Weekend Update May 30th, 2015

Weekend Update

Beautiful early summer morning here in New England. Having a little peanut butter with raspberry jam for breakfast.  Last week was a bad week, down about 1.2%.  KORS down 25% was certainly the loss leader.  But TC (what a mistake) was down 15%, Then SJT, FLR, CSIQ, CBI, AGX, KING, TBT, NUS, RGR, PPC, BKE and O were all down more than 3%. Talk about death by 1,000 nibbles. Oh well, the sun still came up this weekend.

MFI Select

For all that is going wrong, this portfolio of four tranches continues to motor along.  So while KORS imploded (although it looks extraordinarily cheap right now), stocks like NHTC continue to carry a lot of water for MFI Select.

8/15/2014	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$24.40	$29.31	$0.59	22.5%	9.5%
AGX	$36.71	$35.78	$0.70	-0.6%	9.5%
ITRN	$21.32	$23.25	$0.71	12.4%	9.5%
BRCD	$9.34	$12.37	$0.11	33.6%	9.5%
CBI	$58.25	$54.26	$0.14	-6.6%	9.5%
Totals				12.3%	9.5%
11/15/2014	Start	Current	Dividend	Pct Gain	R3K Gain
FLR	$64.80	$56.22	$0.63	-12.3%	5.0%
IPCM	$38.45	$49.37	$0.00	28.4%	5.0%
VIAB	$72.29	$66.88	$0.66	-6.6%	5.0%
NHTC	$12.19	$33.80	$0.06	177.8%	5.0%
AWRE	$4.40	$4.22	$0.00	-4.1%	5.0%
Totals				36.6%	5.0%
2/1/2015	Start	Current	Dividend	Pct Gain	R3K Gain
VEC	$28.00	$25.09	$0.00	-10.4%	6.5%
QCOM	$62.73	$69.68	$0.42	11.7%	6.5%
VIAB	$63.91	$66.88	$0.33	5.2%	6.5%
UIS	$22.03	$20.54	$0.00	-6.8%	6.5%
NHTC	$12.44	$33.80	$0.05	172.1%	6.5%
Totals				34.4%	6.5%
5/6/2015	Start	Current	Dividend	Pct Gain	R3K Gain
CBI	$50.38	$54.26	$0.00	7.7%	1.2%
PSDV	$4.12	$3.93	$0.00	-4.7%	1.2%
TSRA	$38.94	$38.55	$0.00	-1.0%	1.2%
KORS	$62.24	$46.50	$0.00	-25.3%	1.2%
DEPO	$23.50	$20.86	$0.00	-11.2%	1.2%
Totals				-6.9%	1.2%

So you can see that three of the four portfolios are winning. Both November and February by a lot.  The newest one, May, has really gotten off to a poor start. It was bad before the KORS fiasco. So PSDV, KORS and DEPO have all missed on their first round of earnings since the genesis of this portfolio.

Here is a table showing how all the tranches have done:

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	12.3%	36.6%	34.4%	-6.9%	19.5%
Previous Tranche	41.4%	14.2%	8.5%	18.3%	19.4%
Tranche -2	14.1%	43.7%	78.3%	33.0%	42.3%
MFI Overall Gain	81.1%	124.3%	159.8%	46.4%	102.9%
Current Balance	45,267	56,076	64,942	36,612	202,897
R3K Current Tranche	9.5%	5.0%	6.5%	1.2%	5.6%
R3K Overall Gain	59.7%	64.3%	45.6%	35.8%	51.4%
R3K Balance	39,921	41,076	36,412	33,962	151,371
Annualized IRR	23.7%	37.5%	50.8%	20.3%	28.7%

So taken in total,  all four tranches have beaten the benchmark. May is the closest - at 36,612 (from a hypothetical start of $25,000) versus the benchmark at 33,962.

Finally, here is month by month results. May was very very good.

Date	Differential	MFI Value	R3K Value
12/1/2012	-2.20%	99,765	101,965
1/1/2013	-1.78%	102,798	104,575
2/1/2013	-2.26%	102,594	104,856
3/1/2013	-2.23%	102,881	105,114
4/1/2013	-0.43%	106,804	107,234
5/1/2013	2.00%	110,423	108,423
6/1/2013	4.75%	115,831	111,085
7/1/2013	4.29%	114,888	110,597
8/1/2013	6.91%	124,799	117,889
9/1/2013	10.46%	124,536	114,079
10/1/2013	19.67%	138,655	118,990
11/1/2013	19.75%	143,514	123,764
12/1/2013	23.70%	150,105	126,405
1/1/2014	26.63%	157,138	130,503
2/1/2014	24.70%	150,619	125,918
3/1/2014	25.66%	158,116	132,458
4/1/2014	30.38%	162,991	132,616
5/1/2014	29.65%	162,428	132,779
6/1/2014	31.44%	167,001	135,559
7/1/2014	39.23%	177,971	138,740
8/1/2014	31.13%	167,054	135,922
9/1/2014	35.90%	177,792	141,892
10/1/2014	29.38%	168,321	138,944
11/1/2014	26.14%	168,810	142,666
12/1/2014	30.22%	176,420	146,198
1/1/2015	28.17%	174,306	146,140
2/1/2015	20.63%	162,833	142,201
3/1/2015	25.15%	175,476	150,324
4/1/2015	29.95%	178,565	148,612
5/1/2015	37.31%	186,655	149,348
Current	51.53%	202,897	151,371

MFI Formula

For the occasional newbie that might somehow find this blog, I use two approaches to following Joel Greenblatt's writings.  The first is MFI Select, which I rebooted in August 2012 and show above.  That is as it sounds, 4 tranches of five stocks each that I select - largely from the official screen, though I run my own screens and occasionally pick from my screens.

The second group is based upon my analysis of MFI since January of 2006.  I have been tracking portfolios of 50 MFI stocks every month (held for a year) since then.  My analysis has shown that stocks on the $100m list, with a dividend of > 2.4% and a market cap > $600 million have outperformed.

Will that always be the case? Who knows, dividend stocks have been strong in the low interest rate environment, so that could change.  Anyway, I have started to follow my own work and I am creating once a quarter a randomly selected portfolio of five stocks meeting that criteria (or formula).  So far, it has been a success,  but I am only 8 months into the experiment.

10/1/2014 Stocks	Start	Current	Dividend	Pct Gain	R3K Gain
BAH	$23.52	$25.35	$0.24	8.8%	9.0%
BKE	$45.55	$42.58	$3.45	1.1%	9.0%
CA	$27.87	$30.45	$0.75	11.9%	9.0%
GME	$41.70	$43.41	$0.69	5.7%	9.0%
NUS	$44.56	$50.60	$1.05	15.9%	9.0%
Totals				8.7%	9.0%
12/31/14 Stocks	Start	Current	Dividend	Pct Gain	R3K Gain
CA	$30.83	$30.45	$0.50	0.4%	2.4%
CSCO	$28.36	$29.31	$0.40	4.8%	2.4%
RGR	$34.81	$53.74	$0.49	55.8%	2.4%
GME	$34.21	$43.41	$0.36	27.9%	2.4%
IQNT	$19.87	$17.63	$0.30	-9.8%	2.4%
Totals				15.8%	2.4%
3/31/2015	Start	Current	Dividend	Pct Gain	R3K Gain
HRB	$31.99	$31.73	$0.00	-0.8%	1.2%
GME	$37.69	$43.41	$0.00	15.2%	1.2%
KING	$15.85	$14.74	$0.00	-7.0%	1.2%
NSU	$3.43	$4.17	$0.00	21.6%	1.2%
PPC	$22.65	$25.58	$0.00	12.9%	1.2%
Totals				8.4%	1.2%

I was bummed to see the September tranche is now losing. But it still has time to rally.  All three tranches were helped this week by GME which had good earnings (GameStop stomps Q1 forecasts with earnings beat).  The stock market gods (so far) were kind to me and have placed GME in all three tranches.

Month by month, these tranches are doing well:

Date	Differential	Value	R3K Value
10/1/2014	0.00%	100,000	100,000
11/1/2014	1.63%	102,288	100,658
12/1/2014	0.30%	101,375	101,075
1/1/2015	-0.33%	100,664	100,995
2/1/2015	1.67%	101,281	99,611
3/1/2015	3.62%	106,073	102,454
4/1/2015	5.09%	106,781	101,695
5/1/2015	5.78%	107,859	102,077
Current	5.08%	108,213	103,134

Other Stuff

I did buy a couple of stocks this week. On Tuesday I bought VA.  This is Virgin America, which IPOed last year and quickly went over $40. I bought at $28.47.  I know everyone hates airlines. But with the contraction that has taken place in the industry and the lowered price of jet fuel, this is actually now a very profitable industry. VA is unique in having minimal debt and is trading at about 8x earnings.  Seems worth a flier (I know, everyone groan together).

Then Friday I bought ESI at $4.17.  This is the much-maligned for profit education company in Caramel, Indiana.  They finished their restatement of financials yesterday and they were not so bad.  They popped over 75% on the news, but my feeling is there is still gas in the tank.  Even with the pop, they are just a $100m stock.  Their EPS in 2014 was $1.23 (a $4.37 stock). In 2015 they expect to make between $19 million and $31 million.  They still have some storm clouds on the horizon, in no way is this a bang the table and "buy this stock" call. But I think there is potential for short term upside based on past history.

Check out this table from when they had good news last October. Up the first day from 3.97 to 5.57. Then 5.57 to 9.19 and then 9.19 to 12.68. I am not saying that will happen again, but I do think there is potential for a major short squeeze next week. 56% of the float is shorted, or at least was shorted at end of April.

Oct 21, 2014	14.09	14.10	10.34	10.75	4,482,200	10.75
Oct 20, 2014	9.08	13.98	9.05	12.68	8,177,000	12.68
Oct 17, 2014	6.97	11.75	6.97	9.19	13,962,900	9.19
Oct 16, 2014	4.57	5.97	4.55	5.57	3,077,300	5.57
Oct 15, 2014	3.84	4.04	3.66	3.97	1,064,000	3.97
Oct 14, 2014	4.34	4.43	3.68	3.82	1,857,200	3.82