Thursday, April 21, 2016

MFI Struggles Continue

The Struggle Continues

I have been tracking Magic Formula Investing since 2006 and I have to tell you the results are pretty mixed.  At what point does one say, "it just isn't working particularly well"?

When I look at my tracking portfolios of 50 stocks that I buy and hold  for a month, the approach is losing to the Russell 3000.  Of the past 25 portfolios ( a two year period), only two have won or are leading. And the average MFI stock in the 25 portfolios is down 2.5%.

Looking at my stuff,  my MFI Select tranches are down 4.25 this year. My MFI Formula tranches are down 1.2%.  And my MFI Index is up 80 basis points.  All this while the Russell 3000 is up over 3%.

Bigger picture, I am hanging in there despite the 25 month head wind mentioned above due largely to two NHTC picks.

I don't know. I  am discouraged.  While conceptually I understand that MFI worked over Greenblatt's back testing, I wonder whether macro trends are causing a disproportionate number of value traps in the MFI lists of late.

List Of  Stocks Losing 50% Or More

Date Stock Start End Change
2/27/2015 SMT  $     1.27  $     0.25 -80%
7/25/2014 WTW  $  20.17  $     4.14 -79%
11/28/2014 APOL  $  31.22  $     6.91 -78%
12/31/2014 APOL  $  34.11  $     7.67 -78%
4/25/2014 ESI  $  27.06  $     6.13 -77%
9/26/2014 WTW  $  27.64  $     6.42 -77%
8/29/2014 WTW  $  24.69  $     5.98 -76%
6/27/2014 WTW  $  20.54  $     5.10 -75%
10/31/2014 APOL  $  28.66  $     7.26 -75%
2/27/2015 MSB  $  17.15  $     4.35 -75%
5/30/2014 ESI  $  17.22  $     4.37 -75%
6/27/2014 ESI  $  16.62  $     4.29 -74%
1/30/2015 MSB  $  16.80  $     4.40 -74%
5/30/2014 WTW  $  20.83  $     5.48 -74%
7/25/2014 ESI  $  14.80  $     3.90 -74%
10/31/2014 PFMT  $     8.63  $     2.31 -73%
12/31/2014 PFMT  $     6.65  $     1.79 -73%
12/31/2014 MSB  $  16.60  $     4.52 -73%
8/29/2014 PFMT  $     9.62  $     2.68 -72%
11/28/2014 PFMT  $     6.80  $     1.97 -71%
2/27/2015 APOL  $  27.65  $     8.11 -71%
7/25/2014 PFMT  $  10.18  $     3.02 -70%
9/26/2014 PFMT  $     8.46  $     2.53 -70%
7/30/2015 LCI  $  59.44  $  18.64 -69%
1/30/2015 APOL  $  25.26  $     7.94 -69%
6/26/2015 LCI  $  58.95  $  18.64 -68%
3/27/2015 SMT  $     1.18  $     0.37 -68%
5/30/2014 PFMT  $     9.49  $     3.04 -68%
6/27/2014 PTIE  $     5.47  $     1.77 -68%
5/29/2015 LCI  $  55.63  $  18.64 -66%
4/24/2015 NLNK  $  52.10  $  17.65 -66%
3/27/2015 UIS  $  23.00  $     7.79 -66%
6/27/2014 PFMT  $  10.00  $     3.40 -66%
1/30/2015 PFMT  $     4.96  $     1.71 -66%
7/30/2015 NLNK  $  51.16  $  17.65 -66%
3/27/2015 BCOR  $  14.00  $     4.88 -65%
4/24/2015 UIS  $  21.82  $     7.61 -65%
6/27/2014 LFVN  $     1.35  $     0.49 -64%
9/25/2015 NLNK  $  48.15  $  17.65 -63%
4/25/2014 PTIE  $     5.70  $     2.10 -63%
11/28/2014 WILN  $     2.96  $     1.09 -63%
8/28/2015 NLNK  $  47.75  $  17.65 -63%
3/27/2015 VNCE  $  17.04  $     6.31 -63%
5/29/2015 UIS  $  20.54  $     7.61 -63%
6/26/2015 UIS  $  20.51  $     7.61 -63%
8/28/2015 LCI  $  49.87  $  18.64 -63%
12/31/2014 UIS  $  29.48  $  11.05 -63%
2/27/2015 TPUB  $  20.22  $     7.58 -63%
4/25/2014 PFMT  $     8.55  $     3.22 -62%
9/25/2015 LCI  $  49.49  $  18.64 -62%
7/25/2014 PTIE  $     4.63  $     1.76 -62%
4/24/2015 SMT  $     1.17  $     0.45 -62%
6/26/2015 NLNK  $  44.60  $  17.65 -60%
5/30/2014 PTIE  $     4.95  $     1.97 -60%
1/30/2015 GORO  $     3.36  $     1.34 -60%
2/27/2015 EGL  $  36.10  $  14.44 -60%
4/25/2014 WTW  $  20.51  $     8.25 -60%
5/29/2015 NLNK  $  43.15  $  17.65 -59%
2/27/2015 ACHI  $     6.10  $     2.50 -59%
8/29/2014 APOL  $  27.77  $  11.47 -59%
3/27/2015 MSB  $  14.96  $     6.20 -59%
4/24/2015 APOL  $  17.51  $     7.26 -59%
4/24/2015 ACHI  $     5.66  $     2.35 -58%
5/29/2015 VNCE  $  15.92  $     6.62 -58%
10/30/2015 LCI  $  44.77  $  18.64 -58%
4/24/2015 BCOR  $  13.94  $     5.81 -58%
2/27/2015 BCOR  $  14.82  $     6.21 -58%
12/31/2014 TPUB  $  21.96  $     9.22 -58%
11/28/2014 CJREF  $  17.64  $     7.59 -57%
5/29/2015 ACHI  $     5.38  $     2.35 -56%
3/27/2015 AVID  $  14.73  $     6.44 -56%
5/29/2015 APOL  $  16.58  $     7.26 -56%
8/29/2014 PTIE  $     4.22  $     1.86 -56%
6/26/2015 APOL  $  16.35  $     7.26 -56%
9/26/2014 APOL  $  25.39  $  11.33 -55%
1/30/2015 UIS  $  21.93  $     9.82 -55%
1/30/2015 ACHI  $     5.85  $     2.62 -55%
8/29/2014 ESI  $     8.43  $     3.83 -55%
3/27/2015 ACHI  $     5.83  $     2.65 -55%
11/27/2015 NLNK  $  38.42  $  17.65 -54%
11/28/2014 TPUB  $  20.22  $     9.29 -54%
10/30/2015 NLNK  $  38.27  $  17.65 -54%
7/25/2014 APOL  $  28.79  $  13.29 -54%
12/31/2015 LCI  $  40.12  $  18.64 -54%
12/31/2014 WILN  $     2.81  $     1.32 -53%
2/27/2015 LQDT  $     9.88  $     4.64 -53%
2/27/2015 PDLI  $     6.23  $     2.93 -53%
1/30/2015 TPUB  $  19.75  $     9.34 -53%
11/28/2014 UIS  $  26.72  $  12.68 -53%
2/27/2015 AVID  $  15.68  $     7.48 -52%
7/30/2015 UIS  $  15.94  $     7.61 -52%
2/27/2015 UIS  $  22.64  $  10.89 -52%
1/30/2015 PDLI  $     6.51  $     3.14 -52%
8/29/2014 LQDT  $  15.24  $     7.36 -52%
12/31/2015 NLNK  $  36.39  $  17.65 -52%
3/27/2015 PFMT  $     3.34  $     1.64 -51%
3/27/2015 PDLI  $     6.32  $     3.11 -51%
9/26/2014 PTIE  $     3.88  $     1.91 -51%
11/27/2015 LCI  $  36.98  $  18.64 -50%


That is 100 stocks out of the 1250 stock years in past 25 tracking portfolios losing 50% or more.  That seems like a lot.  Another 125 lost 30% or more - and recall 1/2 of the stocks in my list are still open.

I don't know, the struggle does indeed continue.

1 comment:

Anthony H said...

Just keep in mind that in Greenblatt's research he had a 3 year period where the formula underperformed the market. Also keep in mind that given efficient market theory any arbitrary portfolio may under perform for a period of time. :p