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)
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 |
Posts
5 comments:
Marsh, you work so hard at this! Thanks for the quality info. Have you ever tried to contributing to Seeking Alpha?
no. I leave an occasional comment. Not even sure what I would write about. I don't really analyze individual stocks in-depth.
Hello and thank you for your amazing in depth blog. I've read nearly every entry. Yikes. I did have some feedback/question for you. My copy of The says to: "eliminate all utilities and financial stocks...eliminate all foreign companies"
I'm not sure if perhaps my copy is updated, but I'm deeply curious how your numbers would have looked if you removed those foreign companies. You mention some Chinese stocks found their way into your portfolio.
Similar to the way you determined the 2.6% div and market cap, I think it would make a great post to look back at how removing foreign companies would have changed the outcome. Not that you need any ideas for posts--they seem to flow out of you.
I took your information and about lg cap and div and found a similar response. Smaller cap and dividends over 2.6%--did not perform nearly as well. I saw no difference, however, in large cap that didn't pay a dividend vs those that were 2.6% or under. My timeline is shorter than yours, but it was interesting nonetheless.
Thanks again for all that you've shared. It's really an incredible documentation of MFI.
Thanks for reading and the comment. The book does clearly say to remove all foreign companies. That being said, foreign companies have regularly made their way onto the official screen. Israeli companies are not uncommon, Irish companies and of course a fair number of Chinese companies over the years. In fact, if you go to the official website (magicformulainvesting.com) and click on welcome, it shows a sample screen page. Two of the stocks at the top are China 3C Group and China Sky One Medical.
I will go through some of my older posts - I am pretty sure I did try several times to remove the foreign companies. It would be a very difficult job to go back in time and do that now as many symbols don't exist any further.
yeah, it is really tricky. CBEH is a great example of the problem. The name is China Integrated Energy, which I have to assume makes them a Chinese company. But if you go on official SEC.Gov website and look up CBEH you get state location FL and state of incorporation: DE. And even mailing address is Ft Lauderdale. That undoubtedly explains why they made official screen.
So any automated approach will miss those. I have over 7000 entries, so I have no stomach to go through them all manually. I think I will just go through relatively quickly and add country based on my knowledge or the name. So will be far from perfect but directionally should be right.
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