Good morning, good morning, good morning! The markets completed a great fourth quarter and just continue to march upwards, defying all known physics. 2018 may test that, especially if the Fed starts having to increase rates a bit more rapidly. Higher rates are the gravity to the market as Mr Buffett has oft reminded us.
ou 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). (PS - let me know, in the grievance section, if this link does not work). 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.
I have a lot to cover today and this weekend.
- Weekend Update
- Final review of MFI Index for year and back in time. Plus creation of 2018 index.
- Discussion of 12/28/16 MFI Monthly tracking portfolio.
- In depth discussion of MFI Formula and all historic tranches (as I wrapped one up yesterday).
- Selection of new MFI Formula tranche.
This Week
For the stock market, the year is completed. It was a decent final week. Almost a GREAT last week, if I had just sold everything at 10 am yesterday... but I didn't. It was not a great last week though for things MFI. My two real $ portfolios were down about 1.5%. And my MFI Index, which tracks 50 stocks from the screen was also down over 1%. A bit discouraging. Here is my table about the week:
| Component | YTD | 4th Q | Last Week |
| Overall | +16.55% | +2.68% | +0.33% |
| MFI Select | +36.88% | +10.20% | -1.15% |
| MFI Formula | +16.94% | +6.74% | -2.32% |
| Miscellaneous | +6.18% | -0.77% | +2.79% |
| Dividend | +13.59% | -0.21% | +0.32% |
| R3K | +20.82% | +6.32% | +0.19% |
| MFI Index | +4.65% | +0.35% | -1.12% |
| GARIX | +10.01% | +4.88% | -0.29% |
I did add a column to this table to show the marginal change during the past week. So you can see overall I was up 33 basis points, but that was really driven by my Misc portfolio, up 2.79%. Regarding my comment about selling at 10 am yesterday, I was up about 80 basis points for the day at 10 am and ended up down 40 basis points. So a 120 point slide.
I did make some changes yesterday as I position my portfolio for 2018.
- for my dividend portfolio I sold MAC and my DHF closed end fund. DHF is high yield and everything I have been reading going into year end is that high yield will be under duress. MAC is a reit that I just never had that much conviction on. I did buy TOO as a replacement, just yields 1.7% but with partnership with Brookfield, this is a stock that I believe could outperform.
- Then I used the MAC funds to start a position in RDI in my Miscellaneous portfolio. this was based on being Chris DeMuth's idea of the year (Reading The Tea Leaves To Find Our Best Idea For 2018) and I think he is a savvy investor.
The after I switch out my MFI Formula on Tuesday, my intent is no purchases for all of January. I will let things percolate. I may sell stocks, if a catalyst (like a buyout) happens.
MFI Select
This is the first, and oldest, of my two real money MFI portfolio. It consists of 4 tranches and each tranche has 5 stocks. I have been running this portfolio since August 2012, when I rebooted my MFI Investing. I had quit for a year (I actually started in 2006) out of frustration. I licked my wounds during that year and had a good think about what worked and what didn't work.
In my Select portfolio, I allow myself pretty much total free form. I can pick stocks from the screen, I run my own screens and pick stocks from them and occasionally I make my own adjustments to stocks that might be on the screen on a pro forma basis (almost front running the screen).
It has worked well. Here is a table showing quarter by quarter changes since I started, assuming my beginning was $100,000 spread over the four tranches:
| Date | Differential | MFI Value | R3K Value |
| 1/1/2013 | -1.78% | 102,798 | 104,575 |
| 4/1/2013 | -0.43% | 106,804 | 107,234 |
| 7/1/2013 | 4.29% | 114,888 | 110,597 |
| 10/1/2013 | 19.67% | 138,655 | 118,990 |
| 1/1/2014 | 26.63% | 157,138 | 130,503 |
| 4/1/2014 | 30.38% | 162,991 | 132,616 |
| 7/1/2014 | 39.23% | 177,971 | 138,740 |
| 10/1/2014 | 29.38% | 168,321 | 138,944 |
| 1/1/2015 | 28.17% | 174,306 | 146,140 |
| 4/1/2015 | 29.95% | 178,565 | 148,612 |
| 7/1/2015 | 62.69% | 211,437 | 148,743 |
| 10/1/2015 | 43.12% | 181,175 | 138,052 |
| 1/1/2016 | 63.33% | 209,514 | 146,186 |
| 4/1/2016 | 47.34% | 195,770 | 148,430 |
| 7/1/2016 | 50.41% | 201,092 | 150,680 |
| 10/1/2016 | 42.98% | 198,563 | 155,582 |
| 1/1/2017 | 45.60% | 209,503 | 163,936 |
| 4/1/2017 | 55.70% | 229,473 | 173,735 |
| 7/1/2017 | 60.28% | 239,060 | 178,782 |
| 10/1/2017 | 75.60% | 262,489 | 186,886 |
| Current | 92.19% | 291,114 | 198,926 |
You can see how good 2017 was, going from 209,514 to 291,114. One can only hope that I can replicate in 2018!
Here are my four currently open tranches.
| 2/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| AKRX | $19.10 | $32.23 | $0.00 | 68.7% | 18.7% |
| YY | $41.08 | $113.06 | $0.00 | 175.2% | 18.7% |
| KLAC | $85.11 | $105.07 | $2.26 | 26.1% | 18.7% |
| WNC | $17.65 | $21.70 | $0.18 | 24.0% | 18.7% |
| RGR | $52.75 | $55.85 | $1.36 | 8.5% | 18.7% |
| Totals | 60.5% | 18.7% | |||
| 5/6/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| WSTC | $24.15 | $23.50 | $0.00 | -2.7% | 12.6% |
| TGNA | $25.75 | $23.69 | $0.21 | -7.2% | 12.6% |
| TIME | $15.05 | $18.45 | $0.08 | 23.1% | 12.6% |
| MSGN | $23.55 | $20.25 | $0.00 | -14.0% | 12.6% |
| QCOM | $54.93 | $64.02 | $1.71 | 19.7% | 12.6% |
| Totals | 3.8% | 12.6% | |||
| 8/15/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| GHC | $591.10 | $558.35 | $1.27 | -5.3% | 9.6% |
| ICHR | $19.80 | $24.60 | $0.00 | 24.2% | 9.6% |
| MD | $43.00 | $53.44 | $0.00 | 24.3% | 9.6% |
| SIMO | $43.05 | $52.96 | $0.30 | 23.7% | 9.6% |
| RHI | $44.15 | $55.54 | $0.48 | 26.9% | 9.6% |
| Totals | 18.8% | 9.6% | |||
| 11/15/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| MSGN | $16.67 | $20.25 | $0.00 | 21.5% | 4.5% |
| CELG | $100.60 | $104.36 | $0.00 | 3.7% | 4.5% |
| EVC | $5.78 | $7.15 | $0.05 | 24.6% | 4.5% |
| SIMO | $46.88 | $52.96 | $0.00 | 13.0% | 4.5% |
| VIAB | $24.41 | $30.81 | $0.20 | 27.1% | 4.5% |
| Totals | 18.0% | 4.5% |
Pretty much speaks for itself. The May tranche is the laggard, wasted pick on WSTC - which sold itself about 2 weeks after the tranche started for a discount of their stock price. Here is a table that summarizes all tranches back to August 2012:
| Category/Tranche | August | November | February | May | Total |
| Initial Investment | 25,000 | 25,000 | 25,000 | 25,000 | 100,000 |
| Current Tranche | 18.8% | 18.0% | 60.5% | 3.8% | 23.5% |
| Previous Tranche | -0.1% | 42.6% | 10.7% | 19.1% | 23.4% |
| 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 | 118.9% | 405.6% | 194.5% | 45.4% | 191.1% |
| Current Balance | 54,723 | 126,412 | 73,629 | 36,349 | 291,114 |
| R3K Current Tranche | 9.6% | 4.5% | 18.7% | 12.6% | 11.3% |
| R3K Overall Gain | 109.9% | 114.2% | 92.0% | 79.6% | 98.9% |
| R3K Balance | 52,479 | 53,541 | 47,996 | 44,910 | 198,926 |
| Annualized IRR | 15.7% | 37.2% | 24.6% | 8.4% | 21.5% |
So you can see my 4 open tranches are up an average of 23.5%. Note the Russell 3000 open tranches are up 11.3%. And if you look at my open MFI tracking portfolios (which I will publish later this weekend), they are up an average 3.9%. Yes, you read that right. 3.9% is terrible.
Here are how my Select stocks fared during the final week:
| Stock | Last Week | Current | Dividend | Change |
| SIMO | 52.89 | 52.96 | - | 0.1% |
| MSGN | 20.30 | 20.25 | - | -0.2% |
| YY | 114.60 | 113.06 | - | -1.3% |
| CELG | 106.33 | 104.36 | - | -1.9% |
| EVC | 7.40 | 7.15 | - | -3.4% |
| ICHR | 25.07 | 24.60 | - | -1.9% |
| AKRX | 32.08 | 32.23 | - | 0.5% |
| VIAB | 32.23 | 30.81 | - | -4.4% |
| RHI | 55.68 | 55.54 | - | -0.3% |
| MD | 53.52 | 53.44 | - | -0.1% |
| QCOM | 64.73 | 64.02 | - | -1.1% |
| KLAC | 109.32 | 105.07 | - | -3.9% |
| TIME | 18.55 | 18.45 | - | -0.5% |
| GHC | 558.20 | 558.35 | - | 0.0% |
| WNC | 20.92 | 21.70 | - | 3.7% |
| RGR | 55.20 | 55.85 | - | 1.2% |
| TGNA | 24.04 | 23.69 | - | -1.5% |
Limited good stocks, really just little WNC.
MFI Formula
MFI Formula is my 2nd real money MFI approach. Started in October 2014, it is the opposite of "Select" - all my stocks are picked via a formula/screening and random number generator. I will walk people through the screening process later this weekend and I pick a new tranche.
| Date | Differential | Value | R3K Value |
| 10/1/2014 | 0.00% | 100,000 | 100,000 |
| 1/1/2015 | -0.33% | 100,664 | 100,995 |
| 4/1/2015 | 5.09% | 106,781 | 101,695 |
| 7/1/2015 | 4.82% | 106,423 | 101,604 |
| 10/1/2015 | 6.39% | 100,703 | 94,312 |
| 1/1/2016 | -3.36% | 96,830 | 100,012 |
| 4/1/2016 | 0.34% | 102,371 | 101,548 |
| 7/1/2016 | -0.19% | 103,022 | 103,216 |
| 10/1/2016 | -0.85% | 106,377 | 107,230 |
| 1/1/2017 | 1.57% | 113,406 | 111,832 |
| 4/1/2017 | -1.86% | 116,227 | 118,091 |
| 7/1/2017 | -2.40% | 119,144 | 121,545 |
| 10/1/2017 | -2.56% | 124,448 | 127,007 |
| Current | -3.63% | 131,460 | 135,086 |
Gad, how depressing is that? If you go back just a couple weeks I had pulled into the lead. Now trailing the benchmark by 3.6 percentage points. You can see it in the first table at the top of my blog where I showed that MFI Formula was down 2.3% on the week and the benchmark was up. Let us look at individual stocks and see who let us down.
| Stock | Last Week | Current | Dividend | Change |
| SYNT | 24.73 | 22.99 | - | -7.0% |
| HPQ | 21.26 | 21.01 | - | -1.2% |
| GILD | 72.71 | 71.64 | - | -1.5% |
| CSCO | 38.55 | 38.30 | - | -0.6% |
| OMC | 73.61 | 72.83 | - | -1.1% |
| GME | 18.29 | 17.95 | - | -1.9% |
| CA | 33.52 | 33.28 | - | -0.7% |
| DIN | 49.95 | 50.73 | - | 1.6% |
| TGNA | 24.04 | 23.69 | - | -1.5% |
| BKE | 23.90 | 23.75 | - | -0.6% |
| RGR | 55.20 | 55.85 | - | 1.2% |
Don't have to read far down the table. SYNT down 7%! And recall these are in (essentially) descending order of size. So my biggest holding down 7% hurts. They were downgraded by someone. Here are four open tranches (although oldest one will close officially later this weekend):
| 12/30/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| GILD | $71.69 | $71.64 | $2.08 | 2.8% | 20.7% |
| HPQ | $15.00 | $21.01 | $0.53 | 43.6% | 20.7% |
| TGNA | $21.33 | $23.69 | $0.35 | 12.7% | 20.7% |
| CA | $31.99 | $33.28 | $1.02 | 7.2% | 20.7% |
| SYNT | $19.79 | $22.99 | $0.00 | 16.2% | 20.7% |
| Totals | 16.5% | 20.7% | |||
| 4/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| BKE | $18.45 | $23.75 | $0.75 | 32.8% | 14.4% |
| CSCO | $33.76 | $38.30 | $0.87 | 16.0% | 14.4% |
| GILD | $67.50 | $71.64 | $1.56 | 8.4% | 14.4% |
| OMC | $85.53 | $72.83 | $1.65 | -12.9% | 14.4% |
| SYNT | $16.76 | $22.99 | $0.00 | 37.2% | 14.4% |
| Totals | 16.3% | 14.4% | |||
| 7/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| CSCO | $30.98 | $38.30 | $0.29 | 24.6% | 11.1% |
| GME | $20.95 | $17.95 | $0.76 | -10.7% | 11.1% |
| HPQ | $17.60 | $21.01 | $0.27 | 20.9% | 11.1% |
| RGR | $60.70 | $55.85 | $0.44 | -7.3% | 11.1% |
| SYNT | $16.21 | $22.99 | $0.00 | 41.8% | 11.1% |
| Totals | 13.9% | 11.1% | |||
| 10/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| DIN | $43.14 | $50.73 | $0.97 | 19.8% | 6.4% |
| GILD | $82.85 | $71.64 | $0.52 | -12.9% | 6.4% |
| GME | $20.50 | $17.95 | $0.38 | -10.6% | 6.4% |
| HPQ | $20.22 | $21.01 | $0.13 | 4.6% | 6.4% |
| OMC | $74.80 | $72.83 | $0.55 | -1.9% | 6.4% |
| Totals | -0.2% | 6.4% |
The keen-eyed reader will note SYNT is in 3 of the 4 tranches. That can happen with my formula approach as I use a random number generator and really make no effort to avoid duplications (and I argue that can be good as note the SYNT in my July tranche is up 42%).
| Category/Tranche | October | January | April | July | Total |
| Initial Investment | 249,820 | 249,939 | 250,180 | 249,728 | 999,667 |
| Current Tranche | -0.2% | 16.5% | 16.3% | 13.9% | 11.7% |
| 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 | 13.2% | 41.3% | 45.2% | 26.3% | 31.5% |
| Current Balance | 282,741 | 353,220 | 363,285 | 315,349 | 1,314,596 |
| R3K Current Tranche | 6.4% | 20.7% | 14.4% | 11.1% | 13.2% |
| R3K Overall Gain | 42.7% | 34.9% | 33.5% | 29.4% | 35.1% |
| R3K Balance | 356,525 | 337,147 | 334,076 | 323,102 | 1,350,850 |
| Annualized IRR | 3.9% | 12.2% | 14.5% | 9.8% | 10.1% |
So current tranches are up 11.7%, now trailing benchmark by 1.5 points. But still compared to MFI in total at 3.9% - so I argue my Formula does week out some of the less desirable stocks from the screen.
Dividend Portfolio
Ok, for those just interested in MFI - you can disembark here. I do have two other portfolios: (1) Dividends and (2) Miscellaneous. These have nothing to do with magic formula investing. My dividend portfolio is structured to create an income stream for me as I sail off with my wife in retirement. So I am more concerned about income stability than weekly gains or losses. I have really been building this portfolio out of late - taking some funds from my former company stock (as I retired in July) and putting it here. This graph shows how my dividend income has grown (assumes it was $25,000 the first year for illustrative purposes):
And I project the graph will climb by another 50% in 2018. Here are my current holdings:
| Dividend Stocks | Start | Current | Divvy | Overall Pct Gain | Weekly Pct Gain | 9/30/17 Price | Yield |
| OIBAX | 5.91 | 5.96 | 0.17 | 3.7% | 0.7% | 5.95 | 4.0% |
| KCLI | 48.89 | 45.25 | 0.33 | -6.8% | -0.8% | 49.75 | 2.4% |
| KNOP | 21.30 | 20.75 | - | -2.6% | 2.5% | 21.44 | 10.0% |
| TK | 6.20 | 9.32 | 0.08 | 51.8% | 2.0% | 8.93 | 2.4% |
| CPLP | 3.54 | 3.36 | 0.08 | -2.8% | 0.0% | 3.50 | 9.5% |
| JQC | 8.18 | 8.22 | 0.62 | 8.1% | 0.7% | 8.49 | 6.9% |
| ISBC | 13.25 | 13.88 | 0.15 | 5.9% | -1.8% | 13.64 | 2.6% |
| EVG | 14.46 | 14.35 | 0.33 | 1.5% | 2.5% | 14.24 | 6.4% |
| LADR | 13.01 | 13.63 | 0.62 | 9.5% | -0.7% | 13.78 | 9.2% |
| FDEU | 18.40 | 18.83 | 0.82 | 6.8% | 0.4% | 19.42 | 7.7% |
| NS | 37.98 | 29.95 | 0.82 | -19.0% | -1.9% | 40.59 | 14.6% |
| TGP | 17.89 | 20.15 | - | 12.6% | 4.4% | 17.85 | 2.8% |
| RLJ-PA | 28.45 | 27.01 | 0.98 | -1.6% | -1.4% | 27.82 | 7.3% |
| PSXP | 47.39 | 52.35 | 1.03 | 12.6% | 5.0% | 52.56 | 4.9% |
| NRZ | 16.56 | 17.88 | 1.17 | 15.0% | -2.2% | 16.73 | 11.2% |
| SBRA | 22.28 | 18.77 | 0.91 | -11.7% | -5.7% | 21.94 | 9.6% |
| RILY | 15.58 | 18.10 | 0.21 | 17.6% | -5.7% | 17.05 | 0.9% |
| DSL | 19.47 | 20.19 | 1.84 | 13.2% | 0.3% | 21.25 | 8.9% |
| OCSI | 8.68 | 8.40 | 0.38 | 1.2% | -1.3% | 8.80 | 9.0% |
| TGONF | 11.04 | 13.30 | 1.79 | 36.7% | 0.9% | 12.80 | 5.3% |
| AMID | 13.25 | 13.35 | - | 0.8% | 0.8% | 13.25 | 12.4% |
| O | 25.61 | 3.33 | 20.93 | -5.3% | 0.6% | 57.19 | 8.5% |
| Totals | 5.3% | 0.1% | 6.7% |
Note I have not added TOO yet. It will be my second smallest position.
Miscellaneous
I also have a group of stocks I call miscellaneous. I can buy and sell whatever I want. Dividend, Select and Formula tranches are intended to largely be buy and hold for at least a year. Misc is higher risk and more of a trading portfolio. And frankly it has not been very good this year (up 6% in total).
I did have a huge win this week in WATT, up 92% for me. I generally do not get in momentum plays like WATT, but it was just the sort of story retail investors can understand and get excited about. I also bought GCAP this week, which is up 17%. It is a tangential play on Bitcoin fever and I plan to hold for a while as I have owned in the past and like the company (They also pay a 3% dividend).
Here are my Misc holdings (descending order by size):
| Stock |
| GCAP |
| OMER |
| EXXI |
| MTG |
| SELB |
| SGYP |
| NMM |
| HIL |
| WLFC |
| FUNC |
| BYBK |
| RDI |
| CNNEF |
| SLSDF |
| AUPH |
| OFED |
| ROSE |
| CBWTF |
I also have two baskets of stocks within my Misc portfolio: (1) small banks and (2) small miners.
| Bank | Start | Current | Dividends | Change | Yield |
| ACBI | 16.99 | 17.60 | - | 3.6% | 0.0% |
| ASB | 25.69 | 25.40 | - | -1.1% | 2.2% |
| FBIZ | 23.69 | 22.12 | - | -6.6% | 2.3% |
| FULT | 18.81 | 17.90 | - | -4.8% | 2.4% |
| FNB | 14.47 | 13.82 | - | -4.5% | 3.4% |
| MSBI | 32.96 | 32.48 | - | -1.4% | 2.5% |
| NRIM | 37.47 | 33.85 | 0.21 | -9.1% | 2.6% |
| PACW | 48.30 | 50.40 | - | 4.4% | 4.0% |
| SONA | 17.13 | 16.03 | - | -6.4% | 2.0% |
| WNEB | 10.88 | 10.90 | - | 0.2% | 1.1% |
| Total | -2.6% | 2.2% |
| Miner | Start | Current | Change |
| TORXF | 9.90 | 9.50 | -4.0% |
| SAND | 4.48 | 4.99 | 11.4% |
| NSU | 2.38 | 2.44 | 2.5% |
| KLDX | 2.41 | 2.61 | 8.3% |
| KL | 14.49 | 15.36 | 6.0% |
| GSS | 0.87 | 0.89 | 2.8% |
| FSM | 4.24 | 5.22 | 23.1% |
| EXK | 2.14 | 2.39 | 11.7% |
| BTG | 2.61 | 3.10 | 18.8% |
| EGO | 1.18 | 1.43 | 21.2% |
| Total | 10.2% |
That is it. I wanted to list everything as a bit of a marker of history for me. Please, please understand that I am not an expert in way and do your own diligence. You can see my Misc approach has been subpar and some of these stocks (SELB and EXXI) have dropped by 50% in a week, So these are volatile stocks.
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