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.