFI picks (except for the to big to buy, such as CSCO) are probably potential targets as a key measure (as mentioned by the article) is the ratio of EV/EBITDA; this ratio is highly correlated to Greenblatt's Earning Yield (inversely correlated as JG uses Income/EV).

1 comment:

jb said...

The only problems with streaks is that they are hard to predict in advance...

I'm in for the long term.