They are saying 12 to 18 inches for us today. Good day to watch some Netflix, get a fire going and watch the snow. At least Dunkin Dounts is open!
I thought I'd type up a quick blog looking at my MFI Index. This is an index that consists of MFI stocks and I track it daily. I reconstitute it once each year. It is created from the screen 50 stocks at $100m market cap.
The index has underperformed the Russell 3000 going back to 2006. My analysis shows that this is from the fact that MFI stocks are more volatile than a normal basket of stocks. And a key to sucess is to reduce volatility.
That means trying to avoid stocks that have potential to drop 40% or more in a year. In my analysis that group has been disproportionately bio tech stocks - sexy but risky. I am really talking about ones that do not have a steady income, but perhaps one time or special royalty payments. Also, many of the crash and burns were reverse merger Chinese stocks. We need to avoid fraud where we can.
Table Of Results
Here is a table showing MFI Index results by year versus the index and then inception to date. Not these go back to 2006.
| Annual | Inception to Date | |||
| Year | Russell | MFI | Russell ITD | MFI ITD |
| 2006 | 11.40% | 15.03% | 11.40% | 15.03% |
| 2007 | 4.09% | -6.69% | 15.96% | 7.34% |
| 2008 | -37.05% | -37.97% | -27.00% | -33.42% |
| 2009 | 32.51% | 45.18% | -3.27% | -3.34% |
| 2010 | 18.38% | 22.77% | 14.50% | 18.67% |
| 2011 | -0.56% | -10.47% | 13.87% | 6.25% |
| 2012 | 16.43% | 9.70% | 32.57% | 16.56% |
| 2013 | 33.01% | 51.70% | 76.34% | 76.82% |
| 2014 | 12.26% | 12.07% | 97.95% | 98.15% |
| 2015 | 0.38% | -8.95% | 98.33% | 89.37% |
| 2016 | 12.50% | 13.19% | 110.62% | 101.16% |
| 2017 | 2.50% | -0.10% | 113.39% | 101.06% |
The keen-eyed reader will note that the 2017 Index is not off to a particularly jolly start. Let us look at the individual names:
| Stock | Initial Price | End Price | Percent Change | Mkt Cap |
| CXRX | 2.12 | 2.69 | 26.9% | 108 |
| AVID | 4.40 | 5.50 | 25.0% | 179 |
| BPT | 22.95 | 28.55 | 24.4% | 508 |
| VIAB | 35.10 | 42.07 | 19.9% | 13,928 |
| UTHR | 143.43 | 164.78 | 14.9% | 6,520 |
| AAPL | 115.82 | 132.04 | 14.0% | 618,035 |
| MBUU | 19.08 | 21.53 | 12.8% | 338 |
| TDC | 27.17 | 30.17 | 11.0% | 3,524 |
| TGNA | 21.39 | 23.17 | 8.3% | 4,586 |
| NHTC | 24.85 | 26.62 | 7.1% | 280 |
| SYNT | 19.79 | 21.14 | 6.8% | 1,664 |
| AMCX | 52.34 | 55.10 | 5.3% | 3,702 |
| ACHI | 2.25 | 2.36 | 4.9% | 240 |
| PDLI | 2.12 | 2.22 | 4.7% | 351 |
| HPQ | 14.84 | 15.51 | 4.5% | 25,406 |
| CSCO | 29.96 | 31.27 | 4.4% | 151,825 |
| GHC | 510.69 | 527.50 | 3.3% | 2,874 |
| IDCC | 91.04 | 93.90 | 3.1% | 3,132 |
| MDCA | 6.55 | 6.70 | 2.3% | 345 |
| RPXC | 10.80 | 11.03 | 2.1% | 531 |
| AGX | 70.55 | 71.85 | 1.8% | 1,078 |
| MPAA | 26.92 | 27.31 | 1.4% | 532 |
| DLX | 71.61 | 72.59 | 1.4% | 3,479 |
| MSGN | 21.50 | 21.60 | 0.5% | 1,614 |
| MCK | 140.45 | 140.94 | 0.3% | 31,742 |
| SWHC | 21.08 | 21.08 | 0.0% | 1,186 |
| NSR | 33.40 | 33.40 | 0.0% | 1,823 |
| ICON | 9.34 | 9.28 | -0.6% | 525 |
| MCFT | 14.58 | 14.46 | -0.8% | 272 |
| MYGN | 16.67 | 16.52 | -0.9% | 1,140 |
| CA | 31.77 | 31.34 | -1.4% | 13,126 |
| ESRX | 68.79 | 67.62 | -1.7% | 43,302 |
| GME | 25.26 | 24.79 | -1.9% | 2,592 |
| SSNI | 13.31 | 13.06 | -1.9% | 691 |
| TRNC | 13.87 | 13.52 | -2.5% | 505 |
| RGR | 52.70 | 50.55 | -4.1% | 1,000 |
| BBSI | 64.10 | 60.54 | -5.6% | 464 |
| GILD | 71.61 | 66.83 | -6.7% | 94,668 |
| VEC | 23.85 | 21.98 | -7.8% | 256 |
| HRB | 22.99 | 21.16 | -8.0% | 4,862 |
| FPRX | 50.11 | 45.43 | -9.3% | 1,425 |
| USNA | 61.20 | 55.40 | -9.5% | 1,490 |
| UIS | 14.95 | 13.00 | -13.0% | 749 |
| PBI | 15.19 | 13.08 | -13.9% | 2,820 |
| SCMP | 13.55 | 11.60 | -14.4% | 621 |
| DHX | 6.25 | 5.35 | -14.4% | 313 |
| AWRE | 6.10 | 5.05 | -17.2% | 138 |
| LFVN | 8.15 | 6.39 | -21.6% | 115 |
| IRMD | 11.10 | 8.55 | -23.0% | 119 |
| AGTC | 9.35 | 6.40 | -31.6% | 169 |
You can see we already have some stinkers in the making. AGTC and IRMD are exactly the types of stocks I was warning against. In fact the 25 largest are up by 1.8% and the 25 smallest are down by 1.8%. This is (in my opinion) becuase these "false" MFI stocks (meaning their past earnings are poor predictors of future earnings) will more often be in the smaller stocks.
That is it for now. Have a great day.
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1 comment:
Always good posts and information to be found here. I appreciate it! Your 40% is roughly what I come up with too, but I'd be sorely tempted to set that a little lower at a 30% cutoff if I was really trying to scrutinize holdings that drag down performance. Mainly that is in regard to my real portfolio and I may consider some type of stop-loss in the future. With the tracking portfolio I can stomach the volatility much easier and try to keep it as close as possible to the original premise of the Magic Formula. I've recently converted my MG1 tracking portfolio to track it myself manually, and will have some posts in the somewhat near-future regarding several of my observations.
cheers,
j
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