MFI Monthly Tracking Portfolio - January 26, 2018

MFI Monthly Tracking Portfolio - January 26, 2018

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of January 2019.

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 ).  His writing may be starting to be bearing fruit yet as January has been unbelievably good for my MFI stocks.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Now we have our first loss in a while (after a 5 month losing streak), "losing"  -7.5% to -5.6% this month. That -7.5% was the worst result in 30 months (June 2015 was off 8.7%).  But we have some still in play that would be even worse if closed today.  Not happy :(.

Guess what?   Last month all 11 open portfolios were trailing.  January (as shown by my Batman pix) was a rock-em, sock-em month, so now 9 are trailing, but two are winning.

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
MEET	2.82	5.68	101.4%	202
SYNT	23.61	41.00	73.7%	1,956
DIN	53.01	79.31	49.6%	987
INVA	15.39	19.83	28.8%	1,662
BPT	18.45	23.60	27.9%	474
PCOA	551.61	690.00	25.1%	136
HSII	26.35	32.53	23.4%	502
AMCX	53.05	64.76	22.1%	3,327
AMAG	14.45	16.45	13.8%	511
ESRX	81.32	92.33	13.5%	46,060
PDLI	2.91	3.18	9.3%	449
MSB	26.83	28.72	7.1%	389
DISCA	26.04	27.68	6.3%	14,869
IPG	21.14	22.41	6.0%	8,514
TWX	94.43	100.00	5.9%	73,873
GME	15.41	15.90	3.2%	1,728
OMC	75.13	76.41	1.7%	17,901
NHTC	16.06	16.26	1.3%	191
LEE	2.65	2.68	1.1%	150
HRB	25.73	25.91	0.7%	5,586
MSGN	23.05	22.20	-3.7%	1,734
AGX	44.10	42.33	-4.0%	707
HPQ	23.33	22.11	-5.2%	39,356
IDCC	77.71	72.10	-7.2%	2,747
KLAC	110.41	101.39	-8.2%	17,763
VIAB	33.19	28.99	-12.6%	13,718
MCFT	24.13	21.06	-12.7%	451
EGOV	16.39	14.15	-13.7%	1,111
SP	40.05	34.07	-14.9%	889
UTHR	136.97	115.93	-15.4%	6,268
GILD	82.83	68.90	-16.8%	111,696
VEC	31.24	24.51	-21.5%	346
TGNA	15.23	11.91	-21.8%	3,355
ABC	103.69	79.67	-23.2%	22,994
PTN	0.92	0.68	-26.3%	169
MPAA	27.70	20.34	-26.6%	549
CJREF	6.17	4.43	-28.2%	1,501
EGRX	59.81	42.85	-28.4%	955
CASA	17.50	12.27	-29.9%	590
CNCE	20.91	14.51	-30.6%	513
DLX	75.64	47.25	-37.5%	3,703
PBI	11.82	7.14	-39.7%	2,397
NLS	13.00	7.64	-41.2%	399
TVTY	39.70	22.95	-42.2%	1,570
SQBG	1.82	1.03	-43.4%	115
EVC	7.05	3.97	-43.7%	669
TRNC	20.90	11.65	-44.3%	701
QTRH	1.79	0.98	-45.4%	221
WDC	86.60	43.16	-50.2%	26,522
OPHT	3.05	1.27	-58.4%	110

Not very good.  Especially if you didn't have MEET.  I always preach the importance of avoiding stinker stocks, those off by 30% or more.  11 of the 50 (22%) were in the stinker category here (and CASA was a virtual 12th).  And some of those were the types of stocks I have suggested were less likely to be stinkers (market caps > 600m with a 2.6% or greater dividend). WDC, EVC, PBI and DLX were all close to those thresholds, we will see momentarily whether they actually were.

I am intimately familiar with WDC and CASA as I picked both of them for my 2/1/18 MFI portfolio.  It hasn't been pretty.

Here is a listing of every MFI Tracking portfolio, back to January 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%	19.3%	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	-7.5%	-5.6%	0
2/23/2018	-3.2%	-1.6%	0
3/29/2018	-1.0%	1.8%	0
4/27/2018	-6.8%	0.6%	0
5/25/2018	-7.7%	-1.8%	0
6/29/2018	-8.6%	-2.0%	0
7/27/2018	-9.3%	-5.2%	0
8/31/2018	-11.2%	-8.3%	0
9/28/2018	-10.3%	-8.4%	0
10/26/2018	-0.4%	0.9%	0
11/30/2018	-0.8%	-3.0%	1
12/31/2018	11.8%	6.8%	1

So you can see the last negative was June 2015.  But you can also see that was the end of a eight month stretch of negatives.  And this may be the start of a run of negatives as of the 11 open tranches, we have only one in the green (I mean really in the green).

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 super true this month! My dividend MFI portfolio (which are stocks I track with a yield of 2.6% or greater) was up 3.1%! Whoa, that is astonishing.

Here are the divvy stocks from a year ago:

Stock	Initial Price	End Price	Percent Change	Mkt Cap	Yield
DIN	53.01	79.31	49.6%	987	7.1%
BPT	18.45	23.60	27.9%	474	17.3%
MSB	26.83	28.72	7.1%	389	5.0%
IPG	21.14	22.41	6.0%	8,514	3.3%
GME	15.41	15.90	3.2%	1,728	8.9%
OMC	75.13	76.41	1.7%	17,901	2.9%
HRB	25.73	25.91	0.7%	5,586	3.5%
CJREF	6.17	4.43	-28.2%	1,501	12.2%
PBI	11.82	7.14	-39.7%	2,397	5.8%

So just one stinker from the 9 names... definitely better than 11 of 50.  And for those playing at home, if you went anti-dividends, recall overall for the 50 stocks was -7.5%, the 9 divvy stocks were +3.1% so using a little algebra tells us the 41 non divvy stocks were down 9.8% on average.

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	215,332
Total Russell 3K	262,636
Dividend	490,075