MFI Tracking Portfolio - 10/27/2017

MFI Tracking Portfolio - 10/27/2017

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of October 2018.  As the picture to the left shows, we are in full blown Fall here in New England and it has been a spectacular Fall.

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).  Greenblatt wrote a great analysis of growth vs value lately (Market Observations – September 2018 ).

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Now we have our third straight win (after a 10 month losing streak), winning handily 11.8% to 4.0% this month. It feels always good to win one.  MFI does tend to be streaky.

Guess what?  The next 4 portfolios are all leading as well.  I am happy about that, even if my personal results have been struggling lately.

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	8.67	122.9%	408
BPT	15.67	31.09	98.5%	406
SCMP	9.68	18.00	86.0%	448
SYNT	22.82	41.00	79.7%	1,909
FOXA	26.18	45.14	72.4%	48,886
CPLA	64.51	104.00	61.2%	765
DISCA	19.08	30.13	57.9%	11,028
TIME	11.92	18.50	55.2%	1,190
ESRX	62.19	94.28	51.6%	35,224
AMAG	15.35	21.97	43.1%	541
FFIV	121.18	170.38	40.6%	7,585
MSB	21.76	29.98	37.8%	306
CRHM	2.30	3.07	33.5%	170
CSCO	33.41	44.25	32.4%	171,565
MCFT	22.97	29.58	28.8%	428
BBY	53.90	68.45	27.0%	16,560
BOJA	12.15	15.27	25.7%	448
VIAB	24.01	29.98	24.9%	9,923
MSGN	19.70	23.86	21.1%	1,479
NHTC	18.37	22.22	20.9%	216
IPG	18.97	22.87	20.6%	7,643
AVID	4.46	5.27	18.2%	183
JNPR	24.62	28.14	14.3%	9,533
LEE	2.40	2.73	13.7%	136
ABC	75.06	84.72	12.9%	17,184
OMC	66.34	71.04	7.1%	15,805
AMCX	52.55	54.06	2.9%	3,389
EGRX	55.65	57.22	2.8%	902
HRB	25.29	25.50	0.8%	5,492
TRNC	14.72	14.84	0.8%	484
UTHR	120.05	118.39	-1.4%	5,494
IDCC	71.24	70.03	-1.7%	2,516
GHC	569.98	560.17	-1.7%	3,217
MD	44.28	40.98	-7.5%	4,139
TGNA	12.24	10.97	-10.4%	2,686
JILL	5.58	4.88	-12.5%	244
VEC	31.97	27.16	-15.0%	354
KLAC	105.43	87.21	-17.3%	16,913
PDLI	3.05	2.48	-18.7%	470
NLS	16.05	12.67	-21.1%	494
GME	17.62	13.71	-22.2%	1,959
MIK	19.99	15.19	-24.0%	3,666
MPAA	29.07	20.68	-28.9%	563
DHX	2.40	1.64	-31.7%	121
AGX	66.80	43.88	-34.3%	1,064
DLX	68.93	44.42	-35.6%	3,394
SQBG	2.56	1.37	-46.5%	162
MNKD	3.37	1.75	-48.1%	353
CJREF	7.56	3.68	-51.3%	1,865
ICON	4.91	0.18	-96.3%	281

Overall very solid, although I have always dissed BPT (to my detriment).  7 stinkers losing 30% or more. Recall long term stinker rate is 14% or so. Sorry to anyone who was a bagholder on ICON.

It is interesting, if you peruse these 50 stocks, it seems to me a lot of them were bought out (or being bought). SCMP, CPLA, SYNT, FOXA, TIME and ESRX.

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%	18.2%	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	28.8%	21.5%	1
9/29/2017	20.0%	17.3%	1
10/27/2017	11.8%	4.0%	1
11/24/2017	7.9%	2.9%	1
12/29/2017	8.1%	0.1%	1
1/26/2018	-3.8%	-6.4%	1
2/23/2018	-2.2%	-2.5%	1
3/29/2018	0.2%	0.8%	0
4/27/2018	-3.4%	-0.3%	0
5/25/2018	-4.4%	-2.6%	0
6/29/2018	-7.8%	-2.9%	0
7/27/2018	-6.2%	-6.0%	0
8/31/2018	-9.4%	-9.1%	0
9/28/2018	-9.2%	-9.3%	1

Looking at the most recent tracking portfolio from 9/28/18 you can see we are in correction territory (down 9.2% and the benchmark also struggling down 9.3%).  The open MFI tracking portfolios in aggregate dropped 8.1% versus benchmark down 9.3%... so a bit of "outperformance" in a tough market.

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 despite CJREF and GME bringing the group down.. My dividend MFI portfolio (which are stocks I track with a yield of 2.6% or greater) were up 16.5%.

Here are the divvy stocks from a year ago:

Stock	Initial Price	End Price	Percent Change	Yield
BPT	15.67	31.09	98.5%	17.2%
MSB	21.76	29.98	37.8%	6.8%
CSCO	33.41	44.25	32.4%	3.5%
VIAB	24.01	29.98	24.9%	3.0%
IPG	18.97	22.87	20.6%	3.8%
OMC	66.34	71.04	7.1%	3.3%
HRB	25.29	25.50	0.8%	3.8%
GME	17.62	13.71	-22.2%	8.6%
CJREF	7.56	3.68	-51.3%	12.0%

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	218,891
Total Russell 3K	260,096
Dividend	543,928