MFI Tracking Portfolio 1/27/17

MFI Tracking Portfolio 1/27/17

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of January 2018.  As my faithful readers know, I have been tracking the Magic Formula Stocks as described by Joel Greenblatt in The Little Book That Beats the Stock Market since January 2006.  Every month I take the top 50 stocks over $100m market cap from his website and track how that portfolio of stocks fares versus the Russell 3000 for the next 12 months.  It has been an uphill struggle as the tracking portfolios have under-performed, driven in part by Chinese reverse merger fiascos, for-profit education stocks and home health care stocks all being proverbial albatrosses.

I also encourage new readers to read

Guide To New Readers

People ask, does MFI not work anymore?  I am not sure. Perhaps 12 years isn't long enough. Perhaps it works better at a higher market cap cut off (I believe this to be true).  I think too many stocks make the screen over the years by "mistake"... that is they are not true value/cheap stocks. In 2011, we had a bunch of Chinese Reverse Merger stocks that hurt that year and were out and out frauds.  Then we have also had a number of stocks that have a one time spike in earnings that fools the formula.  Frankly, it might do better if instead of a trailing 12 month income look, it used a trailing 24 month look on income, to filter out the one time spikes.

But even with that being said, Value stocks have not exactly been in favor the past couple of years.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Here is what I wrote a month ago:

I went back and looked and the 15.8% shellacking the tracking portfolio took was the worst of all my closed portfolios.  Un-fricking-believable.

Guess what?  That all-time worst mark didn't last long. January 27, 2017 would have been a very very bad time to start MFI.  The 50 stocks on the screen got beaten by 17.8 percentage points.  It has been rugged.  Greenblatt warned there would be times people would want to quit and this would ensure in working down the road.  I do not know if 17.8 point losses were anticipated.

Wait! Stop the presses. I found an error in how PCO (with a reverse split) was being handled.  Only lost by 15.8 percentage points tying the worst ever.  I feel better now! (to be read with sarcasm).

And 9 of the 11 open portfolios are trailing, by about 6 points on average (a point improvement from last month),  So you can see why I feel ok with my MFI Formula portfolio trailing by 3 or 4 points. Pardon me while I puke.

Here are the 50 stocks in descending performance order (from the portfolio that just hit a year):

Stock	Initial Price	End Price	Percent Change	Mkt Cap
MYGN	15.96	41.01	157.0%	1,092
ACHI	2.36	5.19	119.9%	252
MBUU	17.97	33.23	84.9%	318
MCFT	14.29	24.13	68.9%	266
HPQ	14.38	23.91	66.2%	25,338
SCMP	11.10	17.95	61.7%	509
TRNC	13.33	20.90	56.8%	486
AAPL	120.02	171.51	42.9%	650,745
CSCO	29.94	42.56	42.1%	155,644
TDC	29.12	40.86	40.3%	3,777
MDCA	6.60	9.10	37.9%	348
VEC	22.96	31.24	36.1%	247
PDLI	2.25	2.91	29.3%	372
RPXC	11.07	13.88	25.4%	546
HRB	21.41	26.72	24.8%	4,693
SSNI	13.12	16.25	23.9%	681
GILD	69.24	85.46	23.4%	94,206
USNA	61.90	76.25	23.2%	1,507
ESRX	67.59	81.32	20.3%	42,547
BKE	17.89	21.45	19.9%	999
CA	30.16	35.90	19.0%	12,857
BBSI	60.51	71.77	18.6%	446
GHC	512.03	592.65	15.7%	2,900
TGNA	22.69	25.50	12.4%	4,865
SYNT	21.09	23.61	11.9%	1,774
MDP	59.46	66.15	11.2%	2,742
AVID	5.03	5.54	10.1%	204
RGR	50.58	54.70	8.2%	984
MSGN	22.35	23.05	3.1%	1,678
MPAA	27.01	27.70	2.6%	533
NSR	33.10	33.50	1.2%	1,806
PCO	651.95	634.50	-2.7%	178
AMCX	56.71	53.05	-6.5%	4,011
PBI	14.94	12.85	-14.0%	2,946
IDCC	92.24	79.15	-14.2%	3,202
UTHR	162.43	136.97	-15.7%	7,384
VIAB	40.97	34.09	-16.8%	16,654
NLS	16.35	13.00	-20.5%	509
GME	22.63	17.06	-24.6%	2,494
AWRE	6.05	4.45	-26.4%	137
UIS	12.60	8.95	-29.0%	631
NHTC	23.72	16.80	-29.2%	285
LFVN	7.22	4.84	-33.0%	102
AGX	73.39	45.50	-38.0%	1,138
AOBC	20.58	12.66	-38.5%	1,158
AMAG	23.60	14.45	-38.8%	807
AGTC	8.15	4.70	-42.3%	147
FPRX	44.75	22.13	-50.5%	1,273
DHX	5.65	1.85	-67.3%	283
ICON	9.93	1.36	-86.3%	559

I do go on and on about the importance of avoiding "stinker" stocks, those that drop over 30%.  10 of them this year. (okay I used -29%)  For a year when the markets went up 20%, to have 10 of 50 stocks DROP by more than 30% is a problem.

Here is a listing of every portfolio I have tracked:

Date	MFI	R3K	Lead
1/6/2006	16.0%	10.9%	1
2/17/2006	21.2%	14.6%	1
3/29/2006	13.0%	9.6%	1
4/7/2006	10.3%	12.1%	0
5/12/2006	20.4%	18.6%	1
5/31/2006	29.2%	23.3%	1
6/30/2006	22.4%	20.0%	1
7/31/2006	19.7%	17.3%	1
8/31/2006	13.0%	13.3%	0
9/28/2006	12.7%	14.6%	0
10/27/2006	10.3%	12.0%	0
11/29/2006	-0.3%	4.8%	0
12/28/2006	-6.9%	3.4%	0
1/26/2007	-10.2%	-6.6%	0
2/27/2007	-3.7%	-1.0%	0
3/26/2007	-9.8%	-5.5%	0
4/27/2007	-10.9%	-5.0%	0
5/29/2007	-11.5%	-6.3%	0
7/3/2007	-30.0%	-15.6%	0
7/30/2007	-19.9%	-11.5%	0
8/30/2007	-12.5%	-8.7%	0
9/27/2007	-19.0%	-18.2%	0
11/2/2007	-40.4%	-34.3%	0
11/28/2007	-40.1%	-38.3%	0
12/28/2007	-36.3%	-40.0%	1
1/25/2008	-36.4%	-35.9%	0
2/26/2008	-51.7%	-41.5%	0
3/24/2008	-40.9%	-36.8%	0
4/25/2008	-25.6%	-31.0%	1
5/28/2008	-22.2%	-33.6%	1
7/2/2008	-11.7%	-25.3%	1
7/29/2008	-10.5%	-20.9%	1
8/29/2008	-13.8%	-17.9%	1
9/26/2008	-4.3%	-10.0%	1
10/31/2008	18.7%	13.9%	1
11/26/2008	50.9%	27.7%	1
12/26/2008	48.9%	32.3%	1
1/23/2009	59.3%	36.4%	1
2/27/2009	92.8%	55.6%	1
3/27/2009	85.8%	48.1%	1
4/24/2009	69.7%	45.8%	1
5/29/2009	31.8%	22.8%	1
6/29/2009	21.3%	24.0%	0
7/29/2009	19.5%	15.9%	1
8/28/2009	7.4%	8.8%	0
9/25/2009	12.6%	12.4%	1
10/30/2009	22.7%	18.3%	1
11/27/2009	24.3%	13.6%	1
12/31/2009	23.7%	18.1%	1
1/22/2010	19.0%	20.6%	0
2/26/2010	18.6%	23.6%	0
3/25/2010	10.0%	15.4%	0
4/23/2010	7.1%	11.4%	0
5/28/2010	19.3%	25.4%	0
6/29/2010	16.7%	25.7%	0
7/29/2010	5.4%	20.1%	0
9/2/2010	7.3%	10.1%	0
9/24/2010	-4.3%	0.3%	0
10/29/2010	-2.9%	10.4%	0
11/26/2010	-8.5%	1.4%	0
1/3/2011	-11.4%	0.1%	0
1/28/2011	-7.6%	4.9%	0
2/25/2011	-5.5%	5.0%	0
3/24/2011	-4.4%	7.4%	0
4/21/2011	-16.0%	3.2%	0
5/27/2011	-12.0%	-0.4%	0
6/24/2011	-9.5%	5.0%	0
7/29/2011	-4.3%	8.1%	0
8/26/2011	12.0%	21.6%	0
9/30/2011	23.5%	29.6%	0
10/28/2011	0.4%	11.5%	0
11/25/2011	13.9%	24.0%	0
12/29/2011	9.9%	15.9%	0
1/27/2012	7.4%	16.6%	0
2/24/2012	7.8%	13.3%	0
3/23/2012	9.1%	15.2%	0
4/27/2012	10.5%	15.3%	0
5/25/2012	23.4%	27.5%	0
6/22/2012	26.1%	24.6%	1
7/27/2012	30.4%	25.7%	1
8/24/2012	26.0%	19.8%	1
9/28/2012	39.3%	22.1%	1
10/26/2012	48.3%	28.9%	1
11/23/2012	45.7%	32.1%	1
12/31/2012	52.3%	33.0%	1
1/25/2013	39.5%	22.0%	1
2/22/2013	46.5%	26.4%	1
3/28/2013	40.1%	21.2%	1
4/26/2013	35.0%	20.5%	1
5/24/2013	20.4%	19.2%	1
6/28/2013	26.9%	24.1%	1
7/29/2013	17.8%	19.0%	0
8/30/2013	17.5%	24.6%	0
9/27/2013	12.9%	17.7%	0
10/25/2013	11.8%	15.4%	0
11/29/2013	12.3%	15.6%	0
12/31/2013	12.7%	11.9%	1
1/31/2014	14.2%	13.0%	1
2/28/2014	15.4%	13.9%	1
3/28/2014	6.1%	12.3%	0
4/25/2014	8.6%	15.8%	0
5/30/2014	5.9%	11.7%	0
6/27/2014	2.5%	9.2%	0
7/25/2014	3.3%	8.7%	0
8/29/2014	-2.2%	1.0%	0
9/26/2014	-0.6%	-0.9%	1
10/31/2014	4.3%	4.4%	0
11/28/2014	-2.9%	2.9%	0
12/31/2014	-9.3%	0.3%	0
1/30/2015	-12.4%	-2.8%	0
2/27/2015	-19.0%	-7.3%	0
3/27/2015	-17.1%	-1.9%	0
4/24/2015	-15.4%	-0.8%	0
5/29/2015	-14.1%	0.1%	0
6/26/2015	-8.7%	0.4%	0
7/30/2015	3.96%	4.02%	0
8/28/2015	5.6%	10.2%	0
9/25/2015	6.5%	13.8%	0
10/30/2015	2.0%	4.0%	0
11/27/2015	8.9%	8.4%	1
12/31/2015	13.7%	12.6%	1
1/29/2016	22.6%	22.4%	1
2/26/2016	27.8%	25.4%	1
3/24/2016	26.5%	19.6%	1
4/22/2016	13.7%	14.8%	0
5/27/2016	14.3%	15.6%	0
6/30/2016	23.2%	16.1%	1
7/29/2016	15.2%	16.0%	0
8/26/2016	10.6%	14.6%	0
9/30/2016	18.6%	18.5%	1
10/28/2016	18.3%	24.1%	0
11/25/2016	7.4%	19.2%	0
12/30/2016	4.7%	20.5%	0
1/27/2017	10.5%	26.3%	0
2/24/2017	11.0%	22.4%	0
3/31/2017	9.7%	22.5%	0
4/28/2017	4.9%	21.2%	0
5/26/2017	10.1%	19.8%	0
6/29/2017	9.3%	19.1%	0
7/28/2017	9.0%	16.7%	0
8/25/2017	16.3%	18.1%	0
9/29/2017	6.7%	13.8%	0
10/27/2017	12.9%	11.2%	1
11/24/2017	13.1%	9.9%	1
12/29/2017	9.6%	7.0%	1
Open 11	10.2%	16.5%

Dividend Subset

My backtracking has shown that MFI stocks that pay a dividend seem to do better. I believe this is because a dividends infers that income flows are more likely to be sustainable.  This tends to extract stocks with large one time payments.  That was true again this month-year. My dividend MFI portfolio (which are stocks I track with a yield of 2.6% or greater) were up 21.4%.  MUCH better than the 10.5% for all fifty MFI stocks I tracked.

Finally, I like to track cash as it is more "honest" than percentages as if you go up by 25% and then down by 25%, that is a different result than up by 5% then down by 5%.  So I track what you would have today if you had spread $100,000 over the first twelve portfolios evenly. I think it is obvious why my formula approach is a function of dividend subset.

Category	Value
Total	224,440
Total Russell 3K	279,508
Dividend	506,009