Friday, August 08, 2014

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.


1 comment:

John Carney said...

Marsh,

I am just a paper guy right now, but I have 12 rules for MFI if I go forward.

I do believe in MFI and most of my family believes in MFI.

After five years, we just could not make it work as the book lead us to believe that the door for us little guys was to do what the large funds could not do. Just go with the small caps.

My rule for adding more money is to add more money any year that my MFI results are +8% of IWV.

With 25% cash I could do 75% in MFI but only if I can beat the index. One needs to have an out performance as there are taxes in selling each year.

Your performance to date does warrant more monies in my view.

The downside is I don't believe you will lose to IWV. And I am betting you will win!