When I posted my MFI tracking results last weekend, I showed (as usual) that the subset of dividend stocks have done better than the overall 50 stocks over $100m screen.
A reader who follows me on Twitter commented that he had heard that MFI stocks that had gone up more in the past 6 months, were more likely to sustain that momentum. This is kind of the reverse of "dogs of MFI" approach I had been tracking.
It was an interesting enough idea that I decided to at least roll up my sleeves and see if it was doable. It was, to some extent - with the problem that I went further and further back in time, it became more manual and more frustrating.
So I looked at a subset. I looked at MFI portfolios i started in 2013-2016. For each stock, I then tried to find the price 6 month prior. I will be the first to admit I was not super duper thorough (with stock splits or special dividends or tickers going away or changing causing problems).
But I think I did enough to get a decent sample. Here is the table and then I will explain it:
| Decile | Pct Change | Cumulative Average |
| 1 | -6.4% | 5.8% |
| 2 | 2.5% | 7.1% |
| 3 | 3.3% | 7.7% |
| 4 | 8.4% | 8.3% |
| 5 | 5.5% | 8.3% |
| 6 | 9.0% | 8.9% |
| 7 | 13.0% | 8.8% |
| 8 | 11.3% | 7.4% |
| 9 | 3.8% | 5.5% |
| 10 | 7.2% | 7.2% |
So I did it on a decile basis instead of absolute. There could be problems with this that I can easily think of. So after scrubbing the data, I had about 1700 stock years. I split these into deciles with a "1" being the 10% of stocks that had seen their price drop the most in past 6 months (like an ESI). A 10 are the 10% of stocks that had seen their price rise the most in 6 months prior to the portfolio inception.
Pct Change is just the change for each decile. So overall, this group was up a mediocre 5.8%. But the 10th decile was up 7.2% and the 1st decile was the only loser, down 6.4%. Even 2nd and 3rd deciles were subpar.
Cumulative Pct Change first assumes you just bought the 10% that went up most (7.2%) and then assumes you buy the 20% best, 30% best etc. So it maxes out at "6" (8.9% and corresponds to 50% of best moving stocks in past 6 months) which means a good strategy might be to
- take the 50 stocks great than 100m from the screen,
- Find their price 6 months ago.
- Calculate pct change from 6 months ago to today.
- Then only buy stocks in the top 1/2.
That would be 8.9% versus 5.8% per the table above.
I know I have not done this as rigorously as I should.
- I should test bear market and bull market years.
- I should cross tabulate dividends and market caps.
- I should clean up data better.
- I should run the backtest exactly as I described the strategy.
The clearest point to me is the "don't catch a falling knife" adage. The cut off here for the first decile is stocks that have dropped 34% or more... so my advice would be in MFI, if a stock has dropped 34% or more in the past 6 months - give it a good long thought before buying it.
Not that it is a great sample, but let us now look at the MFI stocks I have bought since 2012 and see if this filter would have helped:
| Symbol | Purchase Date | Purchase | End | Gain | 6 Month Prior | Price Change |
| VNCE | 11/15/15 | $3.99 | $4.10 | 3% | $18.15 | -78.0% |
| DEPO | 02/01/16 | $15.34 | $18.09 | 18% | $32.79 | -53.2% |
| SAVE | 11/15/15 | $34.48 | $53.39 | 55% | $66.59 | -48.2% |
| NSR | 05/06/14 | $25.82 | 30.69 | 19% | $48.25 | -46.5% |
| SALE | 08/17/15 | $9.34 | $11.75 | 26% | $15.47 | -39.6% |
| LCI | 11/15/15 | $34.01 | $24.25 | -29% | $53.04 | -35.9% |
| HSII | 05/06/16 | $18.51 | $21.65 | 20% | $28.75 | -35.6% |
| AAPL | 02/01/13 | $450.60 | $500.66 | 13% | $665.24 | -32.3% |
| UTHR | 05/06/16 | $107.99 | $122.84 | 14% | $157.16 | -31.3% |
| QCOM | 02/01/16 | $45.18 | $53.43 | 23% | $63.02 | -28.3% |
| RHI | 05/06/16 | $38.51 | $46.91 | 24% | $52.60 | -26.8% |
| CBI | 08/15/14 | $58.25 | $51.70 | -11% | $79.42 | -26.7% |
| BRCD | 05/06/16 | $7.97 | $12.57 | 60% | $10.83 | -26.4% |
| WU | 11/15/12 | $12.77 | $16.40 | 32% | $16.84 | -24.2% |
| VEC | 02/01/16 | $19.64 | $22.54 | 15% | $25.41 | -22.7% |
| GNC | 08/16/16 | $19.79 | $8.58 | -55% | $25.56 | -22.6% |
| PPC | 11/15/15 | $18.98 | $19.46 | 17% | $24.33 | -22.0% |
| AWRE | 11/15/14 | $4.40 | $3.07 | -30% | $5.61 | -21.6% |
| VIAB | 02/02/15 | $63.91 | $44.90 | -27% | $80.82 | -20.9% |
| TDC | 02/01/16 | $24.02 | $29.36 | 22% | $30.00 | -19.9% |
| ATHM | 11/15/16 | $22.61 | $45.67 | 102% | $27.45 | -17.6% |
| RCII | 05/06/14 | $28.78 | $31.77 | 14% | $34.35 | -16.2% |
| NUS | 02/01/13 | $41.94 | $116.59 | 181% | $49.48 | -15.2% |
| KFY | 08/15/12 | $13.98 | $18.95 | 36% | $16.46 | -15.1% |
| CBI | 05/06/16 | $37.82 | $29.30 | -22% | $44.39 | -14.8% |
| FLR | 11/15/14 | $64.80 | $47.46 | -25% | $75.90 | -14.6% |
| VDSI | 08/17/15 | $18.66 | $17.45 | -7% | $21.76 | -14.2% |
| MPAA | 11/15/16 | $26.55 | $27.26 | 3% | $30.75 | -13.7% |
| KORS | 05/06/15 | $62.24 | $50.87 | -18% | $72.06 | -13.6% |
| CF | 08/15/13 | $187.26 | $247.43 | 35% | $216.65 | -13.6% |
| CF | 05/06/13 | $183.97 | $243.15 | 34% | $212.50 | -13.4% |
| NSU | 08/15/12 | $3.62 | $3.33 | -5% | $4.16 | -13.1% |
| VIAB | 11/15/14 | $72.29 | $50.69 | -28% | $83.13 | -13.0% |
| HSII | 08/17/15 | $20.14 | $19.19 | -3% | $23.03 | -12.5% |
| PERI | 02/01/16 | $2.45 | $1.86 | -24% | $2.77 | -11.6% |
| QCOM | 02/02/15 | $62.73 | $45.34 | -25% | $70.85 | -11.5% |
| CA | 05/06/14 | $29.54 | $31.41 | 10% | $32.85 | -10.1% |
| AGX | 08/15/13 | $15.60 | $36.71 | 140% | $17.29 | -9.8% |
| GILD | 08/16/16 | $79.33 | $70.86 | -8% | $87.25 | -9.1% |
| TGNA | 08/17/15 | $25.30 | $21.37 | -13% | $27.61 | -8.4% |
| VEC | 11/15/15 | $23.60 | $22.25 | -6% | $25.45 | -7.3% |
| CBI | 05/06/15 | $50.38 | $38.23 | -24% | $54.19 | -7.0% |
| IPCM | 11/15/14 | $38.45 | $80.03 | 108% | $41.33 | -7.0% |
| AMGN | 11/15/16 | $145.14 | $174.26 | 21% | $155.41 | -6.6% |
| RDA | 05/06/13 | $9.74 | $16.79 | 73% | $10.20 | -4.6% |
| ITRN | 08/15/14 | $21.32 | $25.63 | 24% | $22.07 | -3.4% |
| AVG | 11/15/13 | $17.22 | $19.21 | 12% | $17.77 | -3.1% |
| BRCD | 08/15/14 | $9.34 | $10.09 | 10% | $9.62 | -3.0% |
| KLIC | 08/15/13 | $11.29 | $14.26 | 26% | $11.48 | -1.7% |
| MSFT | 08/15/12 | $30.19 | $31.92 | 9% | $30.56 | -1.2% |
| UIS | 02/02/15 | $22.03 | $10.87 | -51% | $22.29 | -1.2% |
| AAPL | 11/15/12 | $537.62 | $527.28 | 0% | $542.44 | -0.9% |
| ATVI | 02/01/14 | $17.16 | $21.53 | 27% | $17.23 | -0.4% |
| KLIC | 05/06/13 | $11.40 | $14.45 | 27% | $11.43 | -0.3% |
| DLB | 08/15/12 | $34.43 | $33.04 | 8% | $34.49 | -0.2% |
| VLO | 08/16/16 | $54.73 | $67.07 | 26% | $54.82 | -0.2% |
| RPXC | 02/01/14 | $16.13 | $12.93 | -20% | $15.84 | 1.9% |
| ABC | 11/15/12 | $40.21 | $69.23 | 74% | $39.35 | 2.2% |
| FLR | 08/15/13 | $66.06 | $73.03 | 11% | $64.51 | 2.4% |
| CA | 02/01/13 | $25.07 | $32.08 | 32% | $24.33 | 3.0% |
| MSGN | 08/16/16 | $16.68 | $22.25 | 33% | $15.99 | 4.3% |
| CA | 11/15/16 | $31.11 | $34.48 | 12% | $29.81 | 4.4% |
| LPS | 11/15/12 | $23.89 | $34.26 | 45% | $22.84 | 4.6% |
| NHTC | 02/02/15 | $12.44 | $19.95 | 61% | $11.83 | 5.2% |
| UIS | 08/15/12 | $19.96 | $24.52 | 23% | $18.97 | 5.2% |
| CSCO | 05/06/14 | $22.79 | $28.89 | 30% | $21.54 | 5.8% |
| CSCO | 08/17/15 | $28.95 | $31.20 | 11% | $27.12 | 6.7% |
| VIAB | 11/15/12 | $49.12 | $80.94 | 67% | $45.87 | 7.1% |
| KLAC | 02/01/14 | $61.35 | $61.24 | 30% | $57.07 | 7.5% |
| CSCO | 08/15/14 | $24.40 | $30.95 | 30% | $22.56 | 8.2% |
| VEC | 02/02/15 | $28.00 | $19.76 | -29% | $25.50 | 9.8% |
| SYNA | 11/15/13 | $48.01 | $61.90 | 29% | $43.71 | 9.8% |
| GA | 11/15/13 | $9.04 | $11.90 | 34% | $8.19 | 10.3% |
| RHI | 11/15/16 | $43.23 | $48.76 | 14% | $38.99 | 10.9% |
| PSDV | 05/06/15 | $4.12 | $2.87 | -30% | $3.67 | 12.4% |
| AVG | 05/06/14 | $19.57 | $23.27 | 19% | $17.40 | 12.5% |
| RPXC | 11/15/13 | $17.04 | $13.91 | -18% | $15.08 | 13.0% |
| NVDA | 05/06/13 | $13.85 | $18.43 | 35% | $12.10 | 14.5% |
| ATVI | 11/15/13 | $17.71 | $20.10 | 15% | $14.90 | 18.9% |
| TSRA | 05/06/15 | $38.94 | $30.46 | -20% | $31.92 | 22.0% |
| RPXC | 08/15/13 | $15.92 | $15.09 | -5% | $12.94 | 23.0% |
| CYOU | 05/06/13 | $29.24 | $28.02 | -4% | $23.75 | 23.1% |
| SNDK | 02/01/14 | $70.20 | $75.78 | 9% | $55.94 | 25.5% |
| WNR | 02/01/14 | $39.80 | $37.71 | 2% | $31.04 | 28.2% |
| AGX | 08/15/14 | $36.71 | $40.69 | 13% | $27.94 | 31.4% |
| GA | 02/01/13 | $6.10 | $11.01 | 91% | $4.48 | 36.1% |
| CSCO | 08/16/16 | $31.20 | $31.11 | 1% | $22.65 | 37.7% |
| STRZA | 02/01/13 | $16.06 | $27.98 | 74% | $10.83 | 48.3% |
| DEPO | 05/06/15 | $23.50 | $15.51 | -34% | $15.00 | 56.7% |
| NHTC | 11/15/14 | $12.19 | $51.46 | 323% | $6.60 | 84.7% |
So these cks I bought between aug 2012 and Nov 2016. I have listed the stock price 6 months prior to my purchase. And then I sorted in ascending order.
So overall, these 90 stock years average 20% gain (close to my 19.4% IRR). A second statistic is Median of 14.1%.
If I apply the simple rule of get rid of anything that dropped 34% or more in prior six months I get average gain of 20.7% and median of 13.7%. Pretty marginal.
If I apply broader rule (which I cannot actually do, but can approximate) the average gain jumps to 25.0% and the median goes to 16.8%.
That is a little more interesting.
Summary
A lot of meandering here. But the data does seem to suggest that you are better off taking the top 1/2 subset of the screen where the stocks have gone up the most in the prior 6 months.
I will start to track this a bit more rigorously and may even start some real $ this way.
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