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.