Should I Increase My MFI Proportion?

To Increase Or To Not Increase

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:

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	38.3%	24.5%	18.8%	-1.6%	20.6%
Previous Tranche	14.1%	43.7%	78.3%	33.0%	40.8%
MFI Overall Gain	57.7%	78.9%	111.8%	30.9%	69.8%
Current Balance	39,428	44,737	52,943	32,724	169,831
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%
R3K Balance	35,992	37,020	32,815	29,722	135,549
Annualized IRR	25.8%	40.0%	64.0%	23.8%	39.4%

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: 

57.7%/78.9%/111.8%/30.9%

44.0%/48.1%/31.3%/22.6%

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).

Generally Flailing

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
1/13	KLIC	Op	12.01	14.00	3,980	16.6%
1/13	SIRI	Cl	3.73	3.37	-5,352	-9.6%
1/14	TC	Cl	2.56	2.58	200	0.8%
1/16	C	Cl	52.67	47.24	-5,425	-10.3%
1/17	RIOM	Op	2.26	2.51	3,750	11.1%
1/21	FGL	Cl	19.75	19.80	200	0.3%
1/21	NTC	Op	12.00	12.60	6,213	7.8%
1/24	C	Cl	49.22	47.24	-990	-4.0%
1/27	TWM	Cl	50.45	50.72	1,100	0.5%
1/31	ATVI	Op	17.16	22.54	13,004	32.5%
1/31	KLAC	Op	61.35	72.34	7,750	19.4%
1/31	MBUU	Cl	17.50	19.18	6,720	9.6%
1/31	RPXC	Op	16.13	15.09	-2,589	-6.5%
1/31	SNDK	Op	70.20	91.43	12,379	31.0%
1/31	WNR	Op	39.80	44.93	5,931	14.8%
2/10	IEV	Cl	46.28	48.08	567	3.9%
2/10	MUSA	Cl	39.00	39.04	60	0.1%
2/12	AGII	Cl	43.53	44.00	705	1.1%
2/13	FGL	Cl	20.08	20.64	1,250	3.1%
2/14	MUSA	Cl	39.25	39.04	-105	-0.5%
2/18	FSC	Op	9.64	9.84	2,864	6.4%
2/24	AOD	Op	8.33	8.57	1,737	7.0%
2/24	FGL	Cl	20.01	20.64	695	3.5%
2/24	KLIC	Op	11.52	14.00	3,720	21.5%
2/24	PM	Cl	78.60	86.45	9,730	12.4%
2/26	CS	Cl	30.78	32.19	1,413	4.6%
2/26	FSC	Op	9.68	9.84	1,153	6.0%
2/27	BBEP	Op	19.47	21.46	2,986	15.3%
2/27	LMNS	Cl	12.94	8.86	-32,900	-31.5%
3/4	RIOM	Cl	2.24	2.38	1,400	6.2%
3/6	PXLW	Cl	7.39	7.63	2,377	3.2%
3/7	LMNS	Cl	12.49	9.36	-25,040	-25.1%
3/7	PXLW	Cl	8.90	6.92	-9,920	-22.3%
3/7	TPVG	Op	15.55	15.15	-50	-0.1%
3/10	IWM	Cl	119.28	114.07	-656	-4.4%
3/13	CALL	Cl	21.20	22.43	2,460	5.8%
3/17	GTAT	Cl	17.05	17.54	3,465	2.9%
3/19	LMNS	Cl	12.02	10.45	-6,256	-13.0%
3/19	CTCM	Cl	9.13	9.53	2,033	4.5%
3/21	CALL	Cl	24.13	20.33	-7,600	-15.7%
3/21	CTCM	Cl	8.84	9.53	3,467	7.8%
3/28	CALL	Cl	20.27	20.11	-320	-0.8%
3/28	GTAT	Op	15.37	15.49	360	0.8%
4/3	GNW	Op	18.39	12.91	-10,960	-29.8%
4/3	TWOU	Cl	13.92	13.71	-585	-1.5%
4/7	GTAT	Op	16.46	15.49	-2,895	-5.9%
4/7	SPY	Cl	185.98	182.86	-246	-1.7%
4/9	TWOU	Cl	12.99	13.71	483	5.5%
4/9	KANG	Cl	15.88	15.96	930	0.5%
4/9	GSOL	Cl	8.58	8.85	1,100	3.2%
4/10	TZA	Cl	17.00	17.38	1,140	2.2%
4/11	FGL	Cl	22.57	20.64	-1,930	-8.6%
4/15	GTAT	Cl	15.10	15.78	2,720	4.5%
4/15	TZA	Cl	17.81	18.41	2,400	3.4%
4/14	EDV	Op	101.20	108.33	1,113	7.9%
4/16	TZA	Cl	17.34	17.30	-160	-0.2%
4/21	RIOM	Op	1.87	2.51	6,434	34.5%
4/21	TZA	Cl	16.92	16.07	-3,428	-5.1%
4/22	FGL	Cl	21.96	21.40	-560	-2.6%
4/24	KLAC	Cl	67.21	64.19	-2,114	-4.5%
4/28	FGL	Cl	20.36	21.58	1,793	6.0%
4/28	GNW	Cl	16.76	18.00	2,230	7.4%
4/28	LMNS	Cl	8.32	8.56	921	2.8%
4/28	WB	Cl	17.55	17.89	1,020	1.9%
4/29	AHL	Cl	45.47	45.91	660	1.0%
5/2	HIMX	Cl	8.84	7.16	-5,028	-19.0%
5/6	AVG	Op	19.57	17.65	-2,944	-9.8%
5/6	CA	Op	29.54	28.55	-753	-2.5%
5/6	CSCO	Op	22.79	25.03	3,202	10.7%
5/6	NSR	Op	25.82	27.59	2,059	6.9%
5/6	RCII	Op	28.78	24.75	-3,955	-13.2%
5/7	AVG	Cl	18.29	19.65	2,710	7.4%
5/9	DTV	Cl	87.11	87.21	75	0.1%
5/12	GTAT	Cl	13.01	14.10	3,270	8.4%
5/13	FSC	Op	9.20	9.84	1,203	8.7%
5/15	KERX	Cl	12.55	13.14	1,770	4.7%
5/20	AMZN	Cl	303.05	304.22	176	0.4%
5/21	BAC-WTA	Op	6.88	6.75	-260	-1.9%
5/21	GPS	Op	40.55	42.57	4,480	5.5%
5/28	RIOM	Op	1.65	2.51	8,628	52.4%
5/28	NADL	Op	9.59	9.58	1,175	2.5%
6/2	TBT	Cl	61.72	63.00	2,550	2.1%
6/3	IDCC	Cl	45.31	48.28	2,493	6.6%
6/5	GTAT	Cl	16.02	17.15	3,390	7.1%
6/9	TIME	Op	22.89	23.63	1,480	3.2%
6/12	TZA	Cl	15.45	13.40	-12,270	-13.2%
6/13	IGT	Cl	15.71	15.97	789	1.7%
6/16	TZA	Cl	15.06	13.40	-6,624	-11.0%
6/17	TLM	Cl	10.66	10.14	-3,120	-4.9%
6/18	TSL	Op	11.13	11.53	1,620	3.6%
6/24	XNET	Cl	14.94	15.12	630	1.2%
6/27	NEP	Cl	32.05	32.30	382	0.8%
6/30	IDTI	Cl	15.32	15.42	285	0.6%
7/2	DAL	Cl	38.09	37.32	-1,155	-2.0%
7/7	TC	Op	2.94	2.77	-3,400	-5.8%
7/7	CAMT	Cl	4.60	5.02	4,128	9.0%
7/8	GTAT	Op	16.58	15.49	-4,340	-6.5%
7/8	CAMT	Cl	4.28	4.20	-1,134	-1.8%
7/17	CAMT	Cl	3.86	4.20	1,700	8.8%
7/18	CAMT	Cl	3.54	4.20	3,322	18.8%
7/22	TUBE	Cl	9.40	9.80	1,602	4.3%
7/23	TLM	Op	10.89	10.67	-1,100	-2.0%
7/25	LOCO	Cl	18.89	20.89	7,000	10.6%
7/31	GNW	Op	13.59	12.91	-598	-5.0%
7/31	NADL	Op	9.55	9.58	42	0.3%
8/1	TLM	Op	10.57	10.67	250	0.9%
8/4	MBLY	Cl	38.45	38.20	-500	-0.7%
8/5	TNH	Op	148.10	151.85	1,875	2.5%
8/6	BAC-WTA	Op	6.61	6.75	280	2.1%
8/7	TTOO	Op	14.54	13.40	-4,560	-7.8%

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.

Taxes

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.