MFI Tracking Portfolio - 9/26/14

MFI Tracking Portfolio

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 broke a 6 month losing streak, albeit barely (-0.6% to -0.9%).  This was the second straight portfolio to end up in the red. Too many bad stocks (WTW, APOL, PFMT etc). Here are the 50 stocks in descending performance order:

Stock	Initial Price	End Price	Percent Change	52 week low	Mkt Cap
EBIX	14.00	27.01	92.9%	12.64	544
USNA	71.98	135.87	88.8%	71.03	965
IQNT	12.07	22.54	86.8%	12.14	413
EXLS	24.93	39.81	59.7%	24.20	816
DEPO	15.21	22.76	49.6%	13.55	889
PENN	11.83	16.95	43.3%	10.50	930
AFOP	12.59	16.98	34.9%	10.75	237
SPOK	13.27	17.54	32.1%	12.93	296
TTWO	23.42	30.06	28.4%	20.13	2,377
NOC	129.44	165.57	27.9%	118.24	27,590
PETS	13.19	16.60	25.9%	12.07	279
RGR	47.43	59.70	25.9%	33.60	938
BAH	22.94	27.17	18.4%	23.07	3,601
HRB	30.52	36.05	18.1%	27.42	8,602
ETM	8.37	9.86	17.8%	7.86	327
KING	12.04	13.40	11.3%	10.68	4,092
NSR	24.74	27.23	10.1%	20.32	1,484
CSCO	24.27	26.03	7.2%	22.49	126,375
AGX	33.12	35.09	5.9%	28.62	489
GIB	33.89	35.89	5.9%	31.99	10,560
ITRN	20.41	21.16	3.7%	18.52	445
MYGN	37.89	38.48	1.6%	30.30	3,094
CA	26.97	27.36	1.4%	25.16	12,278
GME	40.65	41.00	0.9%	31.69	4,742
DLX	55.30	54.90	-0.7%	51.46	2,804
BRCD	10.65	10.49	-1.5%	8.91	4,673
IILG	19.58	19.23	-1.8%	18.60	1,141
STRA	59.23	57.20	-3.4%	41.50	646
NUS	43.20	41.21	-4.6%	38.00	2,641
RPXC	14.55	13.70	-5.8%	11.94	815
ANIK	36.48	32.70	-10.4%	31.36	540
BCOR	15.54	13.82	-11.1%	12.61	638
BKE	43.02	37.44	-13.0%	37.25	2,220
APEI	27.60	23.59	-14.5%	19.22	476
COH	34.96	28.48	-18.5%	27.62	9,845
ONE	2.49	2.00	-19.7%	1.85	118
AVID	10.34	8.10	-21.7%	7.60	405
PDLI	6.93	5.22	-24.7%	4.58	1,317
ESI	4.34	3.12	-28.1%	1.93	101
LFVN	1.19	0.79	-34.0%	0.20	122
FLR	66.64	42.14	-36.8%	40.71	10,662
UIS	22.68	13.11	-42.2%	12.13	1,148
VIAB	75.32	43.52	-42.2%	36.32	32,743
LQDT	14.11	7.53	-46.6%	7.02	418
TZOO	15.88	8.26	-48.0%	8.23	234
SPRT	2.22	1.15	-48.4%	1.08	119
PTIE	3.88	1.91	-50.8%	1.53	178
APOL	25.39	11.33	-55.4%	10.20	2,865
PFMT	8.46	2.53	-70.1%	2.33	411
WTW	27.64	6.42	-76.8%	3.67	1,566

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.  APOL 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	-2.2%	1.0%	0
9/26/2014	-0.6%	-0.9%	1
10/31/2014	-1.4%	-2.9%	1
11/28/2014	-8.4%	-5.2%	0
12/31/2014	-8.3%	-5.2%	0
1/30/2015	-6.0%	-2.5%	0
2/27/2015	-12.7%	-7.7%	0
3/27/2015	-12.2%	-6.4%	0
4/24/2015	-14.5%	-8.9%	0
5/29/2015	-11.5%	-8.5%	0
6/26/2015	-12.1%	-8.6%	0
7/30/2015	-7.3%	-8.6%	1
8/28/2015	-2.0%	-3.3%	1
Average	8.5%	8.4%	0

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 great, up about 11%.  The new portfolio was great, up 19%.  The Dogs approach was terrible, down 22%(maybe that approach should be tossed). 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.

The dividend portfolio way outperformed my MFI Formula tranche I picked 10/1. IQNT was up 87%.

Category	Value
Total	169,570
Total Russell 3K	182,279
New	174,521
Dogs	244,699
Dividend	364,760

In the past two months, the Russell has gone from $199,000 to 182,000. Tough sledding indeed.