MFI Monthly Tracking Portfolio, June 2017

MFI Monthly Tracking Portfolio, June 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 June 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.

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 an 9 month losing streak, getting whooped 14.7% to 11.1% this month. This has been such a horrid stretch.  The past 9 closed portfolios have been absolutely stomped, 17.8% to 9.2% on average. So I suppose we should feel good "just" losing by 3.6 points  Ee-gads.

Guess what?  July 2017 also trailing -  but by just a bit. 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 great news is that the 10 most recent are all leading, by an average of 5 percentage points apiece. Fingers crossed.  That is hopeful.

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
MSB	12.21	24.55	101.0%	179
SYNT	16.88	32.09	90.1%	1,412
USNA	64.20	115.30	79.6%	1,574
FOXA	27.86	49.69	78.3%	52,176
DIN	42.15	74.80	77.4%	805
BPT	17.25	29.90	73.3%	454
SCMP	10.60	18.00	69.8%	493
BKE	17.03	26.90	57.9%	877
MCFT	19.54	28.95	48.2%	364
LEE	2.00	2.85	42.5%	113
CSCO	30.38	43.03	41.6%	156,987
TRNC	12.76	17.28	35.4%	419
TDC	29.86	40.15	34.5%	3,870
HPQ	17.13	22.69	32.4%	29,576
MNKD	1.45	1.90	31.0%	139
NCMI	6.59	8.40	27.4%	453
ESRX	63.89	77.21	20.8%	37,920
AMCX	53.26	62.20	16.8%	3,581
AMAG	18.25	19.50	6.8%	629
MSGN	22.55	23.95	6.2%	1,693
QCOM	53.01	56.12	5.9%	81,353
DISCA	26.00	27.50	5.8%	15,262
CARS	26.87	28.39	5.7%	1,924
MIK	18.35	19.17	4.5%	3,465
IDCC	77.84	80.90	3.9%	2,747
GILD	68.89	70.84	2.8%	92,614
UIS	12.75	12.90	1.2%	643
NHTC	24.88	25.02	0.5%	316
NSR	33.35	33.50	0.4%	1,844
GHC	585.41	586.10	0.1%	3,302
DLX	67.64	66.21	-2.1%	3,338
AVID	5.38	5.20	-3.3%	220
VEC	32.48	30.82	-5.1%	355
OMC	80.74	76.27	-5.5%	19,549
PDLI	2.58	2.34	-9.3%	421
VIAB	33.43	30.16	-9.8%	13,781
UTHR	131.32	113.15	-13.8%	5,979
WNC	21.67	18.66	-13.9%	1,323
ACIA	41.38	34.81	-15.9%	1,594
DHX	2.85	2.35	-17.5%	144
HRB	29.74	22.78	-23.4%	6,397
TGNA	14.22	10.85	-23.7%	3,121
GME	19.75	14.57	-26.2%	2,189
AGX	58.74	40.95	-30.3%	935
FRAN	11.18	7.55	-32.5%	416
MPAA	28.34	18.71	-34.0%	550
PBI	14.24	8.57	-39.8%	2,847
VVUS	1.21	0.71	-41.3%	128
SQBG	3.88	1.97	-49.2%	244
AOBC	23.94	12.03	-49.7%	1,350

Seven stinkers - recall I said in previous post a 14% stinker rate... there it is!  If you could just find a way to avoid these, we'd jump from 11.1% to 19.4%.  Here is a listing of every tracking portfolio back to 2006:

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%	21.7%	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	11.1%	15.1%	0
6/29/2017	11.1%	14.7%	0
7/28/2017	12.2%	12.4%	0
8/25/2017	23.8%	13.7%	1
9/29/2017	13.1%	9.6%	1
10/27/2017	15.6%	7.1%	1
11/24/2017	12.8%	5.9%	1
12/29/2017	12.7%	3.0%	1
1/26/2018	0.0%	-3.7%	1
2/23/2018	2.2%	0.4%	1
3/29/2018	4.8%	3.8%	1
4/27/2018	3.1%	2.6%	1
5/25/2018	2.3%	0.2%	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 29.6%.  MUCH better than the 11.1% for all fifty MFI stocks I tracked.

Here are those winners:

Stock	Initial Price	End Price	Percent Change
MSB	12.21	24.55	101.0%
SYNT	16.88	32.09	90.1%
DIN	42.15	74.80	77.4%
BPT	17.25	29.90	73.3%
BKE	17.03	26.90	57.9%
CSCO	30.38	43.03	41.6%
HPQ	17.13	22.69	32.4%
NCMI	6.59	8.40	27.4%
QCOM	53.01	56.12	5.9%
GILD	68.89	70.84	2.8%
OMC	80.74	76.27	-5.5%
HRB	29.74	22.78	-23.4%
GME	19.75	14.57	-26.2%
PBI	14.24	8.57	-39.8%

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	230,246
Total Russell 3K	268,369
Dividend	526,069