MFI Monthly Tracking Portfolio - 4/28/2017

MFI Monthly Tracking Portfolio - 4/28/2017

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of April 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 7 month losing streak, getting whooped 13.8% to 5.8%. this has been such a horrid stretch.  The past 6 closed portfolios have been absolutely stomped, 17.2% to 7.1% on average. So compared to prior 5 portfolios, this was a "good" one... losing by just 8 points.  Ee-gads.

Guess what?  We are still struggling.  May, JUne and July 2017 are also trailing - some by a lot. It has been rugged.  Greenblatt warned there would be times people would want to quit and this would ensure in working down the road.

The good news is that 7 of the most recent 8 portfolios are leading, by an average of 3 percentage points apiece.

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	3.89	7.60	95.4%	415
USNA	56.85	105.65	85.8%	1,392
KORS	37.33	69.06	85.0%	6,216
SCMP	10.15	18.00	77.3%	441
SYNT	17.61	28.99	64.6%	1,473
BBSI	56.74	88.39	55.8%	418
BPT	15.83	23.15	46.3%	416
NCIT	14.80	21.40	44.6%	202
MCFT	16.75	24.08	43.8%	312
VEC	25.44	36.56	43.7%	277
TDC	29.18	40.93	40.3%	3,770
CSCO	32.95	44.71	35.7%	170,589
BKE	17.74	23.50	32.4%	909
PDLI	2.25	2.95	31.1%	372
TRNC	14.34	18.36	28.0%	522
ESRX	61.34	77.21	25.9%	37,197
HPQ	18.32	21.61	17.9%	31,869
CSGS	36.81	43.22	17.4%	1,210
TZOO	9.20	10.70	16.3%	121
ABC	80.63	93.07	15.4%	18,291
PMD	18.50	20.93	13.2%	104
PCO	603.76	680.00	12.6%	165
GILD	66.65	73.86	10.8%	89,663
CA	31.83	34.88	9.6%	13,568
GHC	596.42	608.60	2.0%	3,377
UIS	11.30	11.45	1.3%	566
NSR	33.20	33.50	0.9%	1,823
QCOM	51.75	51.11	-1.2%	79,374
RGR	59.19	56.40	-4.7%	1,130
AMCX	59.68	53.23	-10.8%	4,092
UTHR	125.70	110.40	-12.2%	5,723
PBI	12.50	10.84	-13.2%	2,468
MSGN	24.95	21.60	-13.4%	1,873
IDCC	88.36	74.95	-15.2%	3,118
AMAG	24.40	20.65	-15.4%	838
AGTC	5.60	4.72	-15.6%	101
TGNA	24.21	20.22	-16.5%	5,465
MIK	23.36	19.29	-17.4%	4,516
NLS	18.20	14.60	-19.8%	561
AVID	5.61	4.39	-21.7%	228
GME	20.94	13.86	-33.8%	2,292
NHTC	28.02	18.47	-34.1%	324
MPAA	30.32	19.40	-36.0%	600
AGX	65.01	40.75	-37.3%	1,033
NTIP	4.65	2.75	-40.8%	114
SQBG	3.37	1.92	-43.0%	211
AOBC	22.15	11.14	-49.7%	1,248
DHX	3.85	1.45	-62.3%	191
VVUS	1.01	0.38	-62.4%	106
ICON	7.00	0.89	-87.3%	399

I harp all the time about the "problem" with MFI is that it tends to have a high percentage of stinkers (technical term) or stocks dropping 30% or more.  My studies show they run in the 14% range.  And here we have exhibit A, 10 of the 50 stocks losing 30% or more (20% for those without a calculator). And to have that high a percentage of stinkers when benchmark is up 15% is an issue.

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%	18.5%	0
2/24/2017	7.6%	17.4%	0
3/31/2017	6.4%	13.6%	0
4/28/2017	5.8%	13.8%	0
5/26/2017	7.0%	12.4%	0
6/29/2017	3.8%	11.8%	0
7/28/2017	5.2%	9.5%	0
8/25/2017	15.8%	10.8%	1
9/29/2017	5.7%	6.8%	0
10/27/2017	7.8%	4.3%	1
11/24/2017	6.6%	3.1%	1
12/29/2017	8.7%	0.4%	1
1/26/2018	-2.3%	-6.2%	1
2/23/2018	-0.6%	-2.2%	1
3/29/2018	1.3%	1.1%	1

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 17.0%.  MUCH better than the 5.8% 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	218,976
Total Russell 3K	260,902
Dividend	506,576