Saturday, March 31, 2018

MFI Monthly Tracking Portfolio - 3/31/2017

MFI Monthly Tracking Portfolio - 3/31/2017

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of March 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


(you can also find this in Archives of October 2017)

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, although this appears to be changing (although painstakingly slowly).

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Now we have a 6 month losing streak, getting whooped 18.7% to 9.2%. U G L Y.

The past three month/years (February, January and December) have been the worst 3 month relative losers to the benchmark of my 130+ month/years.  Not time for woo-hoo!

Guess what?  We are still struggling.  The 50 stocks on the screen got beaten by 7.2 percentage points (13.6% to 6.4%).  At least that is better than 9.8 point shellacking posted last month. It has been rugged.  Greenblatt warned there would be times people would want to quit and this would ensure in working down the road.

And 5 of the 11 open portfolios are trailing, by about 1.2  points on average,  So you can see why I am excited that both my real money MFI portfolios are beating benchmark.  That is actually an accomplishment in today's market that loves growth and disruptors.

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 
RCM                3.09             7.14 131.1%            330
VEC              22.35           37.24 66.6%            240
SCMP              11.00           18.00 63.6%            477
KORS              38.11           62.08 62.9%         6,346
MCFT              16.17           25.20 55.8%            301
BBSI              53.74           82.88 54.2%            396
MNKD                1.48             2.28 54.1%            142
SYNT              16.83           25.53 51.7%         1,408
USNA              57.60           85.90 49.1%         1,410
MBUU              22.45           33.21 47.9%            400
BPT              17.06           23.90 40.1%            430
TVTY              29.10           39.65 36.3%         1,133
CSCO              32.67           42.89 31.3%     169,237
PDLI                2.27             2.94 29.5%            376
TDC              31.12           39.67 27.5%         4,064
BKE              17.59           22.15 25.9%            904
HPQ              17.41           21.92 25.9%       30,278
CSGS              37.11           45.29 22.1%         1,220
TRNC              13.92           16.42 18.0%            507
GILD              66.04           75.39 14.2%       88,839
CA              30.75           33.90 10.2%       13,109
ESRX              65.91           69.08 4.8%       40,759
DLX              70.92           74.01 4.4%         3,504
GHC            594.29         602.25 1.3%         3,365
NSR              33.15           33.50 1.1%         1,820
BIIB            273.42         273.82 0.1%       59,059
RGR              52.43           52.50 0.1%         1,001
PCO            639.16         634.50 -0.7%            174
AVID                4.66             4.54 -2.6%            189
MSGN              23.35           22.60 -3.2%         1,753
AMAG              22.55           20.15 -10.6%            774
PBI              12.33           10.89 -11.6%         2,434
AMCX              58.68           51.70 -11.9%         4,023
MIK              22.39           19.71 -12.0%         4,328
OMC              83.63           72.67 -13.1%       20,233
IDCC              84.90           73.60 -13.3%         2,960
UTHR            135.38         112.36 -17.0%         6,164
TGNA              25.62           20.83 -18.7%         5,495
UIS              13.95           10.75 -22.9%            699
TZOO                9.65             7.28 -24.6%            133
NLS              18.25           13.45 -26.3%            563
MPAA              30.73           21.43 -30.3%            608
NHTC              28.23           19.01 -32.7%            326
AGX              65.17           42.95 -34.1%         1,011
GME              20.81           12.62 -39.3%         2,265
AGTC                6.90             3.85 -44.2%            125
SQBG                3.89             2.09 -46.3%            243
AOBC              19.81           10.32 -47.9%         1,116
DHX                3.95             1.60 -59.5%            196
ICON                7.52             1.11 -85.2%            429


This table is SO MFI.  Look at the spread of results.  Nine of the 50 names are -30% or worse.  And four are +60% or better.  Just for illustration,  I will pick 5 random portfolios of 5 stocks to show the variability using a random number generator.  Keep in mind that the average of the 50 names is 6.4%.


Random # Stock Gain/Loss
5 AGX -34.1%
49 USNA 49.1%
4 AGTC -44.2%
38 SQBG -46.3%
46 TRNC 18.0%
Average -11.5%

Random # Stock Gain/Loss
43 TDC 27.5%
22 IDCC -13.3%
45 TZOO -24.6%
15 DHX -59.5%
24 MNKD 54.1%
Average -3.2%

Random # Stock Gain/Loss
47 UIS -22.9%
31 NLS -26.3%
48 UTHR -17.0%
46 TRNC 18.0%
40 SCMP 63.6%
Average 3.1%

Random # Stock Gain/Loss
3 AOBC -47.9%
14 DLX 4.4%
25 MCFT 55.8%
17 GME -39.3%
46 TRNC 18.0%
Average -1.8%

Random # Stock Gain/Loss
20 HPQ 25.9%
50 VEC 66.6%
27 MIK -12.0%
15 DHX -59.5%
24 MNKD 54.1%
Average 15.0%

I promise I did not "fix" anything.  Totally random here.  But you can see individual portfolios of 5 stocks vary greatly around the overall average of 6.4%.

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 17.1% 16.0% 1
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% 17.2% 0
2/24/2017 7.6% 17.4% 0
3/31/2017 6.4% 13.6% 0
4/28/2017 1.9% 12.5% 0
5/26/2017 4.8% 11.1% 0
6/29/2017 2.3% 10.5% 0
7/28/2017 2.6% 8.3% 0
8/25/2017 12.2% 9.6% 1
9/29/2017 2.8% 5.6% 0
10/27/2017 5.7% 3.1% 1
11/24/2017 4.2% 2.0% 1
12/29/2017 6.9% -0.8% 1
1/26/2018 -3.3% -7.2% 1
2/23/2018 -2.2% -3.3% 1

You can see 4/28/17 is also looking terrible with a month to run.  

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 16.6%.  MUCH better than the 7.6% 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      214,412
Total Russell 3K      257,749
Dividend      491,230