Does Value Investing Still Work?

Does Value Investing Still Work?

In today's world, I at times wonder whether value investing is dead.  At least for the average investor.  I mean think about it.

Warren Buffett and Berkshire have been trailing the S&P for the past decade. 

Russell Growth has been whipping Russell Value. Over past 5 years Russell Value is up 24% and Russell GRowth is up 49%.

With all the disruptors around, AMZN, GOOG, AAPL, TTD, EBAY, PYPL, TSLA, SHOP, NFLX etc - it seems that the companies being disrupted (often "value" stocks) just keep falling further and further behind.

We are certainly seeing the Value struggle in my MFI Index over past five years:

	Annual
Year	Russell	MFI
2015	0.4%	-8.9%
2016	12.5%	13.2%
2017	20.8%	4.7%
2018	-5.4%	-3.4%
2019	14.6%	5.5%

I mean that is a pretty sound thumping.  Down by 9 points in first year.  Down by 16 points in 3rd year and 9 points this year.  Slight wins in other two years.

Here are the 12 open tracking portfolios versus benchmark:

5/25/2018	-11.4%	5.3%
6/29/2018	-9.0%	5.1%
7/27/2018	-7.4%	1.7%
8/31/2018	-10.1%	-1.7%
9/28/2018	-11.7%	-1.8%
10/26/2018	-4.2%	8.2%
11/30/2018	-7.0%	4.0%
12/31/2018	5.6%	14.5%
1/25/2019	-5.1%	7.2%
2/26/2019	-9.9%	1.7%
3/29/2019	-2.9%	0.5%
4/30/2019	-4.1%	-3.3%
	-6.4%	3.5%

Down an average of 10 points!

Bigger MFI stocks are doing a bit better.  I started a 3b+ tracking portfolio 2/1.  It is up by 0.5%.  Better that the -5.1% from 1/25/19 above, but still worse than benchmark.

I started another one 3/1 and it is down 4%... again better that the 2/26 -9.9% above, but worse than benchmark.  One more, the 4/1 3B+:   It is down 1%.  So same story... beating the 100m+ MFI portfolio but losing to benchmark.

Hmm.  Even GARIX is struggling, up just 2.7% this year.  I hear even Bobby Axelrod is struggling to beat benchmarks.

Warren Buffett makes some strong points about just going with S&P Index here (Warren Buffett has just about given up on beating the S&P 500).

Basically information is just better and everyone has it.  You don't have an advantage over professional traders and algos.

My Portfolio

Now my two real money MFI portfolios have been managing to beat the index since they started.  My MFI Select has been lagging of late and MFI Formula is a push better than the Index:

Select:

Date	Differential	MFI Value	R3K Value
1/1/2013	-1.78%	102,798	104,575
4/1/2013	-0.43%	106,804	107,234
7/1/2013	4.29%	114,888	110,597
10/1/2013	19.67%	138,655	118,990
1/1/2014	26.63%	157,138	130,503
4/1/2014	30.38%	162,991	132,616
7/1/2014	39.23%	177,971	138,740
10/1/2014	29.38%	168,321	138,944
1/1/2015	28.17%	174,306	146,140
4/1/2015	29.95%	178,565	148,612
7/1/2015	62.69%	211,437	148,743
10/1/2015	43.12%	181,175	138,052
1/1/2016	63.33%	209,514	146,186
4/1/2016	47.34%	195,770	148,430
7/1/2016	50.41%	201,092	150,680
10/1/2016	42.98%	198,563	155,582
1/1/2017	45.60%	209,503	163,936
4/1/2017	55.70%	229,473	173,735
7/1/2017	60.28%	239,060	178,782
10/1/2017	75.60%	262,489	186,886
1/1/2018	92.19%	291,114	198,926
4/1/2018	96.21%	293,665	197,451
7/1/2018	68.20%	273,125	204,921
10/1/2018	65.80%	284,097	218,297
1/1/2019	39.77%	228,246	188,479
4/1/2019	46.16%	260,553	214,391
Current	42.43%	258,543	216,117

But you can see since 1/1/2016 I am only up 23% and the Index is up 48%.

MFI Formula

Date	Differential	Value	R3K Value
10/1/2014	0.00%	100,000	100,000
1/1/2015	-0.33%	100,664	100,995
4/1/2015	5.09%	106,781	101,695
7/1/2015	4.82%	106,423	101,604
10/1/2015	6.39%	100,703	94,312
1/1/2016	-3.36%	96,830	100,012
4/1/2016	0.34%	102,371	101,548
7/1/2016	-0.19%	103,022	103,216
10/1/2016	-0.85%	106,377	107,230
1/1/2017	1.57%	113,406	111,832
4/1/2017	-1.86%	116,227	118,091
7/1/2017	-2.40%	119,144	121,545
10/1/2017	-2.56%	124,448	127,007
1/1/2018	-3.63%	131,460	135,086
4/1/2018	-0.16%	133,734	133,898
7/1/2018	2.28%	141,126	138,849
10/1/2018	-0.85%	147,963	148,808
1/1/2019	3.90%	132,405	128,506
4/1/2019	0.98%	147,070	146,092
Current	5.36%	152,195	146,833

This one has hung in better.

Next Steps

Looking through this makes me question whether it is really worth it.  What am I doing?  I am tempted to just dismantle the whole thing over the next year.  I have this fear the market is going to crash again (and last fall was no picnic).  I am retired, so what I have is what I have.

Perhaps as the various tranches roll off I just move to safe havens until the market crashes.  I was thinking about what are "safe havens"?

PNC Money Market is 2.3% right now.

Wells Fargo Preferred is 5.8%.

JPM Preferred is 7.9%

NEE Preferred is 4%

BAC Preferred 5.6%

BDX Preferred 5.4%

ACGL Preferred 5.7%

KKR preferred 6.0%

JPC CEF 7.7%

OXY

OXY

My 2nd largest energy position (after ECA) is OXY.  It is stunning.  Even with oil prices (USO) up 33% in 2019, OXY is down 5.5%.

Why?  I guess the biggest reason is they have made a competing bid for APC (although even at their peak in 2019 they were only up 10% while ECA was up 30% at their peak).

There is something else going on in the Energy space.  Norway is divesting and that is causing downwards pressure on share prices (Norway's huge oil fund makes major shift to renewable energy).  I highly recommend you read this article.   Not only does it help explain recent weakness in energy names, but it helps explain strength in renewables (SEDG up 28%, FSLR up 45% and SPWR up 51%).

Eventually the selling pressure will end.  Eventually the APC saga will play out.  I believe OXY has put in it's low from the two pressures.  And there is substantial upside plus a well-covered 5% dividend.

Here is a great article in Barron's today about OXY.

3 Takeover Scenarios That Could Boost Occidental’s Stock

363 Days To Go

363 Days To Go

First a moment of silence please for Peter Mayhew, the actor who played Chewbacca.  He passed away this week.  I love how some of the greatest Star Wars characters never say a word.

Obviously early days (just 2 of 365) but my newest tranche is off to a respectable start.  Actually, the 5 stocks I "rejected" are the ones really off the a great start.  The 5 rejects (WW, VIAB, AMAT, ICHR and CBS) are already up 3.5%.

The runoff of the 5 May 2018 stocks are up 1.3%.  And now drumroll please, here are my six actual picks with real money (increased by 40% I may add).

5/2/2019	Start	Current	Dividend	Pct Gain	R3K Gain
FTSI	$10.25	$10.70	$0.00	4.4%	1.5%
DXC	$64.74	$63.01	$0.00	-2.7%	1.5%
KHC	$31.84	$32.58	$0.00	2.3%	1.5%
MO	$53.26	$53.76	$0.00	0.9%	1.5%
EAF	$11.34	$12.49	$0.00	10.1%	1.5%
TGNA	$15.83	$15.39	$0.00	-2.8%	1.5%
Totals				2.1%	1.5%

DXC was actually my last pick.  But plenty of time left.  Nice start for EAF!

April 27th 2018 MFI Tracking Portfolio Finalized

April 27th 2018 MFI Tracking Portfolio Finalized

Here at MFI Diary, we create a hypothetical portfolio (top 50 stocks greater than $100m) once a month.  We then track how that hypothetical portfolio does over a year.

We have been do that since January 2006.  It is a lot of effort on my part and it is proving that MFI at this lower end of market caps really doesn't work very well.

I am starting to capture top 50 greater than $1b and $3b to see if that improves things a bit. Frankly can't be much worse.  It is so distressing, I am not even going to chatter or comment as I usually do.  just say to yourself,  blah, blah, blah... this is bad again.

Stock	Initial Price	End Price	Percent Change	Mkt Cap
ZYXI	3.04	5.57	83.4%	102
NTRI	27.97	42.90	53.4%	858
TGNA	10.46	15.92	52.2%	2,303
MSB	20.40	29.55	44.9%	302
SYNT	28.99	41.00	41.4%	2,405
CERC	4.05	5.44	34.3%	127
CJREF	4.36	5.68	30.4%	1,031
DISCA	23.95	30.90	29.0%	13,604
KLAC	99.32	127.48	28.4%	15,963
ESRX	77.21	95.80	24.1%	43,577
LEE	2.30	2.80	21.7%	131
AGX	39.81	47.82	20.1%	634
EGOV	14.59	17.26	18.3%	987
OMC	71.47	80.03	12.0%	16,778
VEC	36.56	40.55	10.9%	407
AMCX	53.23	58.41	9.7%	3,252
MSGN	21.60	23.03	6.6%	1,626
MPAA	19.40	20.66	6.5%	370
PTN	1.18	1.24	5.1%	231
AMGN	172.36	179.32	4.0%	118,153
MO	53.10	54.33	2.3%	106,142
BPT	20.10	20.35	1.2%	495
UIS	11.45	11.21	-2.1%	578
SP	35.70	34.52	-3.3%	794
VIAB	29.91	28.91	-3.3%	12,380
RPXC	10.97	10.48	-4.5%	544
EGRX	53.99	51.41	-4.8%	862
HPQ	21.03	19.95	-5.1%	35,073
AEIS	60.94	57.76	-5.2%	2,413
UTHR	110.40	102.57	-7.1%	5,052
GILD	71.41	65.04	-8.9%	96,535
IDCC	73.54	65.39	-11.1%	2,596
BIIB	276.80	229.24	-17.2%	58,266
ABC	91.42	74.76	-18.2%	20,336
QTRH	1.49	1.10	-25.9%	183
GME	12.40	8.65	-30.3%	1,408
NHTC	17.46	11.56	-33.8%	209
WDC	77.73	51.12	-34.2%	24,911
EVC	4.56	2.87	-37.0%	434
TVTY	36.60	21.62	-40.9%	1,458
TRNC	18.36	10.76	-41.4%	618
MIK	19.29	11.24	-41.7%	3,509
SRNE	6.30	3.65	-42.1%	522
TUP	42.56	23.80	-44.1%	2,322
CNCE	18.70	10.28	-45.0%	459
SQBG	1.92	0.93	-51.6%	121
ACOR	23.40	10.45	-55.3%	1,083
NLS	14.60	5.35	-63.4%	442
MDCA	7.45	2.10	-71.8%	435
FTD	6.50	0.72	-88.9%	180

15 stinker stocks losing 30% or more.  I have shown that the stinker rate over time is closer to 15%... so 15/50 is 30%. Yikes!  And it is not like the overall market was down (up 10.7% versus atrocious MFI of -6.7%).

Here are all the months:

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%	31.2%	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	9.8%	7.0%	1
12/29/2017	-3.4%	-5.4%	1
1/26/2018	-7.5%	-5.6%	0
2/23/2018	0.4%	3.7%	0
3/29/2018	-3.0%	8.5%	0
4/27/2018	-6.0%	10.7%	0
5/25/2018	-8.9%	8.1%	0
6/29/2018	-6.8%	7.9%	0
7/27/2018	-5.4%	4.4%	0
8/31/2018	-7.4%	0.9%	0
9/28/2018	-8.6%	0.7%	0
10/26/2018	1.0%	11.0%	0
11/30/2018	-2.1%	6.7%	0
12/31/2018	11.0%	17.5%	0
1/25/2019	-0.6%	10.0%	0
2/26/2019	-6.4%	4.4%	0
3/29/2019	1.8%	3.2%	0

I am too lazy to do the math, but all open 11 portfolios are trailing and the margins are pretty wide.  Clearly we should all just buy Amazon and Google stock and never worry again.

Dividend Subset

The only saving grace is if you pick stocks with a 2.6% dividend or higher.  They continue to do relatively well.  That was the case here again, they were up a respectable 7.7%.

Here is what a $100,000 invested in 2006 would be worth today.

Category	Value
Total	216,588
Total Russell 3K	291,307
Dividend	549,969

'

You can see the Russell 3000 is starting to pull away from MFI in total.  But if you picked MFI that paid a dividend of 2.6% or higher, you'd be in a much happier place.