MFI Weekend Update 10/21/17

Weekend Update

It was a good week.  Scratch that, a great week - at least for my Magic Formula stocks.  Hard to believe, but they were up over 3% on the week.  I am back home, after being in Pittsburgh and Knoxville the past two weekends.  Back on the road next weekend - visiting daughter in Boston for Parents weekend.

Of course, I have to have a disclaimer - I am just a guy with a spreadsheet and not a stock advisor.  You should do your own due diligence before acting on anything you read here.

Any opinions you read are my own unless they end up being really bad.

The Past Week

It was a very good week, as I mentioned. Especially for MFI stocks.  Not so hot in my dividend portfolio. Really hurt by NS dropping 8% and PSXP falling over 4%.  Not sure why pipelines were under duress.  PSXP actually increased dividend (Phillips 66 Partners declares $0.646 dividend).

Here is where I stand for the year and the 4th quarter:

Component	YTD	4th Q
Overall	+15.42%	+1.68%
MFI Select	+27.12%	+2.33%
MFI Formula	+16.31%	+6.16%
Miscellaneous	+9.11%	+1.97%
Dividend	+13.06%	-0.68%
R3K	+16.11%	+2.19%
MFI Index	+5.02%	+0.71%
GARIX	+6.85%	+1.87%

you can see in October how well my MFI portfolios are doing, Select is up 2.33% and Formula is up 6.16%.  You can also see that the broader MFI approach continues to trail in 2017.  My MFI Index is up 5% (versus 16% for the benchmark) and GARIX (a Gotham mutual fund) is up 6.85%.  2017 continues to be a year that favors growth stocks over value.

I did sell my FIX this week and my long held BAC warrants.  I sold the FIX as I had bought them as a reconstruction play. I was already up about 8% and that seemed pretty good to me.  The BAC warrants were up so much for me (overall best trade ever) and I am starting to worry about the markets hitting their top. Of course the warrants went up  another 6% right after I sold!

I did buy SALT (a dry bulk firm that reports on Monday) and a very small bank (OFED) that appears to be trading at a discount to replace my very successful BYBK play.  I do like some of these smaller banks that pay a little dividend, have limited downside (in my view( and decent upside via catalyst.  Better than 40 basis points in my savings account!

MFI Select

This is where I invest real dollars in MFI stocks. This portfolio consists of 4 tranches of 5 stocks each.  I allow myself total free form on what to pick.  So sometimes from official screens, but sometimes from my own personal screen.  This portfolio started in August of 2012 as a reboot.  I had quit MFI in frustration with my results for a year.

People ask, how do you pick your stocks?  I am just a guy with a spreadsheet, so I certainly have no special knowledge.  But my approach is to try and avoid "stinkers", stocks that have potential to drop 30% or more.  Stinkers can really suck the life right out of your returns. I do read a lot (Barron's, Seeking Alpha, WSJ) and I also like stocks that pay some form of dividend.

Here is how MFI Select has performed month by month, assuming I started with $100,000 spread over original 4 tranches and just kept rolling forward every anniversary date:

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
7/1/2017	60.28%	239,060	178,782
8/1/2017	57.76%	239,924	182,163
9/1/2017	68.85%	251,265	182,419
10/1/2017	75.60%	262,489	186,886
Current	76.72%	267,696	190,974

You look at this and say that is great, beating benchmark so far $267,696 to $190,974 (76.7% lead).  But if you look back over time, you'd see in December 2015 I had a 73% lead that shrank to 47% in just a quarter.  So never take victory laps.  One thing I have learned about MFI stocks (I have written about this in the past) is that they are more volatile than broader market. But it has been an outstanding 2017, you can see the MFI Select has gone from 209,503 to 267,696 thus far.

Here are my four open tranches.

11/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
MPAA	$26.55	$29.73	$0.00	12.0%	20.3%
ATHM	$22.61	$59.14	$0.00	161.6%	20.3%
AMGN	$145.14	$182.96	$3.15	28.2%	20.3%
RHI	$43.23	$51.65	$0.94	21.7%	20.3%
CA	$31.11	$34.10	$0.77	12.1%	20.3%
Totals				47.1%	20.3%
2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$33.28	$0.00	74.2%	14.1%
YY	$41.08	$93.12	$0.00	126.7%	14.1%
KLAC	$85.11	$108.34	$1.67	29.3%	14.1%
WNC	$17.65	$22.76	$0.06	29.3%	14.1%
RGR	$52.75	$52.45	$1.15	1.6%	14.1%
Totals				52.2%	14.1%
5/6/2017	Start	Current	Dividend	Pct Gain	R3K Gain
WSTC	$24.15	$23.50	$0.00	-2.7%	8.2%
TGNA	$25.75	$21.55	$0.14	-15.8%	8.2%
TIME	$15.05	$12.15	$0.04	-19.0%	8.2%
MSGN	$23.55	$21.10	$0.00	-10.4%	8.2%
QCOM	$54.93	$52.02	$1.14	-3.2%	8.2%
Totals				-10.2%	8.2%
8/15/2017	Start	Current	Dividend	Pct Gain	R3K Gain
GHC	$591.10	$556.20	$1.27	-5.7%	5.3%
ICHR	$19.80	$33.86	$0.00	71.0%	5.3%
MD	$43.00	$44.51	$0.00	3.5%	5.3%
SIMO	$43.05	$51.78	$0.00	20.3%	5.3%
RHI	$44.15	$51.65	$0.24	17.5%	5.3%
Totals				21.3%	5.3%

November 2016 and February 2017 continue to be outstanding, up almost a composite 50%.  May 2017 is just a mess, all 5 stocks are in the red (though no stinkers)... that is almost hard to do. August 2017 is off to a tremendous start, already up 21% in under a quarter.

Here is a table showing overall results.  I often iterate that these are more hypothetical as they assume $100,000 at outset and never more money added. In reality, I often add money at anniversary dates and in fact have added substantially (around a 35% bump) at all anniversary dates for all my MFI tranches in 2017.  That is a statement of my confidence that this approach works for me.  My actual results are what I published at very beginning of this blog.

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	21.3%	47.1%	52.2%	-10.2%	27.3%
Previous Tranche	-0.1%	8.0%	10.7%	19.1%	15.3%
Tranche -2	2.8%	69.4%	-14.3%	-25.2%	8.2%
Tranche -3	11.2%	14.2%	8.5%	18.3%	13.0%
Tranche -4	41.4%	43.7%	78.3%	33.0%	49.1%
Tranche -5	14.1%	0.0%	0.0%	0.0%	3.5%
MFI Overall Gain	123.6%	342.1%	179.3%	25.8%	167.7%
Current Balance	55,907	110,514	69,830	31,446	267,696
R3K Current Tranche	5.3%	20.3%	14.1%	8.2%	12.0%
R3K Overall Gain	101.7%	105.1%	84.5%	72.6%	91.0%
R3K Balance	50,420	51,271	46,127	43,156	190,974
Annualized IRR	16.8%	35.1%	24.3%	5.3%	20.4%

So annualized IRR still over 20%.  You can also see current tranches are up composite 27.3% versus 12.0% for benchmark.

Here are how individual stocks did for the week.

Stock	Last Week	Current	Dividend	Change
ATHM	60.46	59.14	-	-2.2%
RHI	49.01	51.65	-	5.4%
YY	93.22	93.12	-	-0.1%
AKRX	33.22	33.28	-	0.2%
AMGN	183.01	182.96	-	0.0%
CA	33.88	34.10	-	0.6%
ICHR	32.67	33.86	-	3.6%
WNC	22.35	22.76	-	1.8%
SIMO	51.93	51.78	-	-0.3%
MPAA	29.49	29.73	-	0.8%
MD	42.17	44.51	-	5.5%
GHC	559.90	556.20	-	-0.7%
WSTC	23.50	23.50	-	0.0%
QCOM	52.82	52.02	-	-1.5%
KLAC	105.30	108.34	-	2.9%
MSGN	20.75	21.10	-	1.7%
TGNA	21.72	21.55	-	-0.8%
RGR	49.70	52.45		5.5%
TIME	12.70	12.15		-4.3%

So RHI popped back after dropping previous week. ICHR continues to head towards the moon.

MFI Formula

Mt second MFI portfolio is based on a formula I derived from all my back testing. So yes, it is a formula of a formula.  The formula is pretty straightforward. 

(1) start with screen of 50 stocks over $100m. 

(2) filter out the 17 smallest market caps. 

(3) Filter out stocks with a dividend yield up 2.4%.

(4) randomly select 5 stocks from remainders.

Since 2006, this approach would have done very very well.  Since I started with real $ in October 2014 it has done about the same as the benchmark.  But on a relative basis (that is relative to MFI in total), staying even with benchmark has been good.  

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
5/1/2017	1.11%	120,403	119,296
6/1/2017	-2.65%	117,824	120,472
7/1/2017	-2.40%	119,144	121,545
8/1/2017	-1.96%	121,873	123,828
9/1/2017	-6.09%	117,879	123,973
10/1/2017	-2.56%	124,448	127,007
Current	1.60%	131,401	129,796

You can see I have really accelerated since 9/1/17.  A chunk of that was very good SYNT earnings and a part is that the tax plan congress is thinking about is pretty favorable to these types of stocks (many 100% domestic and have profits).

Here are the four tranches:

12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$81.21	$1.56	15.5%	16.0%
HPQ	$15.00	$22.02	$0.53	50.3%	16.0%
TGNA	$21.33	$21.55	$0.28	2.3%	16.0%
CA	$31.99	$34.10	$0.77	9.0%	16.0%
SYNT	$19.79	$24.25	$0.00	22.5%	16.0%
Totals				19.9%	16.0%
4/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
BKE	$18.45	$16.60	$0.75	-6.0%	10.0%
CSCO	$33.76	$34.25	$0.87	4.0%	10.0%
GILD	$67.50	$81.21	$1.04	21.8%	10.0%
OMC	$85.53	$73.69	$1.10	-12.6%	10.0%
SYNT	$16.76	$24.25	$0.00	44.7%	10.0%
Totals				10.4%	10.0%
7/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$30.98	$34.25	$0.29	11.5%	6.8%
GME	$20.95	$20.13	$0.38	-2.1%	6.8%
HPQ	$17.60	$22.02	$0.13	25.9%	6.8%
RGR	$60.70	$52.45	$0.23	-13.2%	6.8%
SYNT	$16.21	$24.25	$0.00	49.6%	6.8%
Totals				14.3%	6.8%
10/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
DIN	$43.14	$45.83	$0.00	6.2%	2.2%
GILD	$82.85	$81.21	$0.00	-2.0%	2.2%
GME	$20.50	$20.13	$0.00	-1.8%	2.2%
HPQ	$20.22	$22.02	$0.00	8.9%	2.2%
OMC	$74.80	$73.69	$0.00	-1.5%	2.2%
Totals				2.0%	2.2%

Quite a reversal of fortune over just a few weeks ago.  All four are either leading or very close to leading the benchmark.  Woo-hoo! But no victory lap.  The SYNT move in 3 of my tranches really helped.  But like my Select portfolio, we continue to at least avoid stickers.

Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	2.0%	19.9%	10.4%	14.3%	11.6%
Previous Tranche	7.0%	9.3%	25.2%	26.7%	16.5%
Tranche -2	5.5%	11.0%	-0.2%	-12.5%	1.0%
Tranche -3	0.5%	0.0%	0.0%	0.0%	0.1%
MFI Overall Gain	15.6%	45.5%	37.9%	26.8%	31.4%
Current Balance	288,890	363,597	344,878	316,640	1,314,005
R3K Current Tranche	2.2%	16.0%	10.0%	6.8%	8.7%
R3K Overall Gain	37.1%	29.6%	28.3%	24.3%	29.8%
R3K Balance	342,487	324,023	321,025	310,429	1,297,965
Annualized IRR	4.9%	14.3%	13.3%	10.8%	10.8%

Wow, annualized IRR now up over 10%.  Better than sharp stick in the eye.  And current tranches leading benchmark in aggregate 11.6% t0 8.7%.

Here are individual stocks during week:

Stock	Last Week	Current	Dividend	Change
SYNT	19.39	24.25	-	25.1%
HPQ	21.71	22.02	-	1.4%
GILD	81.17	81.21	-	0.0%
CSCO	33.47	34.25	-	2.3%
OMC	75.14	73.69	-	-1.9%
GME	19.71	20.13	-	2.1%
CA	33.88	34.10	-	0.6%
DIN	43.40	45.83	-	5.6%
TGNA	21.72	21.55	-	-0.8%
BKE	15.55	16.60	-	6.8%
RGR	49.70	52.45	-	5.5%

When your largest holding pops up 25%, that does help. But good week across the board.

Dividends and Misc

As I mentioned, my dividend stocks struggled during the week as my two pipeline MLPs (NS and PSXP) got clocked.  But I do not worry that much about how the market values these securities.  This is really about income stream and dividend yield.  And no bad news on that front.

Dividend Stocks	Start	Current	Divvy	Overall Pct Gain	Weekly Pct Gain	9/30/17 Price	Yield
FDEU	18.40	19.02	0.57	6.5%	-1.9%	19.42	7.6%
EVG	14.46	14.23	0.18	-0.3%	-0.4%	14.24	6.5%
PSXP	47.39	50.96	0.38	8.3%	-4.5%	52.56	4.8%
KCLI	49.31	49.00	0.22	-0.2%	0.0%	49.75	2.4%
LADR	13.01	13.79	0.30	8.3%	-0.1%	13.78	8.7%
ISBC	13.25	13.84	0.06	5.0%	1.4%	13.64	2.3%
NS	41.04	34.77	-	-15.3%	-8.1%	40.59	12.6%
RLJ-PA	28.45	28.50	0.49	1.9%	-1.2%	27.82	6.9%
JQC	8.20	8.40	1.54	21.3%	-0.9%	8.49	6.8%
TK	5.24	8.73	0.06	67.5%	-2.8%	8.93	2.5%
DSL	19.47	21.10	1.50	16.1%	-0.9%	21.25	8.5%
OIBAX	5.85	5.94	0.42	8.7%	-0.3%	5.95	4.4%
OCSI	8.68	9.04	0.19	6.4%	1.6%	8.80	8.4%
RILY	15.58	16.55	0.13	7.1%	0.0%	17.05	1.6%
SBRA	23.13	21.32	0.52	-5.6%	1.0%	21.94	6.8%
TGONF	11.04	12.82	1.61	30.8%	0.4%	12.80	5.5%
VTIBX	10.92	10.92	0.02	0.2%	0.0%	10.89	1.1%
GLDI	9.29	8.98	0.19	-1.2%	-2.4%	9.07	12.1%
CPLP	3.54	3.57	-	0.8%	0.3%	3.50	9.0%
NRZ	16.22	17.49	0.88	13.3%	1.6%	16.73	11.4%
DHF	3.34	3.49	0.14	8.6%	-0.6%	3.53	8.1%
BKE	14.15	16.60	0.25	19.1%	6.8%	16.85	6.0%
CA	34.79	34.10	0.26	-1.3%	0.6%	17.85	3.0%
O	25.38	55.54	20.66	200.3%	-2.3%	57.19	4.6%
Totals				8.1%	-0.7%		6.4%

Note OCSI is "new", but in reality FSFR just changed names.  Some of these stocks/securities are just going to take patience.  KCLI is a lightly traded life insurer that pays a 2.4% dividend but is also trading at 65% of BV.  Someday, that discount will tighten.  TGONF is an off shore investment fund also at a 30% discount to NAV with a 5.5% yield.  I can wait and just collect dividends.  RLJ-PA is a prefered stock, will never be exciting (I hope).  VTIBX is a currency hedged Intl bond fund.  Even ISBC just sits there most weeks, a smallish regional bank. But has a safe 2.3% dividend and trades at 1.3 P/BV.  Sexy? No.

My Misc names are certainly more "exciting", but in today's world I am not sure you want exciting

Does rising tide lift all shipping stocks?

holdings.  I do have two names that pay dividends, SSW and OFED.  I may move SSW into dividend portfolio at year end - the difference being that dividend stocks I intend to hold for longer term.

BLDR is largest Misc name, I sold FIX but kept BLDR as reconstruction play.  I do have a fair number of biotech stocks that are pretty volatile.  I have a theory that Trump and FDA are becoming more lenient and faster in approving new drugs, so I think that increases odds of these names in Phase II or III of being successful. I also have three or four positions in shipping stocks as I did so well with TK and the BDI has been on a strong upwards trajectory.

I will say that both shipping and biotech stocks are not for the faint of heart.  I did get bad news on one shipping holding (SHIP) after the bell on Friday as they announced a secondary offering that took SHIP down about 17%.  I will say that press releases on stocks after the closing bell on Fridays are rarely good news.

Have a great week everybody!