Weekend Update - April Fool's Day, 2017

Weekend Update

Another week zips by. 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.

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

With the turning of the calendar to April, I will have some housekeeping to do this weekend.  I will write up how the March 2016 MFI tracking portfolio (which just hit one year anniversary) fared.  I will also select my five new stocks for my MFI Formula portfolio (my April 1, 2016 has hit a year).  Then I have to create a new March 31st, 2017 MFI tracking portfolio.

This week I got a little paranoid.  A lot of people are saying the market is stretched.  Basic metrics certainly would suggest this to be true, the movement of the market has way outpaced earnings.  Of course, the market is supposed to be forward looking - so the real question is whether future earnings will begin to accelerate - thus justifying market moves.  I do not know.  But I decide the risk/reward just is not there right now - so I sold off a couple of my biggest dividend positions during the week.

Here is how my various portfolios ended up for 1st quarter:

Component	YTD
Overall	+4.10%
Select	+5.85%
Formula	+2.41%
Miscellaneous	+5.74%
Dividend	+3.47%
R3K	+5.63%
MFI Index	-0.39%

I am ok being up 4.1% for the quarter - especially considering my cash position.  But R3K was fabulous, up 5.6% (inclusive of March dividend).  You can see my two MFI approaches (Select and Formula) were pretty decent (again - this cut includes cash as I had originally intended to put more $ in during 2017.... not so sure right now).  But the big disappointment here is the MFI Index, actually down for Q1 2017.  Here is a table showing my MFI Index 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	5.63%	-0.39%	116.85%	100.76%

So the struggle continues.  MFI (at least going with 50 stocks greater than $100m) in it's purest form, just is not beating the index.  It is not a rout, but still disappointing.  I have spoken many times about why that is (in my view).  In a nutshell, too many companies make the screen that earnings in the past 12 months are not representative of future earnings power.

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 very 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
4/1/2017	54.43%	224,094	169,663

So one can see my MFI Select has expanded lead nicely in 2017.  But one can look up the table and you'll see that gains are rarely linear.  I'll have a good couple months/quarter and then a crash and burn (look at 9/1/16 to 10/1/16).  I have always maintained MFI stocks have greater volatility.  I try to avoid "stinkers", but in reality I can just minimize, not avoid 100% (unless I build that time machine).

Here are my open positions:

5/6/2016	Start	Current	Dividend	Pct Gain	R3K Gain
BRCD	$7.97	$12.48	$0.17	58.7%	18.1%
CBI	$37.82	$30.75	$0.00	-18.7%	18.1%
HSII	$18.51	$26.35	$0.39	44.5%	18.1%
RHI	$38.51	$48.83	$0.90	29.1%	18.1%
UTHR	$107.99	$135.38	$0.00	25.4%	18.1%
Totals				27.8%	18.1%
8/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$31.20	$33.80	$0.26	9.2%	9.7%
GNC	$19.79	$7.36	$0.38	-60.9%	9.7%
VLO	$54.73	$66.29	$1.30	23.5%	9.7%
MSGN	$16.68	$23.35	$0.00	40.0%	9.7%
GILD	$79.33	$67.92	$1.46	-12.5%	9.7%
Totals				-0.2%	9.7%
11/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
MPAA	$26.55	$30.73	$0.00	15.7%	9.5%
ATHM	$22.61	$31.77	$0.00	40.5%	9.5%
AMGN	$145.14	$164.07	$1.00	13.7%	9.5%
RHI	$43.23	$48.83	$0.46	14.0%	9.5%
CA	$31.11	$31.72	$0.26	2.8%	9.5%
Totals				17.4%	9.5%
2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$24.08	$0.00	26.1%	3.8%
YY	$41.08	$46.11	$0.00	12.2%	3.8%
KLAC	$85.11	$95.07	$0.54	12.3%	3.8%
WNC	$17.65	$20.69	$0.00	17.2%	3.8%
RGR	$52.75	$53.55	$0.44	2.4%	3.8%
Totals				14.0%	3.8%

Obviously GNC being down 60% puts a damper on the five stock tranche of August.  But other three tranches are doing well. And that is what it is about - overall portfolio approach.

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	-0.2%	17.4%	14.0%	27.8%	14.4%
Previous Tranche	2.8%	8.0%	10.7%	-25.2%	-2.9%
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	84.2%	252.7%	109.3%	50.3%	124.1%
Current Balance	46,039	88,169	52,319	37,567	224,094
R3K Current Tranche	9.7%	9.5%	3.8%	18.1%	10.3%
R3K Overall Gain	83.3%	86.7%	67.9%	57.0%	69.7%
R3K Balance	41,779	46,663	41,964	39,257	169,663
Annualized IRR	14.1%	33.4%	19.4%	11.0%	19.5%

I like to highlight the annualized IRRs (final row).  19.5% is fabulous in today's world.  But it does vary a lot even by date (November much better) and I would be lying if I did not point out I had a few stocks that did very, very well.

Here are how my stocks did during the last week:

Stock	Last Week	Current	Dividend	Change
RHI	48.19	48.83	-	1.3%
ATHM	31.90	31.77	-	-0.4%
CA	31.86	31.72	-	-0.4%
AMGN	165.74	164.07	-	-1.0%
MPAA	28.01	30.73	-	9.7%
AKRX	22.75	24.08	-	5.8%
MSGN	22.50	23.35	-	3.8%
VLO	65.78	66.29	-	0.8%
BRCD	12.47	12.48	-	0.1%
YY	46.30	46.11	-	-0.4%
CSCO	34.08	33.80	-	-0.8%
KLAC	95.72	95.07	-	-0.7%
RGR	51.90	53.55	-	3.2%
GILD	67.51	67.92	-	0.6%
CBI	28.83	30.75	-	6.7%
GNC	7.00	7.36	-	5.1%
WNC	20.48	20.69	-	1.0%
Average				2.0%

MPAA had nice move as they announced an aggressive stock buy back.

MFI Formula

These are stocks picked by formula rather than my selecting. Formula is based on my backtesting - stocks have to have yield of 2.4% or greater and be in upper 2/3 in market cap.  I then randomly select 5 names.  I just retired a tranche and starting a new one. on Monday  I have been also planning to dedicate more $, but I am starting to re-think that.  Not so much that I do not believe in MFI Formula... rather the whole market seems extended.

Taking a sneak look, Monday will likely offer to me the standard companies of late:  BKE, CA, CSCO, GME, GILD, HP, OMC, PBI, and RGR.

Same tables.

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
4/1/2017	-1.86%	116,227	118,091

So after a dreadful February, I did get a bounce back in March.  Not quite a dead heat, but pretty tight.

4/1/16 Stocks	Start	Current	Dividend	Pct Gain	R3K Gain
CALM	$51.27	$37.55	$0.44	-25.9%	18.0%
HPQ	$12.10	$17.88	$0.51	51.9%	18.0%
TIME	$15.24	$19.35	$0.76	31.9%	18.0%
ILG	$13.85	$20.96	$0.51	55.0%	18.0%
XPER	$30.79	$33.95	$0.80	12.9%	18.0%
Totals				25.2%	18.0%
7/1/2016	Start	Current	Dividend	Pct Gain	R3K Gain
ILG	$16.76	$20.96	$0.39	27.4%	13.5%
VIAB	$44.00	$46.62	$0.60	7.3%	13.5%
CPLA	$53.22	$85.03	$1.21	62.0%	13.5%
HRB	$23.62	$23.25	$0.66	1.2%	13.5%
PBI	$17.69	$13.11	$0.56	-22.7%	13.5%
Totals				15.1%	13.5%
10/3/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CPLA	$58.15	$85.03	$0.82	47.6%	10.4%
LDOS	$43.01	$51.14	$0.00	18.9%	10.4%
GME	$27.70	$22.55	$0.75	-15.9%	10.4%
PBI	$18.15	$13.11	$0.38	-25.7%	10.4%
CSCO	$31.72	$33.80	$0.52	8.2%	10.4%
Totals				6.6%	10.4%
12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$67.92	$0.52	-4.5%	5.5%
HPQ	$15.00	$17.88	$0.13	20.1%	5.5%
TGNA	$21.33	$25.62	$0.14	20.8%	5.5%
CA	$31.99	$31.72	$0.26	0.0%	5.5%
SYNT	$19.79	$16.83	$0.00	-15.0%	5.5%
Totals				4.3%	5.5%

You can see PBI has really hurt July and October.  While I am retiring April 2016, I think I will hold TIME a couple more weeks (although I'll move to my Miscellaneous) as I think it is pretty likely they will get bought (maybe around $22).  Of course you never know - but people started looking at TIME before Trump was elected and I think all news/magazines/papers have gained value since then.

Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	6.6%	4.3%	25.2%	15.1%	11.5%
Previous Tranche	5.5%	9.3%	-0.2%	-12.5%	1.4%
Tranche -2	0.5%	11.0%	-	-	2.9%
MFI Overall Gain	13.0%	26.5%	24.9%	0.7%	16.3%
Current Balance	282,329	316,095	312,363	251,487	1,162,274
R3K Current Tranche	10.4%	5.5%	18.0%	13.5%	11.9%
R3K Overall Gain	24.7%	17.9%	16.7%	13.1%	18.1%
R3K Balance	311,600	294,778	291,965	282,563	1,180,906
Annualized IRR	5.0%	11.0%	11.7%	0.4%	7.0%

Obviously the 7% IRR is not what I aspire to. Maybe need to give it more (ahem) Time?

Here is how the stocks did during the week:

Stock	Last Week	Current	Dividend	Change
CPLA	82.20	85.03	-	3.4%
HPQ	17.23	17.88	-	3.8%
ILG	19.37	20.96	-	8.2%
PBI	12.54	13.11	-	4.5%
GILD	67.51	67.92	-	0.6%
CA	31.86	31.72	-	-0.4%
SYNT	16.38	16.83	-	2.7%
TGNA	25.53	25.62	-	0.4%
XPER	37.25	33.95	-	-8.9%
LDOS	52.62	51.14	-	-2.8%
TIME	19.35	19.35	-	0.0%
CSCO	34.08	33.80	-	-0.8%
GME	20.70	22.55	-	8.9%
HRB	22.42	23.25	-	3.7%
CALM	37.35	36.80		-1.5%
VIAB	43.06	46.62		8.3%
Average				1.9%

Wow, ILG was up 8%.  That is a huge position for me - that has been a great pick. GME bounced back from a dreadful prior week. Was PBI really 12.54?  Wow, it was.

Dividends and Miscellaneous

Given that I moved dividends to 75% cash, I am going to put discussion on them on hold until I reinflate.  On the miscellaneous side,  I had great timing on my BAC warrants. I rebought the shares I had sold on 2/28 at $12.34 for $10.20 and have already made a quick 10% (one a sizable investment) as it is $11.30.  But one of my riskier positions (I have mentioned I take some risky positions here) imploded on Friday (FWP) ast he lost patent litigation with BIIB.  That pretty much offset my BAC gain.  I'll have to decide what to do with FWP.

Have a great weekend everybody.