MFI Monthly Tracking Portfolio - July 28th, 2017

MFI Monthly Tracking Portfolio - July 28th, 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 July 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 10 month losing streak, getting whooped 16.1% to 12.5% this month. This has been such a horrid stretch.  The past 10 closed portfolios have been absolutely stomped, 18.0% to 9.0% on average. So I suppose we should feel good "just" losing by 3.6 points  Ee-gads.

Guess what?  August 2017 is leading by 8 points, perhaps the streak will finally end.. It has been rugged.  Greenblatt warned there would be times people would want to quit and this would ensure in working down the road.

Things seem to be eroding again (I certainly saw that in my real results this past month).  Last month, the 10 newest tracking portfolios were beating benchmark by an average of 5 points.  Now just 5 of them are leading and overall average differential has dropped to just 60 basis points. Did I mention it has been rugged?

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
USNA	56.65	130.80	130.9%	1,382
MSB	12.13	27.35	125.4%	175
SYNT	19.73	40.67	106.1%	1,658
DIN	38.55	71.81	86.3%	755
BPT	16.56	27.50	66.1%	437
SCMP	10.85	18.00	65.9%	502
EGRX	50.48	80.45	59.4%	863
CPLA	68.62	104.55	52.4%	819
BKE	16.07	23.15	44.0%	848
FFIV	121.72	174.23	43.1%	7,630
CSCO	30.53	42.57	39.4%	157,787
GNTX	16.74	22.64	35.3%	4,972
MCFT	18.44	24.53	33.0%	355
NCMI	6.46	8.25	27.7%	453
ESRX	62.90	79.45	26.3%	35,996
HPQ	18.69	23.23	24.3%	32,337
TRNC	13.03	16.06	23.3%	432
MNKD	1.32	1.54	16.7%	123
CARS	24.29	28.33	16.6%	1,728
AMAG	19.60	22.05	12.5%	670
IDCC	73.60	81.40	10.6%	2,638
PDLI	2.32	2.55	9.9%	398
NHTC	22.20	23.35	5.2%	283
MSGN	21.85	22.85	4.6%	1,633
AVID	5.19	5.36	3.3%	218
UIS	12.50	12.80	2.4%	648
MIK	19.88	20.29	2.1%	3,845
EGOV	15.77	16.05	1.8%	1,059
WNC	18.77	19.10	1.8%	1,185
NSR	33.30	33.50	0.6%	1,844
RGR	55.84	54.25	-2.8%	1,002
DISCA	26.80	26.03	-2.9%	15,491
GHC	585.97	564.75	-3.6%	3,303
UTHR	128.35	122.98	-4.2%	5,828
VEC	34.61	31.47	-9.1%	372
OMC	76.44	68.98	-9.8%	18,219
AMCX	66.53	59.08	-11.2%	4,506
HRB	29.11	24.87	-14.6%	6,300
DHX	2.40	2.05	-14.6%	134
VIAB	34.70	29.35	-15.4%	14,247
FRAN	9.51	7.81	-17.9%	359
MPAA	27.73	21.53	-22.4%	542
GME	19.65	14.83	-24.5%	2,198
TGNA	15.00	10.79	-28.1%	3,290
SQBG	3.04	2.11	-30.6%	208
AGX	62.18	37.95	-39.0%	1,010
PBI	14.43	8.68	-39.8%	2,932
VVUS	1.16	0.69	-40.5%	121
AOBC	20.45	9.46	-53.7%	1,106
CJREF	9.29	3.10	-66.6%	2,243

Six stinkers - recall I said in previous post an overall 14% stinker rate... pretty close!  If you could just find a way to avoid these, we'd jump from 12.5% to 20.4%.  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%	25.7%	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	12.5%	16.1%	0
8/25/2017	25.0%	17.5%	1
9/29/2017	13.4%	13.3%	1
10/27/2017	15.1%	10.7%	1
11/24/2017	12.3%	9.4%	1
12/29/2017	11.7%	6.5%	1
1/26/2018	-0.5%	-0.4%	0
2/23/2018	2.5%	3.7%	0
3/29/2018	6.1%	7.3%	0
4/27/2018	2.5%	6.1%	0
5/25/2018	0.7%	3.6%	0
6/29/2018	-1.0%	3.4%	0

The 4.4 point drubbing of the June 29th portfolio is telling and shows again why I struggled in July.

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 25.6%.  MUCH better than the 12.5% for all fifty MFI stocks I tracked.

Here are those winners:

Stock	Initial Price	End Price	Percent Change	Mkt Cap	Yield
MSB	12.13	27.35	125.4%	175	7.8%
SYNT	19.73	40.67	106.1%	1,658	76.0%
DIN	38.55	71.81	86.3%	755	10.1%
BPT	16.56	27.50	66.1%	437	20.1%
BKE	16.07	23.15	44.0%	848	6.2%
CSCO	30.53	42.57	39.4%	157,787	3.8%
NCMI	6.46	8.25	27.7%	453	13.6%
HPQ	18.69	23.23	24.3%	32,337	2.8%
RGR	55.84	54.25	-2.8%	1,002	3.4%
OMC	76.44	68.98	-9.8%	18,219	2.9%
HRB	29.11	24.87	-14.6%	6,300	3.3%
GME	19.65	14.83	-24.5%	2,198	7.7%
PBI	14.43	8.68	-39.8%	2,932	5.2%
CJREF	9.29	3.10	-66.6%	2,243	9.4%

You'll see SYNT, I do include special dividends.

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	229,797
Total Russell 3K	278,140
Dividend	520,897