Rotation Beginning?

Rotation Beginning?

Well, yesterday I wrote about how my MFI stocks are up 7 or 8% in past couple weeks. Today that move continued.  Clearly this is tied into the pushing forward of corporate tax cuts in Congress.

It is funny, I have kind of assumed tax changes were mostly priced in as market is up 18% this year.  But if you dig in the numbers, the stocks that have really gone up are not really those that get the biggest impact from lower income taxes.  I mean NFLX, AMZN, TSLA - these guys don't pay much in corporate taxes.  BRK, yes. And it is up just 12.5%.  But IWF, the growth ETF is up 25%.

Macro Tourist

I like to read the Macro Tourist.  He has some very thought-provoking  essays.  He also argues rotation is beginning in today's essay (TAX REFORM ROTATION).

Here is the section that caught my eye:

"I started with the proposition that much of the tax cut was built into the market, but expressed my worry that some smart excel crunching analysts were claiming the market was underestimating the tremendous impact of the corporate tax cut. Sam pointed out that if my theory was correct, then we should have seen those companies that would benefit most from the tax cut, rally the most over the past couple of months.

Yet when we have a look at the stocks that have risen the most, it’s not those stocks. The last couple of months have been a momentum chasing FANG craze. Not the companies that will benefit most from the tax cut.

And when I looked at yesterday’s action, it seems clear the market was not prepared for the tax bill progress. On news that the Senate had the votes to pass the bill, the S&P 500 exploded higher and they monkey-hammered the Nasdaq lower."

Formula Starting To Work?

Formula Starting to Work?

Not sure what happened today (I was traveling), but when I fired up my computer, I found that my MFI Formula Portfolio was up 2.5% on the day.  I wonder if retail is starting to look more promising(although I find NRF numbers to always be wrong).

While my Formula approach was the star, my Select was up 1.13% and the MFI Index was up 1.6%.  What was encouraging about my Formula pop was the breadth.

BKE was up 6.7% and GME was up 4.4%, thus my retail friendly bump.  But every stock was up at least 1.2%, except laggard CA.

Here is my table showing moves since 11/13 bottom:

Index	Portfolio	Stock	Last Week	Current	Dividend	Change
25	Formula	SYNT	23.56	25.59	-	8.6%
15	Formula	HPQ	21.17	21.66	-	2.3%
12	Formula	GILD	72.85	72.59	-	-0.4%
22	Formula	CSCO	33.95	37.73	-	11.1%
14	Formula	OMC	67.92	70.65	-	4.0%
10	Formula	GME	16.20	19.02	-	17.4%
24	Formula	CA	32.32	32.69	0.26	1.9%
13	Formula	DIN	44.38	44.04	-	-0.8%
23	Formula	TGNA	19.96	21.19	-	6.2%
9	Formula	BKE	19.00	23.20	-	22.1%
17	Formula	RGR	48.85	53.60	0.21	10.2%

Stock	Last Week	Current	Dividend	Change
SIMO	47.46	49.50	-	4.3%
MSGN	16.80	17.65	-	5.1%
YY	90.60	111.34	-	22.9%
CELG	100.34	103.99	-	3.6%
EVC	5.75	6.85	-	19.1%
ICHR	28.98	30.36	-	4.8%
AKRX	33.31	32.45	-	-2.6%
VIAB	24.61	27.03	-	9.8%
RHI	53.53	55.91	-	4.4%
MD	45.42	49.22	-	8.4%
QCOM	66.49	68.38	-	2.8%
KLAC	101.93	107.16	-	5.1%
TIME	11.40	18.45	-	61.8%
GHC	556.45	578.50	-	4.0%
WNC	19.24	19.18	-	-0.3%
RGR	48.85	53.60	0.21	10.2%
TGNA	19.96	21.19	-	6.2%

Overall,  the two portfolios are up about 8% since 11/13.  Not bad.  I am almost happy.

It's About Time!

It's About Time!

Some good news for my portfolio this morning.  I see where MDP and TIME have finally agreed to tie the knot at $18.50 per share.  Here is what I wrote in my Blog in mid-May when I bought TIME:

"TIME rebuffed bids (rumored to be MDP).  I think a chance MDP comes back with higher did (their stock price dropped when TIME announced withdrawal). But even without MDP, I like TIME at $15. They pay a 4%+ dividend and with our new 24 hour reality show that is President Trump, we are getting more eyeballs on CNN & Time magazine."

Show that a blind squirrel occasionally finds an acorn.  Of course I had chances to buy TIME later at much lower prices than $15.

I actually did get to double dip on the MDP rumors.  I had owned TIME in my 4/16 Formula portfolio and sold 4/17 before they dropped when they could not agree to terms with MDP:

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%

So made 32% there and will make 20%-ish this time.

Of course I am wrong often as well. If you went back and read my May 2017 post where I talk about TIME, I also say 

WSTC is being rumored to be bought.  I have heard prices around $30 and prices around $24.  Hopefully $24 is the floor.  At this cycle in market, I am ok with stocks with limited downside, yet some upside.

TGNA is spinning of Cars.com later this month. I think that may be a catalyst to unlock some value.

MSGN has also been rumored to sell themselves post their spinoff from MSG.

Finally, QCOM got pretty beat down with AAPL playing hardball.  But I think legally AAPL needs to pay QCOM. And then I love the QCOM purchase of NXPI.  That sector (think KLAC) has been on fire since merger was announced yet that is not reflected at all in QCOM.

We'll see - I always like my ideas day 1.

That last line pretty much summed it up.  WSTC did get bought, but actually below the $24 floor ($23.50).  The Cars spinoff has not unlocked any value (yet).  MSGN selling rumors faded like the 2016-17 Knicks.  QCOM still has not gotten paid by AAPL, but I was right about the sector being hot and AVGO has made a bid for QCOM.

In investing, you cannot win them all.  My view is you need to win 2 out of 3.  Here I have won (so far, I have 6 months to go) 2 of 5. THat in a nutshell explains why May 2017 is struggling.  Here is table (assuming TIME goes for $18.50) (hmm, I may be missing a TIME dividend).

5/6/2017	Start	Current	Dividend	Pct Gain	R3K Gain
WSTC	$24.15	$23.50	$0.00	-2.7%	9.6%
TGNA	$25.75	$21.05	$0.14	-17.7%	9.6%
TIME	$15.05	$18.50	$0.04	23.2%	9.6%
MSGN	$23.55	$17.50	$0.00	-25.7%	9.6%
QCOM	$54.93	$68.91	$1.14	27.5%	9.6%
Totals				0.9%	9.6%

Value Stocks vs MFI

Value Stocks Versus MFI

I think we can all agree that stocks that meet the magic formula screen are generally "value stocks".  The mantra is good stocks, cheap.  Valuestockgeek on twitter shared an interesting table:

What this table shows is the number of low EV/EBIT stocks by year and how they performed against S&P 500.  When the market is "cheap", like 2009 or 2001, you tend to have more stocks meeting this criteria.  When the market is stretched, like 1999, 2007 or 2017, you tend to have fewer.

It is also telling that Greenblatt wrote his book in 2006.  Look at the best years for value stocks on relative basis: 2000, 2001, 2002 and 2003 are amongst the very very best.  So it may not be totally surprising that he had the stellar backtesting results he had and it has been a bit more of a slog since then.

He makes the point that when there are fewer stocks in that bucket, it is less likely that in aggregate they outperform.  I think this makes intuitive sense.  Now I thought it would be interesting to overlay my MFI Index results with this table.  Are the best years for MFI the same as the best years for value stocks (on relative basis)?

	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	17.60%	2.41%	130.09%	103.59%

You can see the best years for index were 2013 and 2009. Followed by 2010 and 2006.   The worst years were 2011, 2017, 2007 and 2015. Well bingo on 2009 and 2013.  They are right at top of chart.  I think the 2011 disconnect (high on value chart and poor for MFI) was all the reverse merger chinese stocks that year.  

For bad years, double bingo on 2007 and 2017.  They suck for MFI and they had very low proportions of cheap stocks.

So we seem to have reasonable alignment.  What does this all mean?  I guess in times when the market is cheap (like 2009), you could either invest more $ (takes courage) or have a greater focus on stocks with higher earnings yield.  In times when market is stretched (Like now), you could take some $ off table or you could focus less on Earnings yield and more on return on invested capital.  That does make some intuitive sense, I have been avoiding somewhat "value" stocks that are shrinking.

Hmm, some stuff to noodle over.