Saturday, March 11, 2017

Weekend Update 3/11/17

Weekend Update

Tough call this week for me to go with "Spring Ahead" or "Baby It's Cold Outside".  A frigid 9 degrees this morning with winds going from 15 to 25 mph.  I think I'll stay inside most of the day.

You have found your way to the MFI Diary.  This is my blog where I discuss many things related to "The Little Book That Beats the Market" by Joel Greenblatt.  I have been writing this blog since early 2006 and have tracked my performance with real money and tracking portfolios based on the official Magic Formula Investing (MFI) website.  I also have created an MFI Index, which is fifty MFI stocks and is reconstituted once a year.

Finally, I should mention that I am just a guy with a spreadsheet.  Not a CFA, not an expert... just a guy.  So please use what I write for information, but do your own diligence in making stock decisions.

So welcome!

The Past Week

It is funny, I was down about 1% on the week, but it did not seem that way. I guess because Friday was good.  Here is a table showing my YTD numbers by my investing approach.  As I often note, these include a cash component (around 20%) as I have plans to move more cash into my portfolios during 2017.


 Component   YTD 
 Overall  +4.61%
 Select  +6.32%
 Formula  +1.05%
 Miscellaneous  +11.93%
 Dividend  +3.48%
 R3K  +5.75%
 MFI Index  -0.30%


So overall, I am up 4.61%, which trails the Russell 3000 - but when you consider my cash component, that is ok with me.  You will see I have two MFI approachs: Select and Formula.  Select is doing very nicely (even with the cash) at 6.32%.  The Formula approach is not a disaster, but no victory lap either.  Then you see the MFI Index actually at negative 30 bps. Not strong so far this year for MFI in total.  My dividend approach was down 1.4%, I'd guess the probability of upcoming rate hikes is taking a toll on more bond-like holdings.

Here is a table of the MFI Index since 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 5.75% -0.30% 116.98% 100.85%

So just buying 50 MFI stocks at the start of each year and holding for a year is frankly trailing.  I mean to be down 100.85% to 116.98% is probably a percentage point a year, so not a disaster.  I have discussed many times the causes for the underperformance, or better description the sources of the underperformance.  Biotech names, Chinese reverse mergers names and trusts (like BPT) have been a drag.  It is because they often do not fit the mold of Jason's Bubble Gum Shop from Greenblatt's book - ie last year's income is not a good proxy for future income and/or they do not have the ability to reinvest and build more bubble gum shops.

Ok, off my soap box.

MFI Select

I have two groups of MFI stocks with real money.  The first (and oldest) is MFI Select. This is 4 baskets of 5 stocks that I buy and hold for a year.  I have been doing this since my reboot in August 2012.  

This approach has done very well for me.  Note I am trying to avoid stocks that are on the screen, but in my view are not a true Jake's Bubble Gum Shop (ie a one hit wonder).  To be fair,  I have also had several stocks that did (going with Scottish accent) verra verra well.

Here is my month by month performance, assuming I put in $100,000 spread over the 4 baskets evenly:


 Date   Differential   MFI Value   R3K Value 
12/1/2012 -2.20%          99,765            101,965
1/1/2013 -1.78%        102,798            104,575
2/1/2013 -2.26%        102,594            104,856
3/1/2013 -2.23%        102,881            105,114
4/1/2013 -0.43%        106,804            107,234
5/1/2013 2.00%        110,423            108,423
6/1/2013 4.75%        115,831            111,085
7/1/2013 4.29%        114,888            110,597
8/1/2013 6.91%        124,799            117,889
9/1/2013 10.46%        124,536            114,079
10/1/2013 19.67%        138,655            118,990
11/1/2013 19.75%        143,514            123,764
12/1/2013 23.70%        150,105            126,405
1/1/2014 26.63%        157,138            130,503
2/1/2014 24.70%        150,619            125,918
3/1/2014 25.66%        158,116            132,458
4/1/2014 30.38%        162,991            132,616
5/1/2014 29.65%        162,428            132,779
6/1/2014 31.44%        167,001            135,559
7/1/2014 39.23%        177,971            138,740
8/1/2014 31.13%        167,054            135,922
9/1/2014 35.90%        177,792            141,892
10/1/2014 29.38%        168,321            138,944
11/1/2014 26.14%        168,810            142,666
12/1/2014 30.22%        176,420            146,198
1/1/2015 28.17%        174,306            146,140
2/1/2015 20.63%        162,833            142,201
3/1/2015 25.15%        175,476            150,324
4/1/2015 29.95%        178,565            148,612
5/1/2015 37.31%        186,655            149,348
6/1/2015 51.53%        202,897            151,371
7/1/2015 62.69%        211,437            148,743
8/1/2015 40.75%        192,117            151,369
9/1/2015 36.41%        178,603            142,195
10/1/2015 43.12%        181,175            138,052
11/1/2015 69.02%        217,959            148,936
12/1/2015 73.49%        223,435            149,946
1/1/2016 63.33%        209,514            146,186
2/1/2016 49.49%        187,428            137,934
3/1/2016 56.48%        194,415            137,934
4/1/2016 47.34%        195,770            148,430
5/1/2016 46.38%        194,301            147,923
6/1/2016 51.44%        201,999            150,558
7/1/2016 50.41%        201,092            150,680
8/1/2016 52.72%        207,223            154,501
9/1/2016 67.04%        222,481            155,446
10/1/2016 42.98%        198,563            155,582
11/1/2016 41.86%        195,726            153,863
12/1/2016 45.92%        202,775            156,859
1/1/2017 47.19%        209,503            162,313
2/1/2017 47.65%        212,330            164,675
3/1/2017 52.99%        222,583            169,589
Current 55.93%        225,727            169,797

Obviously in total, this table is very good.  If I had started with $100,000 spread over the four tranches, I'd be at $225,727 now.  That is almost a 20% annual internal rate of return.  I will be the first to say it is not healthy to look at this weekly (probably not even monthly either).  Some of the stocks can be a wee bit volatile, so week by week, month by month, it can churn the stomach a bit. It can also be difficult to follow the rules - I am often tempted to sell something based on today's headlines (GNC and GILD of late come to mind).  But I do think it is important to check your emotions at the door. Step away from the batter, as I like to say.


This is one of many quotes I try to read and remember from Walter Schloss.  People here need to remember that the advantage you have as a small investor is that you can be patient.  If you are not buying on margin, you do not need to sell or create so-called window dressing.  You can never be faster than High Frequency Traders, but you can be more patient.  Ok, getting off the second soap box.

Here are my current holdings:


5/6/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 BRCD  $7.97 $12.39 $0.17 57.5% 18.2%
 CBI  $37.82 $30.32 $0.00 -19.8% 18.2%
 HSII  $18.51 $24.20 $0.39 32.8% 18.2%
 RHI  $38.51 $48.21 $0.90 27.5% 18.2%
 UTHR  $107.99 $149.45 $0.00 38.4% 18.2%
 Totals  27.3% 18.2%
8/15/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 CSCO  $31.20 $34.26 $0.26 10.6% 9.8%
 GNC  $19.79 $7.51 $0.38 -60.1% 9.8%
 VLO  $54.73 $66.57 $1.30 24.0% 9.8%
 MSGN  $16.68 $22.90 $0.00 37.3% 9.8%
 GILD  $79.33 $68.19 $0.94 -12.9% 9.8%
 Totals  -0.2% 9.8%
11/15/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 MPAA  $26.55 $27.86 $0.00 4.9% 9.6%
 ATHM  $22.61 $35.61 $0.00 57.5% 9.6%
 AMGN  $145.14 $181.44 $1.00 25.7% 9.6%
 RHI  $43.23 $48.21 $0.46 12.6% 9.6%
 CA  $31.11 $32.40 $0.26 5.0% 9.6%
 Totals  21.1% 9.6%
2/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 AKRX  $19.10 $22.66 $0.00 18.6% 3.9%
 YY  $41.08 $46.81 $0.00 13.9% 3.9%
 KLAC  $85.11 $93.20 $0.54 10.1% 3.9%
 WNC  $17.65 $20.71 $0.00 17.3% 3.9%
 RGR  $52.75 $52.15 $0.00 -1.1% 3.9%
 Totals  11.8% 3.9%

As you can see, generally doing quite bonny (ok, I am reading a book set in Scotland).  People have asked, "how do I select my MFI stocks?".  My first comment would be I am just a guy with a spreadsheet, so please, please do your own work.  But I use the official MFI site and I run my own top 200 list with some regularity (which I often publish here).  I then wean down my picks (trying to think about Jason Bubble Gum Shop principles).  I make mistakes, but I am really really trying to avoid disaster stocks.  I am not trying to hit home runs. I love a stock like RHI from May. Pretty stable earnings, not big and not small, pays a dividend.  But at the time was cheap enough to make the list.  I will pick Chinese names (like YY and ATHM) occasionally, but I did lose my shirt on reverse merger names so I keep these to a minimum (like 2 of the 20).

Here is a table showing a ton of statistics:


 Category/Tranche   August   November     February         May          Total 
 Initial Investment         25,000          25,000       25,000        25,000         100,000
 Current Tranche  -0.2% 21.1% 11.8% 27.3% 15.0%
 Previous Tranche  2.8% 8.0% 10.7% -25.2% -2.7%
 Tranche -2  11.2% 69.4% -14.3% 18.3% 21.2%
 Tranche -3  41.4% 14.2% 8.5% 33.0% 24.3%
 Tranche -4  14.1% 43.7% 78.3% 0.0% 34.0%
 MFI Overall Gain  84.1% 264.0% 105.1% 49.7% 125.7%
 Current Balance         46,014          91,008       51,282        37,422         225,727
 R3K Current Tranche  9.8% 9.6% 3.9% 18.2% 10.4%
 R3K Overall Gain  83.5% 86.8% 68.0% 57.2% 69.8%
 R3K Balance         41,779          46,712       42,008        39,298         169,797
 Annualized IRR  14.3% 34.9% 19.1% 11.0% 19.8%

You can see the struggle varies from year to year.  Tranches I picked 4 years ago (that are closed) were up 34% (good start).  Tranches I picked three years ago were up 24.3%.  But my closed tranches from a year ago were down 2.7%.  That seems to be rebounding with my current open tranches (up 15%).  These are not static, when I start new May tranche, the 33% from May Tranche -3 will move to Tranche -4.  You can also see that for whatever reason, my November picks have been outstanding.  I do not believe there is seasonality.  That is just chance at work in my view.

Finally,  here are how my stocks did this past week:


 Stock   Last Week   Current   Dividend   Change 
 RHI              47.49                   48.21                       -   1.5%
 ATHM              33.27                   35.61                       -   7.0%
 CA              32.48                   32.40                       -   -0.2%
 AMGN            180.20                181.44                       -   0.7%
 MPAA              28.27                   27.86                       -   -1.5%
 AKRX              24.12                   22.66                       -   -6.0%
 MSGN              22.30                   22.90                       -   2.7%
 VLO              66.08                   66.57                       -   0.7%
 BRCD              12.47                   12.39                       -   -0.6%
 YY              44.49                   46.81                       -   5.2%
 CSCO              34.29                   34.26                       -   -0.1%
 KLAC              90.42                   93.20                       -   3.1%
 RGR              48.75                   52.15                       -   7.0%
 GILD              70.74                   68.19                       -   -3.6%
 CBI              32.43                   30.32                       -   -6.5%
 GNC                8.53                     7.51                       -   -12.0%
 WNC              21.67                   20.71                       -   -4.4%
 Average  -0.4%

As I often mention, the average here is a straight average - so it does not reflect that RHI is in two tranches nor that I have more $ in some holdings (ie November) than others.

MFI Formula

Ok, I will go with same tables same order but less wordy.  Note that MFI Formula stocks are picked via a formula and random number generator.  If I backtest this approach, it has been terrific.  Unfortunately, since I started with real $ (as you will see) in October 2014 it has been just so-so.

My "Formula" (pretty funny as I should call in Formula Squared as it is a formula within a formula) is to start with the official MFI list (top 50 stocks over $100m market cap).  I then throw out the bottom 1/3 in market cap (so now just 34 stocks).  I then throw out everything that has a dividend yield of under 2.4% (I do count special dividends).  That generally gets me down to 10 or so stocks.  I finally allow myself to discard one stock (I went with PDLI for a long time as i felt earnings were not sustainable [good call] but once or twice threw out OUTR [bad call]).  I then randomly pick five names.  This can (and does) cause me to have the same stock in several tranches.


 Date   Differential   Value   R3K Value 
10/1/2014 0.00%        100,000            100,000
11/1/2014 1.63%        102,288            100,658
12/1/2014 0.30%        101,375            101,075
1/1/2015 -0.33%        100,664            100,995
2/1/2015 1.67%        101,281              99,611
3/1/2015 3.62%        106,073            102,454
4/1/2015 5.09%        106,781            101,695
5/1/2015 5.78%        107,859            102,077
6/1/2015 5.08%        108,213            103,134
7/1/2015 4.82%        106,423            101,604
8/1/2015 3.71%        107,112            103,404
9/1/2015 4.38%        101,523              97,139
10/1/2015 6.39%        100,703              94,312
11/1/2015 2.93%        104,835            101,907
12/1/2015 -3.48%          99,443            102,926
1/1/2016 -3.36%          96,830            100,012
2/1/2016 -0.72%          93,797              94,367
3/1/2016 4.07%          98,588              94,367
4/1/2016 0.34%        102,371            101,548
5/1/2016 -1.91%          99,774            101,200
6/1/2016 -0.42%        103,145            103,568
7/1/2016 -0.19%        103,022            103,216
8/1/2016 2.56%        109,419            106,857
9/1/2016 -0.34%        106,704            107,048
10/1/2016 -0.85%        106,377            107,230
11/1/2016 0.42%        105,421            105,003
12/1/2016 1.62%        110,705            109,088
1/1/2017 1.57%        113,406            111,832
2/1/2017 1.32%        114,809            113,486
3/1/2017 -5.09%        112,930            118,024
Current -4.17%        114,048            118,216

 4/1/16 Stocks  Start Current Dividend Pct Gain R3K Gain
 CALM  $51.27 $38.80 $0.44 -23.5% 18.1%
 HPQ  $12.10 $17.39 $0.51 47.9% 18.1%
 TIME  $15.24 $19.10 $0.76 30.3% 18.1%
 ILG  $13.85 $18.24 $0.51 35.3% 18.1%
 XPER  $30.79 $33.70 $0.80 12.1% 18.1%
 Totals  20.4% 18.1%
7/1/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 ILG  $16.76 $18.24 $0.39 11.2% 13.6%
 VIAB  $44.00 $43.73 $0.40 0.3% 13.6%
 CPLA  $53.22 $77.80 $1.21 48.5% 13.6%
 HRB  $23.62 $23.73 $0.66 3.3% 13.6%
 PBI  $17.69 $13.29 $0.56 -21.7% 13.6%
 Totals  8.3% 13.6%
10/3/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 CPLA  $58.15 $77.80 $0.82 35.2% 10.6%
 LDOS  $43.01 $52.81 $0.00 22.8% 10.6%
 GME  $27.70 $25.18 $0.75 -6.4% 10.6%
 PBI  $18.15 $13.29 $0.38 -24.7% 10.6%
 CSCO  $31.72 $34.26 $0.52 9.6% 10.6%
 Totals  7.3% 10.6%
12/30/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 GILD  $71.69 $68.19 $0.00 -4.9% 5.6%
 HPQ  $15.00 $17.39 $0.13 16.8% 5.6%
 TGNA  $21.33 $26.23 $0.14 23.6% 5.6%
 CA  $31.99 $32.40 $0.26 2.1% 5.6%
 SYNT  $19.79 $17.54 $0.00 -11.4% 5.6%
 Totals  5.3% 5.6%
 Category/Tranche   October   January   April   July   Total 
 Initial Investment      249,820        249,939     250,180      249,728         999,667
 Current Tranche  7.3% 5.3% 20.4% 8.3% 9.7%
 Previous Tranche  5.5% 9.3% -0.2% -12.5% 1.1%
 Tranche -2  0.5% 11.0%               -                  -   2.9%
 MFI Overall Gain  13.7% 27.7% 20.1% -5.2% 14.1%
 Current Balance      284,126        319,101     300,535      236,720      1,140,482
 R3K Current Tranche  10.6% 5.6% 18.1% 13.6% 12.0%
 R3K Overall Gain  24.9% 18.1% 16.8% 13.3% 18.3%
 R3K Balance      311,926        295,089     292,268      282,859      1,182,142
 Annualized IRR  5.4% 11.8% 9.9% -3.1% 6.0%

Yeah, the 6% annualized IRR is a bummer.  But I plan to stick with it - actually will add $ in April.


 Stock   Last Week   Current   Dividend   Change 
 CPLA              76.95                   77.80                  0.41 1.6%
 HPQ              17.35                   17.39                       -   0.2%
 ILG              18.55                   18.24                  0.15 -0.9%
 PBI              13.57                   13.29                       -   -2.1%
 GILD              70.74                   68.19                       -   -3.6%
 CA              32.48                   32.40                       -   -0.2%
 SYNT              17.61                   17.54                       -   -0.4%
 TGNA              25.92                   26.23                       -   1.2%
 XPER              35.40                   33.70                       -   -4.8%
 LDOS              53.69                   52.81                       -   -1.6%
 TIME              18.45                   19.10                       -   3.5%
 CSCO              34.29                   34.26                       -   -0.1%
 GME              25.28                   25.18                  0.38 1.1%
 HRB              20.98                   23.73                  0.22 14.2%
 CALM              37.40                   38.80 3.7%
 VIAB              42.31                   43.73 3.4%
 Average  1.0%

HRB had good earnings.  TIME is taking bids, could go as high as $22.


Dividend Portfolio

Those of you who only care about MFI can sign off now.  I have two other investing approaches in play.  The first is dividends, which is my attempt to build an portfolio that will produce an income stream for me as I rapidly approach retirement.

These securities are intended to be buy and hold and I reinvest dividends on many of them.  There is nothing that makes investing more real for me that getting regular dividend checks, especially when they are every increasing through compounding.  So it is hard to benchmark my results against the market as I have stock and bond funds.  I do not even really focus on overall gains in "value", but rather I focus on gains in income stream.  With reinvested dividends plus extra cash allocations over the years, it is an impressive chart.

Here are my holdings from start of year (I did sell SBRA and PSX):


 Dividend Stocks  Start  Current   Divvy   Overall Pct Gain   Weekly Pct Gain   1/1/17 Price   % Chg Since 1/1/17 
 CSQ      9.13       11.01      2.44 47.4% -1.6%         10.27 9.3%
 AOD      7.64         8.16      1.77 30.0% -1.2%           7.58 8.8%
 SBRA    22.46       25.74      0.41 16.4% 0.0%         24.42 5.4%
 PSXP    47.04       52.73      1.08 14.4% -4.7%         48.64 9.5%
 TGONF    10.24       12.41      2.02 41.0% 0.2%         12.14 3.6%
 JQC      7.85         8.81      0.74 21.6% -2.2%           8.85 0.6%
 PSX    80.00       78.90      3.51 3.0% 0.0%         86.41 -8.0%
 DSL    18.45       19.64      1.30 13.5% -3.0%         18.99 4.9%
 GLDI    10.63         9.21      0.86 -5.3% -2.6%           8.94 4.5%
 PEO    20.49       19.19      0.10 -5.8% -3.0%         20.17 -4.4%
 O    24.43       57.39    19.78 215.9% -4.9%         57.48 0.5%
 DHF      3.19         3.29      0.09 5.8% -4.9%           3.36 -0.2%
 OIBAX      5.08         5.68      2.34 58.0% -0.5%           5.61 2.0%
 Totals  25.0% 3.5%

Looking at the weekly pct gain column, you can see it was not a great week.  I think the only thing that helped was having sold a few names (SBRA was down 3.6% and PSX was up almost 1%).  But that is okay.  The purpose here is income.  Reinvested dividends.  I will be adding to these holdings during 2017, especially if we get some pullbacks.


Miscellaneous

While the first three portfolios are all roughly the same in size, my miscellaneous portfolio is the smallest (also best performing so far).  You might say, why not put more here?  I do think about it, but over time this has not always done so well as i have at times swung for the fences and definetly struck out.  I am starting to build more of an approach here (less ad hoc) based on some newsletters I am reading regarding merger arbitration (so SYT has become one of my larger holdings).

But I do take more risk here, warrants, options micro caps.  So I do not share much beyond my results as I do not want people to blindly follow me.  But BAC warrants, some gold plays and arbitration is the bulk of my investing (speculation?) here.

The End

Have a nice weekend, thanks for stopping by.

2 comments:

Gal said...

Awesome post. Really enjoyed it!

I just finished the book and I don't like to think too much. Was just searching to see if this formula is still so spectacular. Seems like mixed results... except for your MFI Select (but that's already the Formula with additional stipulations, and I REALLY don't want to start thinking and opening Excel!).

Good luck and thanks for sharing all these details. Will def keep reading!

Marsh_Gerda said...

Thanks for the note and kind words. I will def keeping writing. :)