JC asked a good question the other day: "with the successful re-boot of MFI two years ago, does it make sense for it to be more than 25% of my portfolio?".
I think about this all the time. So far, I have approached it indirectly, by picking some stocks in my dividend portfolio that are MFI stocks: like GPS and TIME. But perhaps I should be more direct. Here is a table showing my results since the re-boot:
|MFI Overall Gain||57.7%||78.9%||111.8%||30.9%||69.8%|
|R3K Current Tranche||17.9%||48.1%||8.4%||3.1%||19.4%|
|R3K Overall Gain||44.0%||48.1%||31.3%||22.6%||35.5%|
I do not know how many of my faithful readers actually step back and look at this table. But there is a ton of information in it and the results are actually approaching spectacular, spectacular (note the Moulin Rouge reference). Let us look at the table more closely:
First, just the MFI overall gain: up 69.8%. That compares with 35.5% if I had put the money just in 4 tranches of IWV. Then if you look at each of the 4 tranches, in aggregate they are all beating R3K:
Then the annualized IRR, which we can think as an annual rate of compounding is 39.4% overall and runs by tranche from 23.* to 64.0%.
Brains Versus Luck
It is a human trait to say that when things are going good (as they are for me) to pat oneself of the back and think, "wow, I am brilliant". Of course, if things were going poorly - I would say, "I just had a stretch of bad luck". It is always difficult to separate those two components: brains and luck. Two years is certainly far too short a time to judge. Greenblatt talks about that in-depth in his book. In fact he goes so far to suggest that that is why MFI will continue to work, because there will be stretches where it doesn't work. I know, zen-like.
I have this fear (not rational), that as soon as I decide to start committing more funds to MFI, that it will have a down stretch. I don't want to jinx it (I told you it wasn't rational).
A strong argument for diverting more $ to MFI is that I am frankly flailing a little bit in my discretionary picks of late. I have been somewhat over-confident, I have been in too many short term trades and it really hasn't worked that well. Here is a listing of every single trade (with my multiplier) that I have made in 2014 (excluding dividend reinvestments):
|Date||Stock||O/C||Purchase||Current||$ Gain||% Gain|
If you sum them all up, you get about a $17,000 gain (with my multiplier). While the good news is that is positive, the bad news is that if you pull out dividend stocks and MFI stocks, the total is -52,000. Whoa, that is much worse than I thought. I have really been hurt by some buys of GNW, LMNS, PXLW, the list could go on. The discretionary thing may not be my style, though it has been buoyed significantly by GTAT.
I think I have answered my own question. I do think I will ratchet up what I have in MFI tranches starting this August. It maybe less exciting, but I believe it will be more profitable.
I did take a look today at my year to date tax position. With my multiplier, my ST realized gains are $40,000 and my LT realized gains are $180,000. While directionally that is right, I want more of my gains to be LT for lower tax rate; I was a little surprised at the magnitude of the ST gains. When I sell my August 15th tranche, I will be adding another $45,000 to the LT bucket ($26,000 more in November tranche right now). Good problem to have, but I do need to keep in back of my mind. If I have some ST losses to harvest, I may want to consider doing so before the year end.