Saturday, June 10, 2017

Weekend Update 6/10/17

Weekend Update

Good morning everyone.  Looks like summer may finally be arriving here in Connecticut.  Monday it didn't even get out of the 50s. But today we make 80 (or so they say).

I thought I'd re-start my quote of the day from my garage sale quotes book.  Since we had the Comey testimony this week:

"Men of genius are admired; men of wealth are envied; men of power are feared; but only men of character are trusted"

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 comprised 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
I finally had a "good" week.  I was actually up a bit while the R3K was down.  Part of it was my largest holding, BAC-WTA,  popping 10%.  It was very strange - after Comey's testimony, it felt that Financials got the most uplift and Tech stocks actually faltered.  Perhaps just coincidence, but perhaps not?

Here is where I stand year to date:


Component YTD
Overall +4.91%
Select +11.21%
Formula +2.85%
Miscellaneous -6.09%
Dividend +5.63%
R3K +8.96%
MFI Index -0.17%


As I assume most of you tune in for the MFI component, you can see my Select portfolio is very good (up 11.2%).  Recall also that that results includes a cash component that was 20% at start of year and is still 10%.  The tables in the MFI Select section of my blog exclude the cash component.

MFI Formula has really struggled the past 45 days.  Now just up 2.85% (it has cash as well).  The MFI Index is really poor - actually losing money thus far in 2017.  That is compromised of 50 stocks from official screen at start of year (with a $100m market cap).  Then as a final benchmark, I also track GARIX, this is a Gotham mutual fund that uses a version of MFI.  It is up 2.2% this year.

So, the struggle has been real in magic formula investing in 2017.  Greenblatt did say that it only outperformed 5 of 8 years. But of the 12 years I have tracked, it has won just 5 so far.  Now statistically,  a 62.5% free throw shooter (5 of 8) can have a stretch of 12 free throws where they hit just 5 - that is not that unlikely.  But the more free throws you shoot and stay under the 62.5%, the more you question whether you are really a 62.5% FT shooter.

MFI Select

As my fearless readers know, I have two MFI portfolios with real money.  The first is "MFI Select", which I rebooted in August 2012 (I had quit MFI in frustration for over a year and spent time thinking about it).  It consists of 4 tranches of 5 stocks each.  It is very free form.  I have my own screen that I use in conjunction with the official screen.  It has been very successful.  The real goal of both my MFI Select and MFI Formula approaches is to avoid the "stinker" stocks that are pretty regular in the screens.

Here are few stats to chew over (using my tracking of official screen 50 stocks over 100m):

  • The standard deviation of individual stock returns is 49%.  My quick and dirty look at S&P 500 showed standard deviations less than 1/2 of that.  So individual stock risk is much higher in MFI.
  • If you go back to my "Bored & Beer-Infused Ramble" in December 2016 I have a graph showing the distribution of returns.  It showed that 14% of MFI stocks (historically) have had annual returns of -40% or worse.  These are the stinkers.
  • If you could somehow identify these tail stocks and exclude them, your returns would go from 8.2% to 19%.  I am sure that would be more than satisfactory.

Now of course we cannot identify in advance all stinker stocks. That would take a Delorean and Doc Brown.  But if can just find a way to have fewer, "that would be enough" (to quote Hamilton). Onward.

Here are my 4 current tranches:


8/15/2016 Start Current Dividend Pct Gain R3K Gain
 CSCO  $31.20  $31.37  $0.26  1.4% 13.1%
 GNC  $19.79  $7.46  $0.38  -60.4% 13.1%
 VLO  $54.73  $65.26  $2.00  22.9% 13.1%
 MSGN  $16.68  $22.00  $0.00  31.9% 13.1%
 GILD  $79.33  $64.70  $1.46  -16.6% 13.1%
Totals -4.2% 13.1%
11/15/2016 Start Current Dividend Pct Gain R3K Gain
 MPAA  $26.55  $28.93  $0.00  9.0% 13.0%
 ATHM  $22.61  $44.99  $0.00  99.0% 13.0%
 AMGN  $145.14  $164.06  $2.00  14.4% 13.0%
 RHI  $43.23  $47.25  $0.70  10.9% 13.0%
 CA  $31.11  $31.71  $0.51  3.6% 13.0%
Totals 27.4% 13.0%
2/1/2017 Start Current Dividend Pct Gain R3K Gain
 AKRX  $19.10  $33.24  $0.00  74.0% 7.0%
 YY  $41.08  $58.85  $0.00  43.3% 7.0%
 KLAC  $85.11  $101.98  $1.08  21.1% 7.0%
 WNC  $17.65  $21.10  $0.06  19.9% 7.0%
 RGR  $52.75  $68.00  $0.92  30.7% 7.0%
Totals 37.8% 7.0%
5/6/2017 Start Current Dividend Pct Gain R3K Gain
 WSTC  $24.15  $23.20  $0.00  -3.9% 1.5%
 TGNA  $25.75  $22.89  $0.07  -10.8% 1.5%
 TIME  $15.05  $13.85  $0.00  -8.0% 1.5%
 MSGN  $23.55  $22.00  $0.00  -6.6% 1.5%
 QCOM  $54.93  $57.05  $0.57  4.9% 1.5%
Totals -4.9% 1.5%

Overall, very good (as I'll show in a second).  Two tranches winning and two losing - but winners are more than offsetting losers.  And if you look at individual stock returns, you see just one worse than -40% (GNC). So I have a stinker rate (on open positions) of 5%. Much better than 14% in tracking history.  BTW, my stinker rate of all my stocks since my 8/2012 reboot is just 2%.  I think that is a large part luck, 6 or 7% would be my target.  It is also helped that since August 2012 we have had a pretty good bull market.

Here are my results in table form:


Category/Tranche August November February May Total
Initial Investment  25,000   25,000   25,000   25,000   100,000 
Current Tranche -4.2% 27.4% 37.8% -4.9% 15.3%
Previous Tranche 2.8% 8.0% 10.7% 19.1% 8.4%
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 76.8% 282.8% 152.8% 33.3% 136.4%
Current Balance  44,191   95,691   63,209   33,314   236,405 
R3K Current Tranche 13.1% 13.0% 7.0% 1.5% 8.6%
R3K Overall Gain 89.0% 92.5% 73.1% 61.9% 79.2%
R3K Balance  47,256   48,125   43,285   40,486   179,152 
Annualized IRR 12.5% 34.1% 23.7% 7.3% 19.4%

So a couple "almost interesting" thoughts.  First my overall IRR (19.4%) is amazingly close to the 19% I mentioned above from the tracking studies if you could remove entirely the 14% stinker rate.  Second, one will note pretty substantial variation between my tranche dates.  November has been the best (34%) and May the worst (7.3%).  I think that is chance (I had a couple huge gainers from November: NHTC was up over 300% in one tranche).  But this also means in this table that November results going forward get more weight (currently almost 3x more weight than May) as I just roll forward every year - selling the five stocks and using proceeds to buy 5 new stocks (though in reality I do add money and I am not quite as spread and that is another reason my actual results do not quite match up with this more hypothetical table, which assumes you started with $100k and never add $).

Here is month by month changes.  I have really been doing well in 2017.


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 
6/1/2017 53.40%  230,599   177,203 
Current 57.25%  236,405   179,152 

Then finally, here are how stocks did individually during the week:


Stock Last Week Current Dividend Change
MSGN  21.55   22.00   -    2.1%
ATHM  42.33   44.99   -    6.3%
AKRX  33.26   33.24   -    -0.1%
AMGN  159.15   164.06   -    3.1%
MPAA  29.50   28.93   -    -1.9%
YY  59.23   58.85   -    -0.6%
RHI  47.34   47.25   -    -0.2%
CA  32.19   31.71   -    -1.5%
WNC  20.28   21.10   -    4.0%
RGR  66.05   68.00   -    3.0%
KLAC  105.88   101.98   -    -3.7%
QCOM  58.58   57.05   -    -2.6%
WSTC  23.19   23.20   -    0.0%
TGNA  23.70   22.89   0.07  -3.1%
TIME  12.80   13.85   -    8.2%
VLO  62.10   65.26   -    5.1%
CSCO  31.98   31.37  -1.9%
GILD  65.40   64.70  -1.1%
GNC  7.58   7.46  -1.6%

MFI Formula


Same series of charts.  Recall that MFI Formula has been going since October 2014.  It is entirely formula (quant) driven.  I take official 50 over 100m screen and then I throw out the 17 smallest market cap stocks.  I then take the subset of remaining stocks that have a dividend yield of at least 2.4%. Finally I allow myself optionality to pitch out one and then I use random number generator to pick my five.

While this approach through back testing has worked very well (it also tends to remove "stinkers") the results for me thus far have been a bit subpar.  Not a disaster, but not a home run.


7/1/2016 Start Current Dividend Pct Gain R3K Gain
 ILG  $16.76  $26.05  $0.54  58.7% 17.0%
 VIAB  $44.00  $35.40  $0.60  -18.2% 17.0%
 CPLA  $53.22  $87.50  $1.62  67.5% 17.0%
 HRB  $23.62  $26.19  $0.66  13.7% 17.0%
 PBI  $17.69  $15.21  $0.75  -9.8% 17.0%
Totals 22.4% 17.0%
10/3/2016 Start Current Dividend Pct Gain R3K Gain
 CPLA  $58.15  $87.50  $1.23  52.6% 13.9%
 LDOS  $43.01  $55.37  $0.64  30.2% 13.9%
 GME  $27.70  $22.01  $1.13  -16.5% 13.9%
 PBI  $18.15  $15.21  $0.56  -13.1% 13.9%
 CSCO  $31.72  $31.37  $0.81  1.5% 13.9%
Totals 10.9% 13.9%
12/30/2016 Start Current Dividend Pct Gain R3K Gain
 GILD  $71.69  $64.70  $0.52  -9.0% 8.8%
 HPQ  $15.00  $17.80  $0.27  20.4% 8.8%
 TGNA  $21.33  $22.89  $0.21  8.3% 8.8%
 CA  $31.99  $31.71  $0.51  0.7% 8.8%
 SYNT  $19.79  $16.52  $0.00  -16.5% 8.8%
Totals 0.8% 8.8%
4/1/2017 Start Current Dividend Pct Gain R3K Gain
 BKE  $18.45  $17.90  $0.25  -1.6% 3.2%
 CSCO  $33.76  $31.37  $0.29  -6.2% 3.2%
 GILD  $67.50  $64.70  $0.00  -4.2% 3.2%
 OMC  $85.53  $81.50  $0.00  -4.7% 3.2%
 SYNT  $16.76  $16.52  $0.00  -1.4% 3.2%
Totals -3.6% 3.2%

Note no "stinkers" (yet) in open positions.  My overall rate is also right at 2% stinker rate, but again since 2014 we have been in a less volatile market - so my screen does not get all the credit.


Category/Tranche October January April July Total
Initial Investment  249,820   249,939   250,180   249,728   999,667 
Current Tranche 10.9% 0.8% -3.6% 22.4% 5.0%
Previous Tranche 5.5% 9.3% 25.2% -12.5% 8.2%
Tranche -2 0.5% 11.0% -0.2%  -    2.8%
MFI Overall Gain 17.6% 22.2% 20.3% 7.1% 16.8%
Current Balance  293,748   305,546   301,031   267,472   1,167,796 
R3K Current Tranche 13.9% 8.8% 3.2% 17.0% 10.7%
R3K Overall Gain 28.6% 21.7% 20.4% 16.7% 21.8%
R3K Balance  321,357   304,054   301,167   291,382   1,217,961 
Annualized IRR 6.2% 8.6% 8.8% 3.6% 6.8%

My open tranches are getting whooped, 5% versus 10.7% for benchmark.  That mirrors the overall results: 16.8% to 21.8%.

By month (you can see recent falloff):


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 
6/1/2017 -2.65%  117,824   120,472 
Current -5.02%  116,780   121,798 

You can see quite a drop since 5/1.  Here are how individual stocks have done since then:


Stock Last Week Current Dividend Change
CPLA  95.50   87.50   0.41  -7.9%
GILD  68.11   64.70   -    -5.0%
SYNT  17.60   16.52   -    -6.1%
CSCO  33.97   31.37   -    -7.7%
TGNA  25.78   22.89   0.07  -10.9%
HPQ  18.93   17.80   -    -6.0%
CA  32.80   31.71   0.26  -2.5%
PBI  13.42   15.21   0.19  14.7%
OMC  82.68   81.50   -    -1.4%
BKE  18.80   17.90   -    -4.8%
LDOS  53.49   55.37   -    3.5%
ILG  24.13   26.05   0.15  8.6%
VIAB  42.60   35.40   -    -16.9%
HRB  24.65   26.19   -    6.2%
GME  22.78   22.01   0.38  -1.7%

Not many success stories there.  Frankly just PBI.  Compare that to MFI Select since early May:

Stock Last Week Current Dividend Change
MSGN  23.35   22.00   -    -5.8%
ATHM  36.24   44.99   -    24.1%
AKRX  33.10   33.24   -    0.4%
AMGN  163.03   164.06   -    0.6%
MPAA  29.57   28.93   -    -2.2%
YY  53.11   58.85   -    10.8%
RHI  47.27   47.25   0.24  0.5%
CA  32.32   31.71   0.26  -1.1%
WNC  21.82   21.10   -    -3.3%
RGR  57.35   68.00   0.44  19.3%
KLAC  100.50   101.98   -    1.5%
QCOM  54.62   57.05   -    4.4%
WSTC  24.11   23.20   -    -3.8%
TGNA  25.79   22.89   0.07  -11.0%
TIME  14.75   13.85   -    -6.1%
VLO  66.11   65.26   0.70  -0.2%
CSCO  34.29   31.37  -8.5%
GILD  67.21   64.70  -3.7%
GNC  7.25   7.46  2.9%

ATHM, YY, RGR have been strong enough to carry the day.


Dividend Portfolio

Here is my current dividend portfolio.  Enough said.


Stock Initial Current Div/Sh Gain/Loss
 TGONF   10.47   13.05   1.97  43%
 FDEU   18.21   19.58   0.12  8%
 NRZ   16.51   16.33   -    -1%
 JQC   7.87   8.64   0.88  21%
 PSXP   48.92   47.70   -    -2%
 SBRA   24.01   22.86   0.43  -3%
 DSL   18.49   20.72   1.71  21%
 RILY   13.85   15.50   -    12%
 DHF   3.19   3.55   0.14  16%
 O   24.79   55.31   19.99  204%
 OIBAX   5.09   5.86   2.38   0.62 

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