Saturday, December 09, 2017

MFI Weekend Update 12/9/17

MFI Weekend Update 12/9/17

Well as they say, "Let It Snow"! After nary a flake here in New England, we are to get 5" today.  And this system has already dumped snow on Corpus Christi, Jackson and Atlanta.  Then later next week, they are saying Tuesday a quick clipper and Friday could be a storm.  Good thing we finished raking all the leaves yesterday!

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 on the MFI front, further proof I need to wind down my Misc portfolio (which did not have a respectable week).  Here are the year to date and quarterly stats:


 Component   YTD   4th Q 
 Overall  +13.42% -0.08%
 MFI Select  +35.03% +8.71%
 MFI Formula  +19.05% +8.66%
 Miscellaneous  +0.00% -6.54%
 Dividend  +10.02% -3.35%
 R3K  +19.60% +5.26%
 MFI Index  +3.94% -0.32%
 GARIX  +9.33% +4.23%


It does not take a highly trained analyst to see that my MFI is picking up (both my MFI portfolios are up over 8% this quarter) and that my other approaches are struggling (Dividend and Misc in the red).  It is a mite frustrating, but I guess that is not uncommon in investing.  I have been doing very little trading of late - I do have conviction in my Misc picks. So I intend not to add, but also not to sell until my catalyst comes along or my thesis is proven wrong.

Here are my MFI Stocks for the week (as I said, a solid week):


 Portfolio   Stock   Last Week   Current   Dividend   Change 
 Formula   SYNT              25.35         25.68                       -   1.3%
 Formula   HPQ              21.41         21.07                       -   -1.6%
 Formula   GILD              75.34         74.22                       -   -1.5%
 Formula   CSCO              37.60         37.61                       -   0.0%
 Formula   OMC              73.38         73.48                       -   0.1%
 Formula   GME              18.77         19.20                       -   2.3%
 Formula   CA              33.19         33.48                       -   0.9%
 Formula   DIN              45.94         50.49                       -   9.9%
 Formula   TGNA              21.33         22.55                       -   5.7%
 Formula   BKE              21.55         22.55                       -   4.6%
 Formula   RGR              54.05         51.45                       -   -4.8%


RGR really dropped yesterday.  GME has really had a decent run, it was at $16 in mid November.


 Stock   Last Week   Current   Dividend   Change 
 SIMO              51.57         53.40                       -   3.5%
 MSGN              18.05         19.55                       -   8.3%
 YY            100.73       105.85                       -   5.1%
 CELG            102.14       106.09                       -   3.9%
 EVC                7.40            7.75                       -   4.7%
 ICHR              26.47         24.60                       -   -7.1%
 AKRX              32.90         32.92                       -   0.1%
 VIAB              28.40         29.29                       -   3.1%
 RHI              56.08         54.68                       -   -2.5%
 MD              50.60         51.64                       -   2.1%
 QCOM              65.49         64.24                       -   -1.9%
 KLAC            103.87       103.98                       -   0.1%
 TIME              18.60         18.50                       -   -0.5%
 GHC            571.50       563.50                       -   -1.4%
 WNC              19.89         20.21                       -   1.6%
 RGR              54.05         51.45                       -   -4.8%
 TGNA              21.33         22.55                       -   5.7%


Recall these are largely in order of size.  So my biggest holdings (SIMO, MSGN, YY and CELG) had very good weeks.  Things are good in my MFI land.  But the MFI Index (a composite of 50 MFI stocks I tracked since 1/1/17) is only up 4% this year.

MFI Select

MFI Select is one of my two real money MFI portfolios.  I started it in August 2012 after quitting MFI for a year out of frustration.  I think looking at the MFI Index results this year and going back in time, we can conclude that just buying the top 50 stocks over $100m has not exactly been a winning strategy. My stats show that the MFI Index has only beaten the benchmark 4 out of 12 years.

So my MFI Select utilizes my analysis of what works and more importantly what does not work in the universe of MFI stocks.  There are too many stinkers, stocks dropping more than 30%.  I mean, even in the very good year (Russell is up 19%), 10 of the 50 stocks comprising my MFI Index are down 30% or more:




That is dreadful.  To be successful in MFI investing, we have to pare down the number of stinkers.  My studies show that since 2006, about 14% of stocks on the $100m+ screen drop 30% or more over a year.  Boom!  Here we have 20%.

As I have harped, my studies show that stocks that have a steady income stream are less likely to blow up. Conversely, stocks that have income that is not indicative of future income are more likely to have issues.  I know this just seems like common sense, but a lot of stocks on the screen do NOT fit the Jake's Bubble Gum Shop mold and should be avoided.  How to do this?  You need to roll up sleeves and research.  It generally is not that hard.  Just look at income by quarter for the past two years.  If you see a bunch of negative and just one or two big positives, that is NOT a steady income stream.  Ok, off soap box.

Here are the stocks in my Select portfolio (in which I pick whatever stocks I want by whatever means I want - ie not necessarily from official screen - SIMO and YY for instance were not on screen).


2/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 AKRX  $19.10 $32.92 $0.00 72.4% 17.5%
 YY  $41.08 $105.85 $0.00 157.7% 17.5%
 KLAC  $85.11 $103.98 $2.26 24.8% 17.5%
 WNC  $17.65 $20.21 $0.18 15.5% 17.5%
 RGR  $52.75 $51.45 $1.36 0.1% 17.5%
 Totals  54.1% 17.5%
5/6/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 WSTC  $24.15 $23.50 $0.00 -2.7% 11.5%
 TGNA  $25.75 $22.55 $0.21 -11.6% 11.5%
 TIME  $15.05 $18.50 $0.08 23.5% 11.5%
 MSGN  $23.55 $19.55 $0.00 -17.0% 11.5%
 QCOM  $54.93 $64.24 $1.71 20.1% 11.5%
 Totals  2.4% 11.5%
8/15/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 GHC  $591.10 $563.50 $1.27 -4.5% 8.5%
 ICHR  $19.80 $24.60 $0.00 24.2% 8.5%
 MD  $43.00 $51.64 $0.00 20.1% 8.5%
 SIMO  $43.05 $53.40 $0.30 24.7% 8.5%
 RHI  $44.15 $54.68 $0.48 24.9% 8.5%
 Totals  17.9% 8.5%
11/15/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 MSGN  $16.67 $19.55 $0.00 17.3% 3.4%
 CELG  $100.60 $106.09 $0.00 5.5% 3.4%
 EVC  $5.78 $7.75 $0.00 34.1% 3.4%
 SIMO  $46.88 $53.40 $0.00 13.9% 3.4%
 VIAB  $24.41 $29.29 $0.00 20.0% 3.4%
 Totals  18.1% 3.4%

So one will note I have 4 tranches throughout the year which I buy and hold for a year. Each tranche has 5 stocks.  Three of the four tranches are beating the benchmark by a significant amount.  And even though the official list has a 20% stinker rate, my worst one is MSGN from May at -17%.  My stinker rate since I started in 2012 is 5 out of 110, and one of those was PSDV, a stock that I knew had stinker characteristics.  Now granted, since 2012 we have not had a bear market - so I am not kidding myself that a stinker rate of under 5% is "normal".

Here is a table summarizing results:


 Category/Tranche   August   November   February   May   Total 
 Initial Investment         25,000             25,000           25,000        25,000         100,000
 Current Tranche  17.9% 18.1% 54.1% 2.4% 21.8%
 Previous Tranche  -0.1% 42.6% 10.7% 19.1% 23.6%
 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  117.3% 406.4% 182.8% 43.5% 187.5%
 Current Balance         54,332           126,611           70,693        35,881         287,517
 R3K Current Tranche  8.5% 3.4% 17.5% 11.5% 10.2%
 R3K Overall Gain  107.8% 112.0% 90.1% 77.8% 96.9%
 R3K Balance         51,947             52,997           47,514        44,458         196,916
 Annualized IRR  15.7% 37.7% 23.9% 8.2% 21.4%


If you study table, you can see the results of all my tranches since August 2012. Tranche -5 August was first one and was up 14.1%.  For whatever reason (luck), November tranches have been most successful for me (by a lot) up a composite 406%.  May has struggled, up a composite 43.5%.  In total up a very snappy 187.5%.

Here is table showing month by month balances, assuming I started with $100,000 spread over the 4 tranches:


 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 90.60%        287,517            196,916


You can see since Trump election (going back to 11/1/16) this approach has been phenomenal going from 195,726 to 287,517, up 47%.  Don't tell him though as he will want to take credit.

MFI Formula

This is my other real money approach. I started it in October 2014.  While Select is totally free form, my Formula approach is as it sounds... a Formula.  I use the official screen of 50 stocks over $100m and take a subset and a random number generator. I give an example (Upcoming MFI Formula Tranche).  Same tables.


12/30/2016  Start   Current   Dividend   Pct Gain   R3K Gain 
 GILD  $71.69 $74.22 $1.56 5.7% 19.5%
 HPQ  $15.00 $21.07 $0.53 44.0% 19.5%
 TGNA  $21.33 $22.55 $0.35 7.4% 19.5%
 CA  $31.99 $33.48 $1.02 7.8% 19.5%
 SYNT  $19.79 $25.68 $0.00 29.8% 19.5%
 Totals  18.9% 19.5%
4/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 BKE  $18.45 $22.55 $0.75 26.3% 13.3%
 CSCO  $33.76 $37.61 $0.87 14.0% 13.3%
 GILD  $67.50 $74.22 $1.04 11.5% 13.3%
 OMC  $85.53 $73.48 $1.10 -12.8% 13.3%
 SYNT  $16.76 $25.68 $0.00 53.2% 13.3%
 Totals  18.4% 13.3%
7/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 CSCO  $30.98 $37.61 $0.29 22.3% 10.0%
 GME  $20.95 $19.20 $0.76 -4.7% 10.0%
 HPQ  $17.60 $21.07 $0.13 20.5% 10.0%
 RGR  $60.70 $51.45 $0.44 -14.5% 10.0%
 SYNT  $16.21 $25.68 $0.00 58.4% 10.0%
 Totals  16.4% 10.0%
10/1/2017  Start   Current   Dividend   Pct Gain   R3K Gain 
 DIN  $43.14 $50.49 $0.00 17.0% 5.3%
 GILD  $82.85 $74.22 $0.00 -10.4% 5.3%
 GME  $20.50 $19.20 $0.38 -4.5% 5.3%
 HPQ  $20.22 $21.07 $0.00 4.2% 5.3%
 OMC  $74.80 $73.48 $0.00 -1.8% 5.3%
 Totals  0.9% 5.3%

Well, well, well. Looking better. Two of the four are leading. And I think if you do some differences, you'll see my two leading are leading by more than my two trailing.  I am hopeful that my Formula approach is starting to work better.  It is definitely WAY out-performing the broader universe of MFI stocks, but just neck and neck with benchmark.  Which oddly I find acceptable.


 Category/Tranche   October   January   April   July   Total 
 Initial Investment      249,820        249,939     250,180      249,728         999,667
 Current Tranche  0.9% 18.9% 18.4% 16.4% 13.7%
 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  14.4% 44.3% 47.9% 29.1% 33.9%
 Current Balance      285,888        360,576     369,951      322,369      1,338,784
 R3K Current Tranche  5.3% 19.5% 13.3% 10.0% 12.0%
 R3K Overall Gain  41.3% 33.5% 32.2% 28.1% 33.8%
 R3K Balance      352,902        333,760     330,708      319,832      1,337,202
 Annualized IRR  4.3% 13.3% 15.6% 11.0% 11.0%

In this table, you see my point of current open tranches, in total up 13.7% versus 12.0% for benchmark.  Annual IRR is now a respectable 11.0%.  As I harped on how critical it is to avoid stinkers, a curious reader might ask what is stinker rate here?  The answer is 2 out of the 65 stocks.  So I have been successful in avoidance.  And that really is the purpose/approach of Formula.  I only pick stocks with a dividend yield of 2.4% or greater.  And that group is much much more likely to have a steady income stream.


 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 0.16%        133,878            133,720

Looking at the month by month movements with the hypothetical $100,000 start, you can see I am ahead (barely) for first time since May.  The Formula has really made a nice move since 9/1/17.  I am ecstatic.

Dividends and Misc

For those reading about MFI stop now.  I have two other (non MFI) portfolios - which I call dividends and Misc.  Dividend portfolio is structured to create a regular income stream for me and family in retirement.  It does have bonds, preferred stocks and closed end funds that are bond in nature.  So not really fair to compare to R3K.  Nor am I really concerned about what Mr Market thinks as long as income stream is steady.


 Dividend Stocks  Start  Current   Divvy   Overall Pct Gain   Weekly Pct Gain   9/30/17 Price   Yield 
 OIBAX      5.91         5.93      0.17 3.2% -0.3%           5.95 4.0%
 KCLI    48.89       45.90      0.33 -5.4% -3.0%        49.75 2.4%
 KNOP    21.30       19.90           -   -6.6% -0.7%        21.44 10.5%
 TK      6.20         8.16      0.08 33.1% -1.9%           8.93 2.7%
 CPLP      3.54         3.31      0.08 -4.2% 5.1%           3.50 9.7%
 JQC      8.18         8.20      1.57 19.5% 0.0%           8.49 7.0%
 ISBC    13.25       14.07      0.15 7.4% -1.3%        13.64 2.6%
 EVG    14.46       14.03      0.26 -1.2% 2.6%        14.24 6.5%
 LADR    13.01       13.65      0.62 9.7% 0.6%        13.78 9.2%
 FDEU    18.40       18.35      0.82 4.2% -1.3%        19.42 7.9%
 NS    37.98       29.84      0.82 -19.3% -1.1%        40.59 14.7%
 TGP    17.89       17.80           -   -0.5% -1.1%        17.85 3.1%
 RLJ-PA    28.45       27.66      0.49 -1.1% -0.1%        27.82 7.1%
 PSXP    47.39       47.20      1.03 1.8% -2.2%        52.56 5.5%
 NRZ    16.56       17.94      0.67 12.3% 1.1%        16.73 11.1%
 SBRA    22.28       19.13      0.91 -10.0% -1.3%        21.94 9.4%
 RILY    15.58       18.30      0.21 18.8% 2.2%        17.05 0.9%
 DSL    19.47       20.20      1.65 12.2% 0.2%        21.25 8.9%
 OCSI      8.68         8.32      0.19 -1.9% -3.5%           8.80 9.1%
 TGONF    11.04       13.25      1.79 36.2% 0.4%        12.80 5.3%
 GLDI      9.29         8.71      0.24 -3.6% -2.6%           9.07 6.9%
 DHF      3.34         3.30      0.19 4.3% -1.5%           3.53 8.5%
 MAC    65.01       65.75           -   1.1% 2.4%        65.01 4.5%
 O    25.50       55.58    21.01 200.4% 0.1%        57.19 4.6%
 Totals  4.1% -0.3% 6.6%

I did make one change this past week.  I sold VTIBX, which really was not much more than a money market type account.  I bought a group of ten small banks, which I will not show here as individually they are small - more of a basket approach.  I decided tax reform would really help small banks and these are all M&A targets.  I do want to iterate that I picked these as a basket and am not a small bank expert.  It was really a simple screening process I used.


 Bank   Start   Current   Change   Yield 
 ACBI          16.99          16.60 -2.3% 0.0%
 ASB          25.69          25.05 -2.5% 2.2%
 FBIZ          23.69          23.15 -2.3% 2.2%
 FULT          18.81          18.10 -3.7% 2.4%
 FNB          14.47          14.08 -2.7% 3.4%
 MSBI          32.96          31.82 -3.4% 2.5%
 NRIM          37.47          35.30 -5.8% 2.4%
 PACW          48.30          47.32 -2.0% 4.2%
 SONA          17.13          16.52 -3.5% 1.9%
 WNEB          10.88          10.75 -1.2% 1.1%
 Total  -2.9% 2.2%

Not exactly off to a roaring start.  But I am convinced it is better than VTIBX.  And these are buy and hold forever.



7 comments:

Casey Clarke said...

You're not the only one who got burned by ICON and AOBC!

http://magicformulamoney.com/2017/12/08/block-1-update/

Another great post. Thanks for writing.

Marsh_Gerda said...

Casey - thanks for the note. Though to be clear, I didn't get burned. That is just my Index I track to see how magic formula stocks do in aggregate.

Casey Clarke said...

I understand. Well I absolutely got burned on those. Ouch! I think I've said this before, but some of the links within your blog posts tell me that I don't have permission to view them. Maybe the permission settings need to be changed?

Marsh_Gerda said...

can you give me a couple examples? I suspect I am mistakenly linking you to my blogspot editor.

Thanks,

Marshall

Casey Clarke said...

This is the exact verbiage I get when I click the guide to new readers:

Your current account (cmclarke90@gmail.com) does not have access to view this page.
Click here to logout and change accounts.

Alex Garcia said...

https://www.bloomberg.com/news/articles/2017-12-11/a-stalwart-picker-of-value-stocks-joins-the-indexing-crowd

Greenblatt turning to index investing?

-Alex
https://www.buffettindicator.co

Marsh_Gerda said...

Casey _ I will change the way I link to guide for new readers this weekend. In meantime, you should be able to google MFI Diary Guide to New Readers and get a link.

MFI Diary: Guide To New Readers