Tuesday, January 01, 2019

MFI Monthly Tracking Portfolio 12/31/17

MFI Monthly Tracking Portfolio 12/31/17

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of  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).  Greenblatt wrote a great analysis of growth vs value lately (Market Observations – September 2018 ).  Although his writing doesn't seem to be bearing fruit yet.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Now we have our fifth straight win (after a 10 month losing streak), "winning"  -3.4% to -5.4% this month. It feels always good to win one.  MFI does tend to be streaky.

Guess what?   All 11 open portfolios are trailing.  They are down on average by a dismal 14.6%.  The 11 R3K tranches are down 9.1% on average. So we're trailing by 5.5 points in the past 11 tracking portfolios.  I mention this as it tracks my real life.  Of my 7 most recent MFI tranches, I am down an average of 15.3% and r3K is down 8%. So a 7% deficit.

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 
ABCD                5.68           14.48 154.9%            265
BIVV              53.92         105.00 94.7%         5,833
SYNT              22.99           41.00 78.3%         1,905
MEET                2.82             4.63 64.2%            202
DIN              49.06           67.34 37.3%            913
CPLA              76.64         104.00 35.7%            901
BPT              16.62           21.64 30.2%            430
HSII              24.19           31.19 29.0%            461
NHTC              14.63           18.49 26.4%            172
ESRX              74.64           92.33 23.7%       42,276
INVA              14.19           17.45 23.0%         1,533
PCOA            575.00         690.00 20.0%            142
MSGN              20.25           23.56 16.3%         1,524
AMAG              13.25           15.19 14.6%            469
DISCA              22.38           24.74 10.5%       12,779
IPG              19.45           20.63 6.1%         7,834
PDLI                2.74             2.90 5.8%            423
OMC              70.47           73.24 3.9%       16,790
AMCX              54.08           54.88 1.5%         3,392
HRB              25.25           25.37 0.5%         5,482
HPQ              20.50           20.46 -0.2%       34,582
GILD              69.44           62.55 -9.9%       93,633
LEE                2.35             2.11 -10.2%            133
IDCC              74.83           66.43 -11.2%         2,643
KLAC            102.26           89.49 -12.5%       16,465
AGX              43.88           37.84 -13.8%            700
VIAB              29.99           25.70 -14.3%       12,398
MCFT              22.22           18.70 -15.8%            415
PTN                0.86             0.71 -17.4%            158
ABC              90.26           74.40 -17.6%       20,016
NLS              13.35           10.90 -18.4%            410
SP              37.10           29.54 -20.4%            824
TGNA              13.75           10.87 -21.0%         3,030
GME              16.22           12.62 -22.2%         1,818
EGOV              16.24           12.48 -23.2%         1,101
EGRX              53.42           40.29 -24.6%            853
CASA              17.76           13.13 -26.1%            599
UTHR            147.95         108.90 -26.4%         6,771
VEC              30.85           21.58 -30.0%            342
TVTY              36.55           24.81 -32.1%         1,446
MPAA              24.99           16.64 -33.4%            495
TRNC              17.59           11.34 -35.5%            590
SRNE                3.80             2.40 -36.8%            298
PBI              10.29             5.91 -42.6%         2,086
DLX              75.35           38.44 -49.0%         3,698
CNCE              25.87           12.55 -51.5%            635
SQBG                1.78             0.80 -55.1%            112
CJREF                7.83             3.50 -55.3%         1,900
EVC                6.81             2.91 -57.3%            647
OPHT                3.12             1.20 -61.5%            112


Pretty wide variance. Standard Deviation almost 41%.  That seems insane. Then hear 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% 11.7% 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 28.8% 21.5% 1
9/29/2017 20.0% 17.3% 1
10/27/2017 11.8% 4.0% 1
11/24/2017 9.8% 7.0% 1
12/29/2017 -3.4% -5.4% 1
1/26/2018 -15.0% -11.6% 0
2/23/2018 -11.7% -7.9% 0
3/29/2018 -9.6% -4.7% 0
4/27/2018 -15.2% -5.8% 0
5/25/2018 -16.7% -8.0% 0
6/29/2018 -17.0% -8.2% 0
7/27/2018 -16.7% -11.2% 0
8/31/2018 -18.9% -14.1% 0
9/28/2018 -18.4% -14.3% 0
10/26/2018 -10.2% -5.5% 0
11/30/2018 -11.7% -9.2% 0

You can see the underperformance from 1/26/18 forward.

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 not true  this month-year due to CJREF and PBI bringing the group down.. My dividend MFI portfolio (which are stocks I track with a yield of 2.6% or greater) was down 6.6%.

Here are the divvy stocks from a year ago:

Stock  Initial Price   End Price  Percent Change
DIN              49.06           67.34 37.3%
BPT              16.62           21.64 30.2%
IPG              19.45           20.63 6.1%
OMC              70.47           73.24 3.9%
HRB              25.25           25.37 0.5%
GILD              69.44           62.55 -9.9%
VIAB              29.99           25.70 -14.3%
GME              16.22           12.62 -22.2%
PBI              10.29             5.91 -42.6%
CJREF                7.83             3.50 -55.3%
down 6% overall, but two just terrible names in PBI and CJREF. I was very fortunate the random number generator didn't give me them in my MFI Formula tranche a year ago.

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      195,402
Total Russell 3K      244,682
Dividend      477,940



No comments: