Friday, July 31, 2015

July 24, 2014 MFI Monthly Tracking Portfolio

Tracking Portfolio Analysis

Another month has zipped by. As my faithful readers know, I have been tracking the Magic Formula Stocks as described by Joel Greenblatt in The Little Book That Beats the Stock Market since January 2006.  Every month I take the top 50 stocks over $100m market cap from his website and track how that portfolio of stocks fares versus the Russell 3000 for the next 12 months.  It has been an uphill struggle as the tracking portfolios have under-performed, driven in part by Chinese reverse merger fiascos, for-profit education stocks and home health care stocks all being proverbial albatrosses.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. This month, we had our fifth straight loss (3.3% to 8.7%).  Too many bad stocks (WTW, ESI, PFMT etc). Here are the 50 stocks in descending performance order:


Stock  Initial Price   End Price  Percent Change  52 week low   Mkt Cap 
DEPO              11.74           30.53 160.1%                30.42           679
EBIX              12.54           29.99 139.2%                12.17           488
USNA              71.95         125.10 73.9%                63.28         1,006
IQNT              11.03           17.67 60.2%                17.20           379
CNVR              23.63           34.44 45.7%         1,582
BAH              19.67           27.81 41.4%                20.81         3,212
NOC            125.08         175.41 40.2%              118.24       26,676
STRZA              29.46           40.90 38.8%                39.40         3,214
TTWO              23.51           31.81 35.3%                31.05         2,386
AAPL              95.99         122.37 27.5%              121.71     584,968
PETS              13.25           16.89 27.5%                12.07           283
RTN              89.84         109.84 22.3%                89.17       28,608
SWHC              13.66           16.07 17.6%                15.89           756
STRA              48.66           55.85 14.8%                41.50           528
DNB            109.99         125.26 13.9%              105.64         4,128
SPOK              14.07           16.00 13.7%                15.94           314
CSCO              25.21           28.30 12.3%                28.20     132,863
BRCD                9.26           10.38 12.1%                10.26         4,085
AGX              34.95           39.02 11.6%                28.62           513
BKE              39.92           44.05 10.3%                40.54         2,070
MED              28.74           30.65 6.6%                25.93           377
RGR              56.86           60.15 5.8%                33.60         1,127
HRB              31.56           33.34 5.7%                27.42         8,871
GME              44.22           46.16 4.4%                31.69         5,230
ETM                9.90           10.28 3.8%                 7.86           387
IILG              20.72           21.51 3.8%                20.85         1,219
CA              28.57           29.42 3.0%                28.52       12,964
BWC              32.33           32.80 1.4%                26.58         3,617
NDZ              12.95           13.00 0.4%           808
NSR              29.10           29.01 -0.3%                20.32         1,716
QCOR              94.90           93.60 -1.4%         5,832
TIME              23.42           22.23 -5.1%                19.00         2,658
COH              33.40           31.30 -6.3%                30.13         9,612
KING              16.75           15.47 -7.6%                10.68         5,862
CPLA              56.03           51.11 -8.8%                49.57           706
MYGN              37.02           33.64 -9.1%                33.01         3,100
BCOR              17.18           15.48 -9.9%                15.40           725
HLF              66.06           51.07 -22.7%                27.60         6,692
UIS              21.63           15.94 -26.3%                15.82         1,105
NUS              60.80           39.84 -34.5%                38.00         3,697
PDLI                8.79             5.76 -34.5%                 5.71         1,648
LQDT              13.98             8.73 -37.6%                 8.59           451
SPRT                2.39             1.26 -47.3%                 1.22           128
ONE                4.35             2.29 -47.4%                 2.15           205
TZOO              17.52             8.95 -48.9%                 8.73           258
APOL              28.79           13.29 -53.8%                12.12         3,248
PTIE                4.63             1.76 -62.0%                 1.72           211
PFMT              10.18             3.02 -70.3%                 2.95           493
ESI              14.80             3.90 -73.6%                 1.93           346
WTW              20.17             4.14 -79.5%                 3.67         1,139


Looking at the list, it is stunning to see the spread.  If you just randomly picked 5 stocks from this list, the variance of actual results would be very wide.

I have mentioned that a "Dogs of MFI" approach has shown some promise.  ESI and WTW are still on the list.  It would take some courage to buy any of those - but I guess that is why they are called dogs. I did find another site that has been tracking since 2006 this week.  It uses a different approach, just 5 stocks picked randomly every quarter. They have had better results than me (TrackJGreenblatt's Stock Picks). I found it very interesting and would encourage people to take a looksee.

Here is a listing of every portfolio I have tracked:

Date MFI R3K Lead
1/6/2006 16.0% 10.9% 1
2/17/2006 21.2% 14.6% 1
3/29/2006 13.0% 9.6% 1
4/7/2006 10.3% 12.1% 0
5/12/2006 20.4% 18.6% 1
5/31/2006 29.2% 23.3% 1
6/30/2006 22.4% 20.0% 1
7/31/2006 19.7% 17.3% 1
8/31/2006 13.0% 13.3% 0
9/28/2006 12.7% 14.6% 0
10/27/2006 10.3% 12.0% 0
11/29/2006 -0.3% 4.8% 0
12/28/2006 -6.9% 3.4% 0
1/26/2007 -10.2% -6.6% 0
2/27/2007 -3.7% -1.0% 0
3/26/2007 -9.8% -5.5% 0
4/27/2007 -10.9% -5.0% 0
5/29/2007 -11.5% -6.3% 0
7/3/2007 -30.0% -15.6% 0
7/30/2007 -19.9% -11.5% 0
8/30/2007 -12.5% -8.7% 0
9/27/2007 -19.0% -18.2% 0
11/2/2007 -40.4% -34.3% 0
11/28/2007 -40.1% -38.3% 0
12/28/2007 -36.3% -40.0% 1
1/25/2008 -36.4% -35.9% 0
2/26/2008 -51.7% -41.5% 0
3/24/2008 -40.9% -36.8% 0
4/25/2008 -25.6% -31.0% 1
5/28/2008 -22.2% -33.6% 1
7/2/2008 -11.7% -25.3% 1
7/29/2008 -10.5% -20.9% 1
8/29/2008 -13.8% -17.9% 1
9/26/2008 -4.3% -10.0% 1
10/31/2008 18.7% 13.9% 1
11/26/2008 50.9% 27.7% 1
12/26/2008 48.9% 32.3% 1
1/23/2009 59.3% 36.4% 1
2/27/2009 92.8% 55.6% 1
3/27/2009 85.8% 48.1% 1
4/24/2009 69.7% 45.8% 1
5/29/2009 31.8% 22.8% 1
6/29/2009 21.3% 24.0% 0
7/29/2009 19.5% 15.9% 1
8/28/2009 7.4% 8.8% 0
9/25/2009 12.6% 12.4% 1
10/30/2009 22.7% 18.3% 1
11/27/2009 24.3% 13.6% 1
12/31/2009 23.7% 18.1% 1
1/22/2010 19.0% 20.6% 0
2/26/2010 18.6% 23.6% 0
3/25/2010 10.0% 15.4% 0
4/23/2010 7.1% 11.4% 0
5/28/2010 19.3% 25.4% 0
6/29/2010 16.7% 25.7% 0
7/29/2010 5.4% 20.1% 0
9/2/2010 7.3% 10.1% 0
9/24/2010 -4.3% 0.3% 0
10/29/2010 -2.9% 10.4% 0
11/26/2010 -8.5% 1.4% 0
1/3/2011 -11.4% 0.1% 0
1/28/2011 -7.6% 4.9% 0
2/25/2011 -5.5% 5.0% 0
3/24/2011 -4.4% 7.4% 0
4/21/2011 -16.0% 3.2% 0
5/27/2011 -12.0% -0.4% 0
6/24/2011 -9.5% 5.0% 0
7/29/2011 -4.3% 8.1% 0
8/26/2011 12.0% 21.6% 0
9/30/2011 23.5% 29.6% 0
10/28/2011 0.4% 11.5% 0
11/25/2011 13.9% 24.0% 0
12/29/2011 9.9% 15.9% 0
1/27/2012 7.4% 16.6% 0
2/24/2012 7.8% 13.3% 0
3/23/2012 9.1% 15.2% 0
4/27/2012 10.5% 15.3% 0
5/25/2012 26.5% 27.5% 0
6/22/2012 26.1% 24.6% 1
7/27/2012 30.4% 25.7% 1
8/24/2012 26.0% 19.8% 1
9/28/2012 39.3% 22.1% 1
10/26/2012 48.3% 28.9% 1
11/23/2012 45.7% 32.1% 1
12/31/2012 52.3% 33.0% 1
1/25/2013 39.5% 22.0% 1
2/22/2013 46.5% 26.4% 1
3/28/2013 40.1% 21.2% 1
4/26/2013 35.0% 20.5% 1
5/24/2013 20.4% 19.2% 1
6/28/2013 26.9% 24.1% 1
7/29/2013 17.8% 19.0% 0
8/30/2013 17.5% 24.6% 0
9/27/2013 12.9% 17.7% 0
10/25/2013 11.8% 15.4% 0
11/29/2013 12.3% 15.6% 0
12/31/2013 12.7% 11.9% 1
1/31/2014 14.2% 13.0% 1
2/28/2014 15.4% 13.9% 1
3/28/2014 6.1% 12.3% 0
4/25/2014 8.6% 15.8% 0
5/30/2014 5.9% 11.7% 0
6/27/2014 2.5% 9.2% 0
7/25/2014 3.3% 8.7% 0
8/29/2014 -0.5% 6.8% 0
9/26/2014 5.7% 8.4% 0
10/31/2014 6.0% 6.2% 0
11/28/2014 0.1% 3.6% 0
12/31/2014 0.1% 3.7% 0
1/30/2015 1.8% 6.6% 0
2/27/2015 -4.9% 0.9% 0
3/27/2015 -2.1% 2.4% 0
4/24/2015 -7.7% -0.4% 0
5/29/2015 -2.1% 0.1% 0
6/26/2015 -3.1% 0.0% 0
Average 9.2% 9.2% 0

You can see all the open tranches are trailing.

Subsets

I also have tracked 2 subsets of the larger portfolios:  (1) dividend stocks (those with a yield per Yahoo of at least 2.6%) and (2) new stocks (those new to the tracking portfolios in past 12 months.  I am going to try to add a third one , which I call "dogs".  It is like the dogs of the Dow in that you take the worst five performing stocks from the prior year that renew or all those that dropped more that 29%. The dividend portfolio was okay, up about 7.8%.  The new portfolio was okay, up over 6%.  The Dogs approach was poor, down 20% Finally, I like to track cash as it is more "honest" than percentages as if you go up by 25% and then down by 25%, that is a different result than up by 5% then down by 5%.  So I track what you would have today if you had spread $100,000 over the first twelve portfolios evenly. It is telling that even though MFI and R3K have both averaged 9.2% per year, that R3K is ahead due to less variability.


Category Value
Total     183,934
Total Russell 3K     199,333
New     192,753
Dogs     254,243
Dividend     373,509


Obviously dividend approach has worked well and I am using an offshoot with real money. That being said, it isn't working so well of late:

Date Dividend R3K Difference
7/25/2014 7.8% 8.7% -0.9%
8/29/2014 4.6% 6.8% -2.2%
9/26/2014 13.4% 8.4% 5.0%
10/31/2014 6.0% 6.2% -0.2%
11/28/2014 -4.8% 3.6% -8.5%
12/31/2014 -4.1% 3.7% -7.8%
1/30/2015 0.0% 6.6% -6.6%
2/27/2015 -6.8% 0.9% -7.7%
3/27/2015 -4.6% 2.4% -6.9%
4/24/2015 -12.0% -0.4% -11.7%
5/29/2015 -6.2% 0.1% -6.3%
6/26/2015 -3.4% 0.0% -3.4%
So past 12 are trailing by an average of 4.8 points. It just always seems to be a struggle.

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