MFI Weekend Update 12/1/17

Weekend Update

Another week zips by.  We are now in final month of the year and we now live in a country where you are allowed to say "Merry Christmas!".

Hang on, wait a second.  I have just been informed we have always been allowed to say Merry Christmas. Hmmm, weird - I thought Trump was making a big deal about that.

You have found your way to the MFI Diary.  This is a blog following the investment approach described by Joel Greenblatt in The Little Book That Beats The Market.  I have been writing this blog and following his investment approach since early 2006.

I did create a guide recently for new readers to my blog that point you to some key/interesting posts. I encourage you to give it a whirl (Guide To New Readers).  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 actually a respectable week.  I was up a bit more than one percent overall.  Funny, it didn't "feel" like a great week.  I guess it is all relative.  If you had told me  at start of year I'd be up over 13% over my entire portfolio, I'd have said, "I'll take that".  But the Russell 3000 is up a bit over 19%, so I guess I am sulking a bit.

But do not blame my overall lagging (part of which I expect as I have bond holdings and some cash) on my MFI portfolios.  They are now up 25% for the year, so take that Russell 3000!   That is one reason why I will be increasing allocation again to MFI in 2018.  For me, it really is my best option.  Everything else seems like the TNT factory and a lit match.

Here is where things stand as we start December:

Component	YTD	4th Q
Overall	+13.62%	+0.09%
MFI Select	+32.77%	+6.88%
MFI Formula	+17.79%	+7.52%
Miscellaneous	+2.43%	-4.27%
Dividend	+10.24%	-3.16%
R3K	+19.27%	+4.97%
MFI Index	+4.31%	+0.03%
GARIX	+8.20%	+3.16%

Does not take a rocket scientist to see MFI good for me (Select and Formula) and Misc bad.

MFI Select

MFI Select is a magic formula investing portfolio of mine involving real money.  I started it in August 2012 and it consists of 4 tranches of 5 stocks each that I buy and hold for a year.  I often get asked how I pick the stocks.  I do run my own screen (using formulas from the book) and I use that to supplement the official list.

I do try to avoid "stinker" stocks, those that have higher chance of dropping 30% or more.  I accomplish this through looking at sustainability of earnings. I also tend to rarely pick market caps below 500m.  I also tend to prefer stocks that pay a dividend as this signals management confidence in earnings sustainability.  I do look at debt and balance sheet.  I am not saying I have never picked a high debt stock or a stock with low tangible equity - but I do often strike those out (like I did with MIK recently).

Here are my 4 tranches:

2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$32.90	$0.00	72.3%	17.2%
YY	$41.08	$100.73	$0.00	145.2%	17.2%
KLAC	$85.11	$103.87	$2.26	24.7%	17.2%
WNC	$17.65	$19.89	$0.18	13.7%	17.2%
RGR	$52.75	$54.05	$1.36	5.0%	17.2%
Totals				52.2%	17.2%
5/6/2017	Start	Current	Dividend	Pct Gain	R3K Gain
WSTC	$24.15	$23.50	$0.00	-2.7%	11.2%
TGNA	$25.75	$21.33	$0.14	-16.6%	11.2%
TIME	$15.05	$18.60	$0.08	24.1%	11.2%
MSGN	$23.55	$18.05	$0.00	-23.4%	11.2%
QCOM	$54.93	$65.49	$1.71	22.3%	11.2%
Totals				0.8%	11.2%
8/15/2017	Start	Current	Dividend	Pct Gain	R3K Gain
GHC	$591.10	$571.50	$1.27	-3.1%	8.2%
ICHR	$19.80	$26.47	$0.00	33.7%	8.2%
MD	$43.00	$50.60	$0.00	17.7%	8.2%
SIMO	$43.05	$51.57	$0.30	20.5%	8.2%
RHI	$44.15	$56.08	$0.48	28.1%	8.2%
Totals				19.4%	8.2%
11/15/2017	Start	Current	Dividend	Pct Gain	R3K Gain
MSGN	$16.67	$18.05	$0.00	8.3%	3.1%
CELG	$100.60	$102.14	$0.00	1.5%	3.1%
EVC	$5.78	$7.40	$0.00	28.0%	3.1%
SIMO	$46.88	$51.57	$0.00	10.0%	3.1%
VIAB	$24.41	$28.40	$0.00	16.4%	3.1%
Totals				12.8%	3.1%

You can see that the performance of my open tranches is more than satisfactory.  The 11/15 tranche is off to a great start, EVC already up 28% in 2+ weeks.  Even my May tranche, which has been a serious laggard, has gained a lot of ground over past month or two.

Here is a table showing all tranches in summary form:

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	19.4%	12.8%	52.2%	0.8%	19.5%
Previous Tranche	-0.1%	42.6%	10.7%	19.1%	23.1%
Tranche -2	2.8%	8.0%	-14.3%	-25.2%	-7.2%
Tranche -3	11.2%	69.4%	8.5%	18.3%	26.8%
Tranche -4	41.4%	14.2%	78.3%	33.0%	41.7%
Tranche -5	14.1%	43.7%	0.0%	0.0%	14.5%
MFI Overall Gain	120.0%	383.7%	179.3%	41.2%	181.0%
Current Balance	55,005	120,925	69,814	35,289	281,033
R3K Current Tranche	8.2%	3.1%	17.2%	11.2%	9.9%
R3K Overall Gain	107.2%	111.4%	89.5%	77.3%	96.4%
R3K Balance	51,803	52,849	47,382	44,334	196,368
Annualized IRR	16.0%	36.6%	23.7%	7.8%	21.0%

So one will note my current tranches in aggregate are up 19.5% versus 9.9% for R3K.  And annualized IRR has bumped up to 21%.  

Here is a table showing month by month gains, assuming I started with $100,000 (25k in each of 4 tranches). This is just illustrative.

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
11/1/2017	68.17%	259,061	190,888
12/1/2017	84.17%	280,887	196,716
Current	84.66%	281,033	196,368

Here are how my stocks performed this past week:

Stock	Last Week	Current	Dividend	Change
SIMO	49.45	51.57	-	4.3%
MSGN	17.50	18.05	-	3.1%
YY	120.03	100.73	-	-16.1%
CELG	104.50	102.14	-	-2.3%
EVC	6.45	7.40	-	14.7%
ICHR	29.06	26.47	-	-8.9%
AKRX	32.61	32.90	-	0.9%
VIAB	26.29	28.40	-	8.0%
RHI	54.69	56.08	-	2.5%
MD	49.10	50.60	-	3.1%
QCOM	68.91	65.49	-	-5.0%
KLAC	105.04	103.87	-	-1.1%
TIME	16.90	18.60	-	10.1%
GHC	566.05	571.50	-	1.0%
WNC	19.11	19.89	-	4.1%
RGR	49.95	54.05	-	8.6%
TGNA	21.05	21.33	-	1.3%

Obviously YY and ICHR struggled, it did seem more a week for value versus growth.  Still, in composite a strong week.

MFI Formula

This portfolio is similar to MFI Select: (1) real money, (2) started 10/1/14 and (3) 4 tranches of 5 stocks each. But I pick the stocks here via a formula to take out any personal biases.  Generally, it is stocks from official screen with dividend yield > 2.4% and a market cap > $600. I then run a random number generator to pick my five stocks.

Same tables.

12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$75.34	$1.56	7.3%	19.1%
HPQ	$15.00	$21.41	$0.53	46.3%	19.1%
TGNA	$21.33	$21.33	$0.28	1.3%	19.1%
CA	$31.99	$33.19	$1.02	6.9%	19.1%
SYNT	$19.79	$25.35	$0.00	28.1%	19.1%
Totals				18.0%	19.1%
4/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
BKE	$18.45	$21.55	$0.75	20.9%	13.0%
CSCO	$33.76	$37.60	$0.87	14.0%	13.0%
GILD	$67.50	$75.34	$1.04	13.2%	13.0%
OMC	$85.53	$73.38	$1.10	-12.9%	13.0%
SYNT	$16.76	$25.35	$0.00	51.2%	13.0%
Totals				17.3%	13.0%
7/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$30.98	$37.60	$0.29	22.3%	9.7%
GME	$20.95	$18.77	$0.38	-8.6%	9.7%
HPQ	$17.60	$21.41	$0.13	22.4%	9.7%
RGR	$60.70	$54.05	$0.44	-10.2%	9.7%
SYNT	$16.21	$25.35	$0.00	56.4%	9.7%
Totals				16.5%	9.7%
10/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
DIN	$43.14	$45.94	$0.00	6.5%	5.0%
GILD	$82.85	$75.34	$0.00	-9.1%	5.0%
GME	$20.50	$18.77	$0.00	-8.4%	5.0%
HPQ	$20.22	$21.41	$0.00	5.9%	5.0%
OMC	$74.80	$73.38	$0.00	-1.9%	5.0%
Totals				-1.4%	5.0%

While not as good as my MFI Select, this is not a disaster either. Quite solid in fact.

Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	-1.4%	18.0%	17.3%	16.5%	12.6%
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	11.8%	43.1%	46.4%	29.2%	32.6%
Current Balance	279,317	357,660	366,280	322,525	1,325,782
R3K Current Tranche	5.0%	19.1%	13.0%	9.7%	11.7%
R3K Overall Gain	40.9%	33.2%	31.8%	27.7%	33.4%
R3K Balance	351,914	332,837	329,790	318,940	1,333,481
Annualized IRR	3.6%	13.0%	15.3%	11.1%	10.8%

You will note my current tranches (12.6%) are beating the current R3K (11.7%). Overall since I started up 32.6% versus 33.4% for benchmark. Considering that MFI in total has been struggling, this is a pretty good result for a formula.

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
11/1/2017	-3.85%	125,890	129,739
12/1/2017	-0.97%	132,616	133,585
Current	-0.77%	132,578	133,348

Neck and neck.

Stock	Last Week	Current	Dividend	Change
SYNT	25.18	25.35	-	0.7%
HPQ	21.24	21.41	-	0.8%
GILD	72.46	75.34	-	4.0%
CSCO	36.49	37.60	-	3.0%
OMC	68.97	73.38	-	6.4%
GME	17.42	18.77	-	7.7%
CA	32.63	33.19	-	2.5%
DIN	42.99	45.94	-	6.9%
TGNA	21.05	21.33	-	1.3%
BKE	21.20	21.55	-	1.7%
RGR	49.95	54.05	-	8.6%

Actually a very good week here.  Every stock in the green. Overall up over 3%.  These are all taxpayers.  I always hear about "18%" marginal rate.  Let us see how much each of these companies paid in past year.

SYNT:  Hmm, weird start, 2016 had 273m of pre tax income and 330m of taxes, so over 100%.  How about previous year (more normal)? $327m and 75m of taxes.  That is 23% tax rate.

HPQ:    $3.27b in pre tax income and 750m of income tax.  23% again.  Interesting.

GILD:  $17.1b vs 3.6b = tax rate of 21%.  All lower than I expected.  Of course these are global companies and I am sure benefit from lower taxes internationally.

CSCO:  $12.3b and $2.7b = tax rate of 22% (I was surprised GILD made more $ than CSCO).

OMC:  $1.8b and 600m, which I can do w/o calculator, 33% tax rate.

GME:  505m and 152m, a tax rate of 30%.  So OMC and GME probably are more US Centric.

CA:  $1.1b and 298m.  That is a bit over 29% tax rate.

DIN:  153m and $55m.  That is over a 33% tax rate.

TGNA:  712m and 217m, tax rate = 30%.

BKE:  156m and 58m = 37% and finally RGR

RGR:  136m and 48m = 35%.

Hmmm, so not sure why people say corporations already find tons of loopholes not to pay income taxes.  Yes, the really big ones: CSCO and HPQ and GILD have global franchises, so they may be paying 30 to 35% on USA income but that gets lowered by income in rest of world, which generally has lower tax rates.  I am sure they use some accounting gimmicks to suppress US income and maximize income in low tax jurisdictions.  But lower tax rates here will make that approach less necessary.

Ok,  tax reform will improve EPS for these companies - though I think it is naive to assume dollar for dollar.  They may spend more on research or capex, or perhaps even lower prices to reflect lighter tax burden.  It is complicated.

Misc & Dividend

 I did reduce my Misc holdings by about 5% this week.  That is part of my plan to make that leg of investing tool smaller.  I felt like it was a good week for my dividend portfolio as NS and PSXP popped so much at end of week.  But looking at cold hard facts I was pretty flat.

Dividend Stocks	Start	Current	Divvy	Overall Pct Gain	Weekly Pct Gain	9/30/17 Price	Yield
OIBAX	5.91	5.95	0.16	3.4%	0.0%	5.95	4.4%
VTIBX	10.96	10.99	0.02	0.4%	-0.2%	10.89	1.0%
KCLI	48.89	47.30	0.33	-2.6%	-1.4%	49.75	2.3%
KNOP	21.30	20.05	-	-5.9%	-3.1%	21.44	10.4%
TK	6.20	8.32	0.08	35.6%	-1.5%	8.93	2.6%
CPLP	3.54	3.15	0.08	-8.7%	-4.0%	3.50	10.2%
JQC	8.18	8.20	1.57	19.5%	0.7%	8.49	7.0%
ISBC	13.25	14.26	0.15	8.8%	0.6%	13.64	2.5%
LADR	13.01	13.57	0.30	6.6%	-2.6%	13.78	9.3%
EVG	14.46	13.68	0.26	-3.6%	-0.9%	14.24	6.7%
FDEU	18.40	18.59	0.82	5.5%	-0.3%	19.42	7.8%
RLJ-PA	28.45	27.69	0.49	-1.0%	0.7%	27.82	7.1%
TGP	17.89	18.00	-	0.6%	4.3%	17.85	3.1%
RILY	15.58	17.90	0.21	16.3%	-3.2%	17.05	0.9%
PSXP	47.39	48.24	1.03	4.0%	3.2%	52.56	5.4%
NS	37.98	30.18	0.82	-18.4%	8.2%	40.59	14.5%
SBRA	22.28	19.38	0.91	-8.9%	0.7%	21.94	9.3%
OCSI	8.68	8.62	0.19	1.6%	0.2%	8.80	8.8%
DSL	19.47	20.16	1.65	12.0%	-0.4%	21.25	8.9%
TGONF	11.04	13.20	1.79	35.8%	0.6%	12.80	5.3%
GLDI	9.29	8.94	0.24	-1.1%	-0.7%	9.07	6.7%
NRZ	16.56	17.74	0.67	11.1%	-0.5%	16.73	11.3%
DHF	3.34	3.35	0.16	5.1%	-1.2%	3.53	8.4%
MAC	65.01	64.22	-	-1.2%	-0.1%	65.01	4.6%
O	25.50	55.55	20.80	199.5%	-1.5%	57.19	4.6%
Totals				3.4%	-0.1%		6.3%

  

Dividend stocks and bond like instruments continue to be under pressure.  I think part of it is tax reform, there may be concern how MLPs will be treated.  Part is likely concerns about inflation (perhaps from this fiscal stimulus), which would have potential of making fixed income holdings less desirable.  Oh well, this is my safety net of income, I am not so concerned about the value of these holdings.  I do not plan to materially add to these positions... I think I actually have the income stream I need to be comfortable.  I'd prefer to keep some powder dry (if rates spike up) and have more in portfolios like MFI Formula.  I mean that has a yield of 3.1%, which is not shabby.

Ok, I think I have rambled long enough.  Have a great weekend.