Weekend Update 5/14/17

Weekend Update

Good morning everyone.  Up in NH this weekend.  Extremely rainy Sunday morning, but that is ok.  I have hot coffee and enjoy listening to the rain.

You have found your way to The MFI Diary, a blog I have been maintaining since 2006 (MFI being magic formula investing from The Little Book That Beats the Market by Joel Greenblatt). .In it I track performance of my own actual MFI investments along with detailed tracking of picking stocks from the MFI screen and my MFI Index (an index compromised of 50 stocks from screen and reconstituted once a year).

People need to know I am just a guy with a spreadsheet, no finance expertise.  So please use what I write for information/entertainment - but if you choose to buy some of the names I buy you should do your own due diligence.

Past Week

It was a flattish kind of week, it felt worse than it was.  The Trump/Comey drama really bothered me.  I did sell some of my riskier stocks - so I have more cash. I also did put more $ to work back in dividend portfolio.

Component	YTD
Overall	+5.14%
Select	+8.72%
Formula	+5.85%
Miscellaneous	-2.39%
Dividend	+4.31%
R3K	+6.89%
MFI Index	+0.69%

So Miscellaneous bounced back this week (it was at -6.2% last week).  I suspect it was rebound in gold.   But my MFI tranches really struggled, you'll see that later - my 5/6 kickoff was a flop.

MFI Select

I have two MFI portfolios - "Select" and "Formula", each consisting of 4 tranches of five stocks.  Select has been running since August 2012 when I performed my MFI reboot (after sitting out for a year).  It has been very successful.  It is pretty free form, I can pick whatever stocks I want, from the official screen or my homemade screen (which always seems to pick up a few names omitted from official screen).

I mentioned it was a bad week. Here are individual stocks for the week:

Stock	Last Week	Current	Dividend	Change
MSGN	23.55	23.50	-	-0.2%
ATHM	35.13	37.08	-	5.6%
AKRX	33.08	33.15	-	0.2%
AMGN	163.81	160.22	-	-2.2%
MPAA	30.03	30.84	-	2.7%
YY	51.41	53.93	-	4.9%
RHI	46.91	47.26	-	0.7%
CA	32.69	31.61	-	-3.3%
WNC	22.09	21.34	-	-3.4%
RGR	60.00	63.00	-	5.0%
KLAC	100.94	100.04	-	-0.9%
QCOM	54.93	55.32	-	0.7%
WSTC	24.15	23.12	-	-4.3%
TGNA	25.75	22.66	-	-12.0%
TIME	15.05	12.75	-	-15.3%
VLO	65.34	66.42	-	1.7%
CSCO	34.39	33.45		-2.7%
GILD	67.80	66.06		-2.6%
GNC	7.19	6.72		-6.5%
Average				-1.7%

Pretty bad. TIME and TGNA are both in newest tranche. Down quickly. Of course WSTC announced take under. CA had decent earnings but sold off.  YY and ATHM also had solid earnings and were frankly bright spot of week.

Here are each of my 4 tranches:

8/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$31.20	$33.45	$0.26	8.0%	11.0%
GNC	$19.79	$6.72	$0.38	-64.1%	11.0%
VLO	$54.73	$66.42	$1.30	23.7%	11.0%
MSGN	$16.68	$23.50	$0.00	40.9%	11.0%
GILD	$79.33	$66.06	$1.46	-14.9%	11.0%
Totals				-1.3%	11.0%
11/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
MPAA	$26.55	$30.84	$0.00	16.2%	10.8%
ATHM	$22.61	$37.08	$0.00	64.0%	10.8%
AMGN	$145.14	$160.22	$1.00	11.1%	10.8%
RHI	$43.23	$47.26	$0.46	10.4%	10.8%
CA	$31.11	$31.61	$0.26	2.4%	10.8%
Totals				20.8%	10.8%
2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$33.15	$0.00	73.6%	5.0%
YY	$41.08	$53.93	$0.00	31.3%	5.0%
KLAC	$85.11	$100.04	$1.08	18.8%	5.0%
WNC	$17.65	$21.34	$0.06	21.2%	5.0%
RGR	$52.75	$63.00	$0.44	20.3%	5.0%
Totals				33.0%	5.0%
5/6/2017	Start	Current	Dividend	Pct Gain	R3K Gain
WSTC	$24.15	$23.12	$0.00	-4.3%	-0.4%
TGNA	$25.75	$22.66	$0.00	-12.0%	-0.4%
TIME	$15.05	$12.75	$0.00	-15.3%	-0.4%
MSGN	$23.55	$23.50	$0.00	-0.2%	-0.4%
QCOM	$54.93	$55.32	$0.00	0.7%	-0.4%
Totals				-6.2%	-0.4%

So May starts week one at -6.2%.  Not that it makes me feel better, but four stocks I sold were down 5.3% (I excluded BRCD as they are being bought by AVGO).  My official reject list was up 50 basis points.  February and November continue to outperform.  August is limping towards final quarter.

Here is month by month progression:

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	45.60%	209,503	163,936
2/1/2017	45.20%	212,330	167,146
3/1/2017	48.80%	222,583	173,829
4/1/2017	55.70%	229,473	173,735
5/1/2017	55.80%	231,497	175,712
Current	54.41%	230,167	175,760

Still have solid outperformance. This approach will always have ups and downs.

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	-1.3%	20.8%	33.0%	-6.2%	12.3%
Previous Tranche	2.8%	8.0%	10.7%	19.1%	8.3%
Tranche -2	11.2%	69.4%	-14.3%	-25.2%	10.3%
Tranche -3	41.4%	14.2%	8.5%	18.3%	20.6%
Tranche -4	14.1%	43.7%	78.3%	33.0%	42.3%
MFI Overall Gain	82.1%	263.1%	144.1%	31.4%	130.2%
Current Balance	45,526	90,763	61,029	32,849	230,167
R3K Current Tranche	11.0%	10.8%	5.0%	-0.4%	6.6%
R3K Overall Gain	85.5%	88.9%	69.9%	58.9%	75.8%
R3K Balance	46,366	47,216	42,463	39,715	175,760
Annualized IRR	13.5%	33.2%	23.2%	7.0%	19.2%

In this table (which shows all tranches since August 2012), you see most recent May at -6.2%.  Last week the 19.1% was "current", but has now been moved to "previous".

MFI Formula

This is my formula approach.  The formula is based on my backtesting of all the MFI stats I have kept since January 2006.  My finding (you should pay me for this!) is that stocks that pay a dividend (I used 2.6% yield in my backtesting) from the official screen do much better. And if you exclude the micro cap stocks from that screen (using about $600m market cap as breakpoint) you do even better.

I have done analysis and thought long and hard about why this improves things.  And the answer (I believe) is it removes some "fakes" from the official screen.  There are stocks on the screen just masquerading as Magic Formula/Jake's Bubble Gum Shop stocks.  But they do not have sustainable earnings... and payment of a dividend weeds many of the stinkers out.

That being said, moving to real money on this approach in October 2014 has not been a homerun.  It coincided with some retail names in that category really getting shellacked (like GME and BKE).  And the approach does require a little less spreading of risk and you can get same names multiple quarters.

Here are same series of tables:

Stock	Last Week	Current	Dividend	Change
CPLA	94.40	94.25	-	-0.2%
GILD	67.80	66.06	-	-2.6%
SYNT	18.62	18.41	-	-1.1%
CSCO	34.39	33.45	-	-2.7%
TGNA	25.75	22.66	-	-12.0%
HPQ	18.91	19.30	-	2.1%
CA	32.69	31.61	-	-3.3%
PBI	15.49	15.68	-	1.2%
OMC	83.69	83.12	-	-0.7%
BKE	19.90	18.25	-	-8.3%
LDOS	54.47	52.67	-	-3.3%
ILG	25.54	25.97	-	1.7%
VIAB	36.82	34.61	-	-6.0%
HRB	25.27	26.58	-	5.2%
GME	24.00	24.03		0.1%
Average				-2.0%

The week was mediocre here as well.  I thought perhaps it was bad for all MFI!  But my index was only down about 30 basis points - on par with the market.  Retail took a beating (Macy's was down a bunch), so BKE was hurt.

7/1/2016	Start	Current	Dividend	Pct Gain	R3K Gain
ILG	$16.76	$25.97	$0.39	57.3%	14.8%
VIAB	$44.00	$34.61	$0.60	-20.0%	14.8%
CPLA	$53.22	$94.25	$1.21	79.4%	14.8%
HRB	$23.62	$26.58	$0.66	15.3%	14.8%
PBI	$17.69	$15.68	$0.56	-8.2%	14.8%
Totals				24.8%	14.8%
10/3/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CPLA	$58.15	$94.25	$0.82	63.5%	11.8%
LDOS	$43.01	$52.67	$0.64	23.9%	11.8%
GME	$27.70	$24.03	$0.75	-10.5%	11.8%
PBI	$18.15	$15.68	$0.38	-11.5%	11.8%
CSCO	$31.72	$33.45	$0.81	8.0%	11.8%
Totals				14.7%	11.8%
12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$66.06	$0.52	-7.1%	6.8%
HPQ	$15.00	$19.30	$0.27	30.4%	6.8%
TGNA	$21.33	$22.66	$0.14	6.9%	6.8%
CA	$31.99	$31.61	$0.26	-0.4%	6.8%
SYNT	$19.79	$18.41	$0.00	-7.0%	6.8%
Totals				4.6%	6.8%
4/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
BKE	$18.45	$18.25	$0.25	0.3%	1.2%
CSCO	$33.76	$33.45	$0.29	0.0%	1.2%
GILD	$67.50	$66.06	$0.00	-2.1%	1.2%
OMC	$85.53	$83.12	$0.00	-2.8%	1.2%
SYNT	$16.76	$18.41	$0.00	9.8%	1.2%
Totals				1.0%	1.2%
Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	14.7%	4.6%	1.0%	24.8%	8.8%
Previous Tranche	5.5%	9.3%	25.2%	-12.5%	8.1%
Tranche -2	0.5%	11.0%	-0.2%	-	2.8%
MFI Overall Gain	21.5%	26.8%	26.1%	9.2%	20.9%
Current Balance	303,629	317,015	315,552	272,715	1,208,911
R3K Current Tranche	11.8%	6.8%	1.2%	14.8%	8.6%
R3K Overall Gain	26.2%	19.3%	18.1%	14.5%	19.5%
R3K Balance	315,286	298,283	295,429	285,895	1,194,893
Annualized IRR	7.7%	10.5%	11.5%	4.8%	8.7%

Pretty much a push all around. Current tranche now just has  a 20 basis point lead.  I gave back some cushion this past week.

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
5/1/2017	1.11%	120,403	119,296
Current	1.40%	120,891	119,489

Tight.

Miscellaneous/Dividends

I did buy some dividend stocks this past week.  I bought my SBRA back and bought  FDEU (a closed end fund focused on Europe). The previous week I bought NRZ.  So here is my dividend portfolio:

Stock	Initial	Current	Div/Sh	Gain/Loss
TGONF	10.47	12.70	0.19	23%
FDEU	18.21	18.49	-	2%
JQC	7.87	8.82	0.11	14%
SBRA	24.01	24.32	-	1%
DSL	18.48	20.82	0.09	13%
NRZ	16.66	16.10	-	-3%
DHF	3.19	3.48	0.04	10%
O	24.67	54.73	0.80	125%
OIBAX	5.08	5.83	0.47	24%

So you can see the three new ones, as they have paid no dividends yet.

I did sell of 35% of my miscellaneous portfolio this week as I de-risked.

Have a great weekend.