Monday, March 02, 2015

Looking Ahead to Next Formula Tranche

well, my first two Formula MFI tranches are off to exceedingly solid starts, each beating benchmarks by eight points or so. And now it is time to start the countdown to my third tranche, which I intend to buy on March 31st.

There is exceedingly little to think about, that is why it is a formula. I am not supposed to think. If fact I am specifically expected not to think. There is really only one decision to make.

For those that have not memorized my formula approach it is:


  1. Start with the 50 stocks > $100 MFI screen. 
  2. Use Yahoo finance to determine the dividend yield on all fifty stocks. 
  3. Pick a subset of stocks greater than $600m market cap and with a 2.4% yield or larger. 
  4. From that subset, I can discard one stock. 
  5. Then I run a randomized and select randomly five stocks from the subset. I then buy and hold for one year. 

The keenest of my readers will note that step four is where I have discretion. Twice now, my discard has been PDLI as my understanding of this stock is that is has a royalty stream whose days are winding down.  The stock has fallen of late, so perhaps that is being priced in. I will need to investigate. The problem is that there are two other stocks that have a decent chance of being on the list but also not really being deserving of being on the list.  PPC and EGL are two stocks that I suspect will be there at the end of March. The issue is that both of them this quarter have paid an unusual, large "one time dividend". This is reflected in the stock prices, but is likely not reflected in that data MFI uses to determine whether a stock should be on the list. That is because the balance sheets are only updated once a quarter. 

So I will need to decide which of these three names is more egregious and strike from the list.  And if I then get one of the others, well it is supposed to be a simple formula, and I will just grin and bear it. 

1 comment:

John Carney said...

Marsh,

PPC is #192 & EGL is #88 on your top 200 stocks. EGL dose not appear for me on the top 50 with 100m cap.
I have not read that PDLI revenues streams are forecast to go down. They seem to be growing.