Weekend Update - College Decision TimeExciting times here at our household. My son has gotten all his college acceptances in. He is really down to two colleges, Case Western in Cleveland and Carnegie Mellon in Pittsburgh. Both very good schools. He wanted to double major in Physics and Flute performance, but he did not make the cut in flute anywhere. It is competitive. CW has offered a pretty decent Merit Scholarship, about 50%. So that is weighing on our decision-making. If anyone has opinions regarding these two schools, let me know. I did have a friend go to CMU in Computer Science and loved it there.
This Week
Kind of a rocky week in the markets. The R3K was down 2.5%. I was down just 1%, so I guess I "won". It is strange, I am sitting on the most cash I have ever sat on in my investing life - so in theory a 10 or 20% correction would benefit me (assuming we eventually got it back). But even a 2.5% down week kind of sucks psychologically.
You have to believe a correction will come. Here is what one of my favorites, Seth Klarman said:
“In a protracted bear market, you will be unique if you aren’t questioning yourself. Everything you thought you knew starts to seem wrong. Everything you bought thinking it was a bargain will appear, at least for the time being, not to have been a bargain at all.
Now, at a lower price, the stock may indeed have become a bargain, but do you like it as much as you thought you would now that its price is lower? Or are the facts worse than you thought, the earnings and cash flow eroded, the “compounder” blemished, or are other bargains now simply more appealing?
Whereas you once may have said that you would “back up a truck” at such discounted prices, you may find that you imagined wrong, and you have neither the desire nor the capital to add to positions as they hit new lows.”
Since he is taking time to describe bear markets and their psychology to us, I think we can infer he thinks the probability is increasing.
MFI Select
My four tranches of MFI stocks that I select are hanging in there. They did trickle down a bit on the week, but I expanded my lead over the benchmark. NSR was a strange one. On Thursday they announced the bad news regarding the FCC contract (Neustar Growth In Question After NPAC Contract Loss). Yet the stock rose the last two days from $21.92 to $24.15. Now it was the worst kept secret in Washington that they were going to lose, so perhaps that explains the relief rally. But I am not sure this stock is worth $24 without that contract. We have seen LQDT and PFMT get taken to the woodshed multiple quarters after losing major government contracts. I do think NSR is at risk as well.
| Start | Current | Dividend | Pct Gain | R3K Gain | |
| AVG | $19.57 | $21.66 | $0.00 | 10.7% | 11.3% |
| CA | $29.54 | $32.29 | $1.00 | 12.7% | 11.3% |
| $22.79 | $27.13 | $0.57 | 21.6% | 11.3% | |
| NSR | $25.82 | 24.15 | $0.00 | -6.5% | 11.3% |
| $28.78 | $27.56 | $0.70 | -1.8% | 11.3% | |
| Totals | 7.3% | 11.3% | |||
| Start | Current | Dividend | Pct Gain | R3K Gain | |
| $24.40 | $27.13 | $0.38 | 12.7% | 6.6% | |
| AGX | $36.71 | $34.68 | $0.70 | -3.6% | 6.6% |
| ITRN | $21.32 | $22.84 | $0.71 | 10.5% | 6.6% |
| $9.34 | $11.46 | $0.11 | 23.9% | 6.6% | |
| $58.25 | $48.69 | $0.14 | -16.2% | 6.6% | |
| Totals | 5.5% | 6.6% | |||
| 11/15/2014 | Start | Current | Dividend | Pct Gain | R3K Gain |
| FLR | $64.80 | $56.76 | $0.42 | -11.8% | 2.2% |
| IPCM | $38.45 | $46.17 | $0.00 | 20.1% | 2.2% |
| VIAB | $72.29 | $67.85 | $0.66 | -5.2% | 2.2% |
| NHTC | $12.19 | $17.67 | $0.03 | 45.2% | 2.2% |
| AWRE | $4.40 | $4.49 | $0.00 | 2.0% | 2.2% |
| Totals | 10.1% | 2.2% | |||
| 2/1/2015 | Start | Current | Dividend | Pct Gain | R3K Gain |
| VEC | $28.00 | $25.59 | $0.00 | -8.6% | 3.7% |
| $62.73 | $67.03 | $0.42 | 7.5% | 3.7% | |
| VIAB | $63.91 | $67.85 | $0.33 | 6.7% | 3.7% |
| $22.03 | $23.00 | $0.00 | 4.4% | 3.7% | |
| NHTC | $12.44 | $17.67 | $0.02 | 42.2% | 3.7% |
| Totals | 10.4% | 3.7% | |||
| Category/Tranche | August | November | February | May | Total |
| Initial Investment | 25,000 | 25,000 | 25,000 | 25,000 | 100,000 |
| Current Tranche | 5.5% | 10.1% | 10.4% | 7.3% | 8.4% |
| Previous Tranche | 41.4% | 14.2% | 8.5% | 33.0% | 21.7% |
| Tranche -2 | 14.1% | 43.7% | 78.3% | - | 34.0% |
| MFI Overall Gain | 70.1% | 80.7% | 113.5% | 42.8% | 76.8% |
| Current Balance | 42,527 | 45,168 | 53,375 | 35,693 | 176,763 |
| R3K Current Tranche | 6.6% | 2.2% | 3.7% | 11.3% | 6.0% |
| R3K Overall Gain | 55.5% | 60.0% | 41.8% | 32.4% | 47.4% |
| R3K Balance | 38,880 | 40,000 | 35,454 | 33,093 | 147,426 |
| Annualized IRR | 22.5% | 28.4% | 42.3% | 20.7% | 26.9% |
| Date | Differential | MFI Value | R3K Value |
| -2.20% | 99,765 | 101,965 | |
| -1.78% | 102,798 | 104,575 | |
| -2.26% | 102,594 | 104,856 | |
| -2.23% | 102,881 | 105,114 | |
| -0.43% | 106,804 | 107,234 | |
| 2.00% | 110,423 | 108,423 | |
| 4.75% | 115,831 | 111,085 | |
| 4.29% | 114,888 | 110,597 | |
| 6.91% | 124,799 | 117,889 | |
| 10.46% | 124,536 | 114,079 | |
| 19.67% | 138,655 | 118,990 | |
| 19.75% | 143,514 | 123,764 | |
| 23.70% | 150,105 | 126,405 | |
| 26.63% | 157,138 | 130,503 | |
| 24.70% | 150,619 | 125,918 | |
| 25.66% | 158,116 | 132,458 | |
| 30.38% | 162,991 | 132,616 | |
| 29.65% | 162,428 | 132,779 | |
| 31.44% | 167,001 | 135,559 | |
| 39.23% | 177,971 | 138,740 | |
| 31.13% | 167,054 | 135,922 | |
| 35.90% | 177,792 | 141,892 | |
| 29.38% | 168,321 | 138,944 | |
| 26.14% | 168,810 | 142,666 | |
| 30.22% | 176,420 | 146,198 | |
| 28.17% | 174,306 | 146,140 | |
| 20.63% | 162,833 | 142,201 | |
| 25.15% | 175,476 | 150,324 | |
| Current | 29.34% | 176,763 | 147,426 |
So you can see my May tranche is looking like it will be my third straight tranche to under-perform.
As my faithful readers may recall, this is a series of new tranches (ultimately four, currently two) that I am starting that are picking their five stocks based purely on formula and a randomizer. The formula is based on back testing I have done and it is to start with screen of 50 stocks over $100 million, pare that donw to stocks with a dividend yield of 2.4% and great and a market cap of $600m or greater. Then randomly select 5 stocks (I do have prerogative to throw out one stock).
My two tranches are doing well, but they did have a tough week. It hurt that GME had poor earnings (GameStop Q4 results disappoint, moves to diversify) and was down 6% on the week (and it is both my tranches).
| 10/1/2014 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| BAH | $23.52 | $29.20 | $0.24 | 25.2% | 6.1% |
| $45.55 | $49.35 | $3.22 | 15.4% | 6.1% | |
| CA | $27.87 | $32.29 | $0.50 | 17.6% | 6.1% |
| $41.70 | $38.36 | $0.69 | -6.4% | 6.1% | |
| $44.56 | $58.65 | $0.70 | 33.2% | 6.1% | |
| Totals | 17.0% | 6.1% | |||
| 12/31/14 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| CA | $30.83 | $32.29 | $0.25 | 5.6% | -0.3% |
| $28.36 | $27.13 | $0.19 | -3.7% | -0.3% | |
| $34.81 | $50.23 | $0.17 | 44.8% | -0.3% | |
| $34.21 | $38.36 | $0.36 | 13.2% | -0.3% | |
| IQNT | $19.87 | $15.96 | $0.15 | -18.9% | -0.3% |
| Totals | 8.2% | -0.3% |
| Date | Differential | Value |
| 0.00% | 100,000 | |
| 1.63% | 102,288 | |
| 0.30% | 101,375 | |
| -0.33% | 100,664 | |
| 1.67% | 101,281 | |
| 3.62% | 106,073 | |
| Current | 4.83% | 106,270 |
I will starting my third tranche this week (on Tuesday). GME will almost assuredly be a potential pick to be in a third straight tranche. If Mr Random deals GME to me, I will buy it. My MFI Formula approach does not discard stocks even if in previous tranches.
Here are the stocks that would be eligible right now:
| Number | Ticker | Market Cap | Price | Dividend | Yield |
| 1 | 8,802 | 32.03 | 0.80 | 2.5% | |
| 2 | 2,383 | 49.35 | 3.92 | 7.9% | |
| 3 | 138,349 | 27.13 | 0.84 | 3.1% | |
| 4 | 4,177 | 38.36 | 1.44 | 3.8% | |
| 5 | KING | 4,913 | 15.53 | 0.94 | 6.1% |
| 6 | 338,664 | 40.97 | 1.24 | 3.0% | |
| 7 | 1,140 | 7.04 | 0.60 | 8.5% | |
| 8 | PPC | 6,099 | 23.71 | 5.77 | 24.3% |
| 9 | 4,701 | 23.33 | 0.75 | 3.2% | |
| 10 | 111,074 | 67.03 | 1.68 | 2.5% |
I would likely reject PDLI. It is possible the list will change by Tuesday morning. Should be exciting.
Other News
My experiment into UCO pair with covered calls continues to do not so well. UCO is so volatile, up 10% one day and down 10% the next. The calls help dampen things a bit, but I am not enjoying the ride - not my style. I did not get called out on Friday, so I still have three open tranches. Decent chance one of them is called out end of upcoming week ($6.50 strike price):
| Type | Date | Shares | Purchase | Current | Cost | Value | Gain/Loss | Strike | X Date | Basis |
| Stock | 2/19 | 3,000 | $8.69 | $6.00 | 26,070 | 18,000 | (8,070) | $7.39 | ||
| Call | 2/19 | 3,000 | $0.20 | 600 | 600 | 9.50 | 2/27 | |||
| Call | 3/2 | 3,000 | $0.25 | 750 | 750 | 9.00 | 3/13 | |||
| Call | 3/19 | 3,000 | $0.85 | 2,550 | 2,550 | 6.00 | 4/17 | |||
| Stock | 3/3 | 3,000 | $8.34 | $6.50 | 25,020 | 19,500 | (5,520) | $7.39 | ||
| Call | 3/4 | 3,000 | $0.45 | 1,350 | 1,350 | 9.00 | 3/20 | |||
| Call | 3/23 | 3,000 | $0.50 | 1,500 | 1,500 | 6.50 | 4/2 | |||
| Stock | 3/11 | 3,000 | $7.69 | $7.07 | 23,070 | 21,210 | (1,860) | $7.29 | ||
| Call | 3/11 | 3,000 | $0.40 | 1,200 | 1,200 | 8.00 | 3/27 |
I was a bit busy selling some of my non core positions this week. I sold my SFUN (broke even) and ZSAN (took a loss). I did buy RDC at 18.36 (clearly a couple days early). A move like that worked great with RIG earlier in the year (made 18% in a month). But these moves are just on the margin. The vast bulk of my investing is in the 8 (soon to be) MFI tranches, my 6 monthly dividend stocks and my warrants/GNW.
More this weekend and another MFI tranche has hit a year. It was not a great tranche.
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