Contest Update

The stock contest I started last July is almost 10 months mature. The stocks are making a minor comeback. The average portfolio is down 14.5%. The benchmark Viper portfolio is down 5%. We do have 4 people in the black, an impressive achievement.

Ronrego	TGIS	877	-78%	2,236
Ronrego	tbi	426	-46%	5,423
Ronrego	PCU	100	24%	12,430
Ronrego	EGY	2,036	34%	13,377
Ronrego	BEBE	602	-36%	6,405
Ronrego	PBT	747	113%	21,354
Ronrego	CHKE	270	-17%	8,424
Ronrego	ALOY	1,000	-30%	7,000
Ronrego	AVCI	1,335	-3%	9,639
Ronrego	FDG	305	96%	19,552
Ronrego	GYMB	254	6%	10,500
Ronrego	NOOF	1,147	-36%	6,417
Ronrego	GNI	86	9%	10,864
Ronrego	DPZ	548	-28%	7,151
Ronrego	FCGI	1,053	37%	13,678
Ronrego	Totals			154,779

TedW	TCK	223	7%	10,733
TedW	vphm	684	-35%	6,484
TedW	EPIQ	597	-1%	9,851
TedW	FCX	113	30%	13,039
TedW	DPZ	531	-31%	6,930
TedW	MRO	157	-22%	7,773
TedW	PBT	742	112%	21,212
TedW	IVAC	447	-22%	7,778
TedW	BPT	133	43%	14,215
TedW	AXCA	522	22%	12,183
TedW	PTEN	392	17%	11,729
TedW	FTO	215	-42%	5,779
TedW	RAIL	198	-25%	7,506
TedW	KG	479	-57%	4,321
TedW	EGY	2,008	32%	13,193
TedW	Totals			153,974

traehnam	PCU	103	25%	12,803
traehnam	JAKK	347	1%	10,025
traehnam	HOC	131	-39%	6,090
traehnam	AXCA	527	21%	12,300
traehnam	ASPV	548	45%	14,237
traehnam	WNR	166	-79%	2,050
traehnam	XOM	117	11%	11,121
traehnam	EPIQ	605	0%	9,983
traehnam	BBSI	380	-31%	6,848
traehnam	BPT	135	44%	14,428
traehnam	CHKE	272	-15%	8,486
traehnam	FDG	289	85%	18,526
traehnam	HAS	311	0%	9,961
traehnam	ABC	199	-15%	8,431
traehnam	FTO	216	-42%	5,806
traehnam	Totals			151,427

AK	WDC	460	39%	13,478
AK	TCK	200	8%	9,626
AK	THE	200	-1%	9,710
AK	GW	1,200	-6%	9,120
AK	BPT	130	42%	13,894
AK	BJS	350	16%	11,676
AK	LUFK	150	15%	11,714
AK	LRCX	200	-17%	8,570
AK	PTEN	400	17%	11,968
AK	AEO	400	-36%	6,796
AK	TSO	180	-52%	5,094
AK	XRTX	450	-9%	9,446
AK	Totals		#DIV/0!	150,898

If anyone cares, here is my portfolio:

marshgerda	PMTI	273	-64%	3,582
marshgerda	valu	222	1%	10,234
marshgerda	IVAC	451	-22%	7,847
marshgerda	AEO	389	-34%	6,609
marshgerda	MOCO	869	-8%	9,177
marshgerda	RAIL	203	-25%	7,696
marshgerda	SHOO	307	-46%	5,376
marshgerda	HLF	248	23%	12,303
marshgerda	LXK	201	-30%	6,975
marshgerda	ASPV	569	46%	14,783
marshgerda	PACR	420	-17%	8,287
marshgerda	UG	785	-6%	9,444
marshgerda	PBT	769	120%	21,983
marshgerda	USHS	1,078	-63%	3,665
marshgerda	ICFI	482	-9%	9,163

marshgerda	Totals		#DIV/0!	136,534

marshgerda	Totals		#DIV/0!	136,534

Laying Down

I almost had a moment of weakness this morning. I saw that TPX was going to announce their earnings after the bell this evening. I have had so, so many stocks gets crushed recently post earnings, who could blame me for being gun shy? In addition, they do have that four letter word: debt.

But I did a little reassuring research. Of course it is easy to bias your research and focus on that which agrees with you. The first point was that S&P had recently (in March) downgraded them to stable. Now stable isn't the best (I think positive is) but it does mean S&P had kicked the tires (pretty hard, as I know from experience) and at least thought things weren't terrible (S&P Moves Tempur-Pedic Outlook to Stable).

The other comforting thought was that two hedge funds recently took major positions in TPX and they were funds that knew the company and management well... so I assume they were "informed" buyers. After that, I decided to stand pat.

And it appears to be a good move (Tempur-Pedic Reports First Quarter Earnings). While TPX did not exactly have a "Google" moment, expectations were so low that the stock moved up 10% in happy hour trading (granted not the most reliable market). They said they expect to earn $1.20 to $1.45 next year... that is not a disaster in a down market for a $12 stock.

Tomorrow may be interesting. 35% of the stock is short. It wasn't a blow out, but it isn't a blow-up... I don't think I'd want to be short.

Not much other news. In the past two days PRLS has gone from a low of $1.95 to $2.15. I do think they'll start moving towards $2.85, which is my back of the envelope value. Being a WiNeR about WNR yesterday seemed to have worked... the stock was up 3.25%.

That is a wrap. Go out tonight and buy a comfortable Tempur-Pedic mattress., and tell a friend as well. I know firsthand that they are super-duper.

LSR

My MFI investing world is littered with stocks that have imploded. One of note is WNR, which clearly does not stand for "winner". I bought them last August when the long painful slide started around $52. Today they closed under $12. They are no longer on the MFI lists, but I thought it'd be interesting (in a hypothetical way) to see what happened.

I first noticed WNR (Western Refining) in October of 2006 when it was trading under $19 a share and had a lot of insider buying. The stock was in many of my tracking portfolios and virtually tripled by the summer of 2007 to over $60. It was still on the lists when it dropped in August around $50, so I bought it... sigh.

I don't know exactly where they went wrong, but I suspect it was the purchase of Giant Industries (GI). This was another refiner, and WNR bought them when refining was a bit out-of-favor, so I was thinking it might have been a cheap price.

Of course, with the purchase came debt, a four letter word in today's world if there ever was one. About $1.5b in round numbers. Right now, that debt is costing WNR about $100m a year in interest. That seems pretty "cheap", I haven't done any research to see if that was a "teaser" rate.

The problem is that so far they haven't had a whole heck of a lot to show for that debt. Their run rate of revenues pre-merger was around $4b a year. Now it has more than doubled, to say $9b. But the margins have been squeezed. In 2006 they were making about 7 or 8 cents for every dollar of revenues. In the 3rd quarter of 2007 it had dropped to a mere 4 cents and then in the 4th quarter it was under a penny! Think about that, $2.4b of revenues and they made $17m in operating income before depreciation. It doesn't take a rocket scientist to figure out that $17m isn't even going to cover the $25m of quarterly interest expense.

Now I have to believe this is a temporary problem. Other refiners don't have such a tight margin. HOC made over a nickel per $1 of revenues in the 4th quarter, FTO made over 9 cents (wow!) and TSO made just a penny... so it is clearly a function of what kind of oil you're refining and your location.

It is important to note there is seasonality in refining margins, the two upcoming quarters are typically the best. I don't think WNR is not going to be able to service their debt over the year. But it was telling today when HOC and FTO were up over 4% each today for me and WNR was down 1.6%.

Let us look at what they said last quarter:

“We have taken a number of actions to improve the Yorktown and Gallup refineries so that the safety and reliability at those facilities are more consistent with our El Paso refinery. We have also implemented numerous operational changes at the former Giant refineries that will lead to improved performance.”

Actions taken to improve performance at these facilities include:

• Improved Coker operations at Yorktown to 21,000 barrels per day, an increase of about 17% over historical operations. Improving the utilization of the coker will allow for additional processing of heavier crudes;
• Renegotiated and/or terminated higher-cost feedstock agreements. For example, in early 2007, Giant entered into a fixed price ethanol supply agreement for all three of its refineries. This contract was recently terminated and we estimate, based upon ethanol spot market prices in the fourth quarter, that we will reduce ethanol costs by approximately $7.0 million per year at these facilities;
• Hired new refinery managers for both Yorktown and Gallup; and
• Transferred maintenance and engineering personnel to Yorktown and Gallup from the El Paso facility.

Reading between the lines, it seems that things were not going smoothly at Gallup & Yorktown. What to expect for the 1st quarter? I think things will be better, but not stellar. The refining Margin website I track showed mid-co, gulf coast refining margins up 20 to 30% in the 1st quarter. If we assume that WNR can get to 2 cents per dollar that would at least allow WNR to service the debt. I think the other wild card is S&P. They have placed WNR on negative credit watch. I don't know what the covenants of their loan are, but in some loans the creditors can make things unpleasant for you if your rating drops below a certain point. And I don't think I need to tell anyone that this is not the best credit market to be out with hat in hand. I wonder if they have anything that can be sold?

If they can ride out the poor quarters, the 2nd quarter looks much more promising as margins are up at least 50%. Stay tuned.

Addendum: I did skim their 10K. A downgrade by S&P could really hurt. They have a revolving credit facility to buy the oil which they in turn refine. A downgrade could cause that to be more expensive. And they also have covenants on their 1.5b loan. Not meeting certain financial ratios could cause the maturity of the loan to be shortened. I don't think that would be very positive (understatement)

Does MFI Still Work?

I think it is a fair question. I know JG told us to give it 3 to 5 years, but I am getting so far behind that I am not convinced that I'll be ahead in 3 to 5 years. I know the mantra, "buying good companies that are cheap." But I am here to tell you that some of these companies have not been good nor in hindsight, cheap.

CROX was the latest value trap. I did not buy them as I felt they were a fad. But they appeared on the list in early March by my reckoning. Today they dropped a mere 43%. NVTL, another recent top stock dropped 22% today. Last month there was JTX and TGIS. The month before IAR. It gets a little disheartening to continuously see MFI stocks in the worst 20 performers of the day. Picking from the list is starting to feel like running through a TNT factory with a match.

Of the monthly tracking portfolios I started keeping in January 2006, the MFI portfolios have been steady losers thus far. I think MFI won the first 9 of 10. But is losing or has lost the past 20. And not to twist the knife, but MFI has had the "advantage" of excluding financials which have most likely been the worst performer in any index over the past 9 months.

I am not "giving up" and I sincerely hope to be proven wrong. But I think the question has to be asked. What does the peanut gallery think?

Correction

I did underwtate how the magic diligence picks have performed. I had BBBY down 10%, when they are actually up slightly.

Symbol	Shrs	Price Paid	Trade	Gain/Loss
-	27-Mar-08	33.86	29.53	1,124.21$1,124.21	ACN	29.53	33.86	38.07	124.32 $124.32	12.43%
-	27-Mar-08	17.62	56.75	1,145.21$1,145.21	AMAT	56.75	17.62	20.18	145.28 $145.28	14.53%
-	27-Mar-08	46.77	21.38	940.29$940.29	AMGN	21.38	46.77	43.98	-59.65 $59.65	5.97%
-	27-Mar-08	29.15	34.31	1,017.98$1,017.98	BBBY	34.31	29.15	29.67	17.84 $17.84	1.78%
-	27-Mar-08	18.01	55.52	978.26$978.26	BBSI	55.52	18.01	17.62	-21.65 $21.65	2.17%
-	27-Mar-08	40.84	24.49	1,030.78$1,030.78	BBY	24.49	40.84	42.09	30.61 $30.61	3.06%
-	27-Mar-08	12.76	78.37	866.77$866.77	BVF	78.37	12.76	11.06	-133.23 $133.23	13.32%
-	27-Mar-08	20.56	48.64	912.97$912.97	DELL	48.64	20.56	18.77	-87.07 $87.07	8.71%
-	27-Mar-08	17.27	57.9	1,052.04$1,052.04	EPAX	57.9	17.27	18.17	52.11 $52.11	5.21%
-	27-Mar-08	34.91	28.64	1,081.73$1,081.73	GGG	28.64	34.91	37.77	81.91 $81.91	8.19%
-	28-Mar-08	28.20	35.46	1,077.63$1,077.63	HAS	35.46	28.20	30.39	77.66 $77.66	7.77%
-	27-Mar-08	36.73	27.23	1,263.20$1,263.20	HURC	27.23	36.73	46.39	263.04 $263.04	26.30%
-	27-Mar-08	22.13	45.18	599.09$599.09	JTX	45.18	22.13	13.26	-400.75 $400.75	40.08%
-	27-Mar-08	16.44	60.83	1,113.80$1,113.80	RECN	60.83	16.44	18.31	113.75 $113.75	11.37%
-	-	-	0.03	$0.030.03	$$CASH	0.03	-	-
				14,204.00$14,204.00	Total				204.18 $204.18	1.46%

Peerless Revised Formula

First the Peerless part of this blog. Peerless (PRLS) reported their earnings this evening (Peerless Systems Announces Fiscal 2008 Fourth Quarter and Full-Year Results). I thought the numbers were strong, and I see where they're up 6% in after hour trading (pass me a gin and tonic while I buy some PRLS!). More importantly, they announced that shareholders will be voting on the sale of a chunk of the company to Kyocera-mita. This deal would net PRLS about $40m (pre-tax). They have $23m in cash right now, so you gotta believe they'll have north of $50m post the sale. Yet their market cap is under $40m. A real head-scratcher. I guess the market doesn't have confidence that they'll use the money wisely (let's party!) or I am missing something.

Now the Revision Part.

Improvements to the “Formula”.

Not sure if it’ll help us get better results, but we should come closer to matching the website. KD on the Yahoo! Boards had taken the formulas I had posted (which I had pretty much copied from Tony Brake) and made a few slight tweaks to get much closer to the website. The big change has to do with cash. I had toyed around with a very similar change as I was concerned that at time invested capital could get very close to zero, which didn’t make any sense.

The key is to split cash into two components, which I’ll call working cash (which will be part of invested capital) and excess cash (which will be part of the calculation of enterprise value.

The calculation for working cash = (accounts payable + other current liabilities) – (receivables + inventories + other current assets) subject to a minimum of $0.

If you stop and think about it, it makes sense. If you don’t have enough current liquid assets to meet your current liabilities you have to supplement with “working” cash. Of course the beauty of this change (if you think about the math briefly) is that invested capital can now never be less than Property, Plants and Equipment, which seems sensible. Before this change, I defaulted invested capital to PPE when less than zero, but this makes more sense.

KD also had several other smaller changes. He gets his market cap from another source (I use Yahoo). I have had trouble tying to the market caps in the website so I’ll keep using Yahoo until convinced otherwise. His final comment was that he matched better not adjusting for minority interest – income account. This doesn’t come up very often. But as that income is not available to the stockholders, I’d rather keep pulling it out (unless somehow in his market cap he increases for minority interest). Anyway, in total I feel we’re closer than ever.

So here is the new and improved formula:

		hsii
+	Operating Income After Depreciation	71.83
-	Minority Interest - Income Account	-
=	Income for Calculation	71.83
	Market Cap Yahoo	572,390
	Share Price	33.13
+	Market Cap Calc	572.39
+	Preferred Capital	-
+	Short-Term Borrowings	-
+	Long-Term Debt	-
	Cash and Short-Term Investments	218.24
-	Excess Cash	164.19
=	Enterprise Value	408.20
+	Property Plant and Equipment - Net	18.12
+	Receivables	131.49
+	Inventories	-
+	Other Current Assests	31.57
+	Working Cash	54.06
-	Accounts Payable	7.09
-	Current Liabilities - Other	210.03
=	Invested Capital	18.12
	Earnings Yield	18%
	ROIC	396%
	note: working cash = Current liabilities - Current Assets (x PPE), subject to a min of $0

New Stocks

Probably just chance, but I noticed a pattern today that stocks new on the top 25 list in 2008 have done very very well. I pull in the top 25 list greater than $1m pretty much every Monday morning. I then marked stocks that came on the list sometime in 2008 and had not been on the list in 2007. Here are some off the top of my head:

AIRV
DEPO
CAST
NTRI
IUSA
DLX
MRX
GHM
IGC
TIRTZ
PCR
BVSN
CITP
DTPI
LGTY
NVTL
PRXI
VRGY

I am sure I have forgotten a few, but on average, these stocks are up 12% from when they hit the list. The average stock has been on the list for 2 months, so that is a pretty snappy return. I remember a bunch of people pooh-poohed IGC when it came on the list saying it wasn't a real company. Guess what? That non-real company is up over 25%.

I saw today where Hilary Clinton is pushing to penalize companies avoiding taxes by being in Bermuda. My first thought was whether that would impact ACN as they are headquartered there (I suspect she won't be the last candidate to make that pitch). But ACN seems to pay its fair share of taxes.

Most Relevant Name - I saw a new stock on the lists today (not sure if new or if I just noticed it). LQDT. Their full name? Liquidity Services! I don't know why Bear Stearns and all these other liquidity strapped firms didn't call LQDT to solve their problems! Of course I am being facetious, they are a software firm... no help for Jimmy Cayne and his bridge playing buddies.

Finally, I saw where Steve Alexander (running the Magic Diligence site) has announced he will start charging for his advice. He does a nice job summarizing his picks and I am sure it takes some time and effort. Probably a little early to say whether he is any better than picking randomly. I have tracked his top buys (I do not sell when they drop off as that is not the MFI way) and he is slightly underwater. JTX (-39%), BVF (-14%), BBBY (-14%) and AMGN (-11%) have been a drag on his better picks of HURC, RECN and AMAT. Two and a half months is too early to judge obviously. But for me too early to pay as well. But I wish him well! I appreciate the entrepreneurial spirit. I am keeping my day job though. Very necessary as have to write my "uncle" some big checks this month.

I'm Back!

Back from my spring vacation. It was nice, though a few problems with American Airlines and mechanical problems. Ended up spending two nights at JFK and reading a lot of books. Didn't have a lap top with me. Read a great book called Freakonomics which I may refer to from time to time here.

The good news is that while I was gone, my stocks did stage a mini-recovery. Still way-way underwater but a baby step in the right direction. Let's browse a few headlines.

CHCG - announced today that they will be partnering with Wal Mart in China (

China 3C Group Enters into Supply Agreement with Wal-Mart Stores in Zhejiang Province

). They said it would not be material right now, but it does show that they are a company to work with in China. The stock went up 24% today on the news. I was looking today at this stock in the MFI list, their earnings yield (before today) was 80%! That is getting to the point of ridiculous. CAST is another Chinese company that is ridiculously cheap, their price is like $4.10 and I think they have $3.80 in cash. I might be able to buy the entire company just using my IRA.

TPX - first Barron's announced that several big funds who are very familiar with TPX
(Buyers Put Money in Mattress Maker) bought big shares. Then after the bell today Sealy's had positive news (Sealy Q1 profit tops Wall Street; shares jump). Things can not stay horrible forever.

NTRI - I don't own this stock, but they actually dropped for the first time ever to the top 25 list (that I recall) while I was on vacation. They promptly (on cue?) went up 24% today on positive outlook (NutriSystem shares jump 24% on CEO move, sales outlook).

I think some of the recent pops in stocks is showing that some MFI stocks have reached bottom. We'll see.

I think

Trudging Along

On vacation right now, but thought I'd type in a quick entry while the munchkins sleep. Yesterday was a terrific day and hopefully the inflection point we've been waiting for.

I did buy two new stocks on Friday before I left.

MRX - this is a specialty pharamceutical company that is extremely cheap and seems to still be up beat about their prospects.

TPX - this is the mattress company where a director bought several million shares recently. I got a great pop (over 10%) on them yesterday, so I am hopeful that I am on a good train here.

I was on the wrong end of a hard lesson with IAR this past week. I should have probably broken the rules. When a dividend stock stops paying a dividend (and has a fair amount of institutional ownership), many of them have to sell the stock as it no longer meets their profile. Seth Klarman actually talks about using this as a way to identify oversold stocks. Anyway, post their announcement, IAR went from $5.22 to 3.64. They bounced back yesterday to 3.99. I should have sold and then bought back in, as it was pretty clear this was going to happen as the stock changed direction.

ACN was a real puzzler. Despite their fabulous earnings report (in my eyes) and a 46 point day and a 390 point day this week, the stock has barely moved the needle, going from 35.45 to 35.87. I guess their was something the brilliant minds on wall street didn't like about exceeding estimates, growing revenues by 18% and giving higher guidance for 2008. I expect they were hung up on margins.

I haven't had great luck thus far with the Magic-Diligence website. I have picked two stocks because of it, JTX and BVF... they have both struggled. But I expect they'll both recover somewhat in the next 10 months. I did set up a portfolio to track his picks in Yahoo.

Still have a lot of ground to make up. Tonight though am taking the family to see the Dallas Mavericks. My 10 year old son is extremely pumped. We have great seats, about 15 rows at center count.

Good News for a Change

ACN reported earnings after the bell this evening. The expectations were that as we head into a recession that consulting will be used less. They had a real wind at their back with the USD getting weaker. Revenues were up 11% in local currencies and up 18% in USD! Here are some headlines:

• Accenture Reports Strong Second-Quarter Fiscal 2008 Financial Results
• Accenture Raises '08 Profit Target
• Accenture quarterly net income jumps 37%

Sounds good to me! Should see some movement tomorrow.

I do wonder about JTX a bit. This is a stock that is probably down close to 50% in the past month or so. They had a poor first quarter, which included January... traditionally the kick-off of tax season (I am still working on mine). Now the million dollar question is whether that was caused by people procrastinating or by people moving to other means of doing their taxes? I don't know the answer to that, but I do wonder whether the proposed government rebate program will cause more people to use tax preparers like HRB and JTX (as you have to have filed a return to qualify for the rebate). Does that make JTX a buy at $11.03? I think so.

Now I have a bone to pick with IAR. I admit this was one of many poor stock picks I have had in the past year. I hope no one followed my lead. Today they announced they are suspending their dividend (UPDATE - Idearc to suspend dividend payment; shares fall). Now that should not be a big shock to anyone. Right now the emphasis needs to be on meeting debt payments. They did say revenues were down single digit and margins had lowered ( Idearc Executive, at Credit Suisse Conference, tells investors underlying business fundamentals sound). The stock sold off about 9%, probably an over-reaction... but what are you going to do. My "bone" is that they announced these major revisions in a conference in the middle of day. It didn't impact me, as I have already bought and will be holding for another 8 months. But that seems to give people at the conference an unfair advantage. Something like this should be announced before the opening bell.

Here is the chart showing the people close to the event probably were able to steal a march on suckers not there:

IDEARC INC (NYSE)

Range: 1d 5d 3m 6m 1y 2y Type: Bar | Line | Cdl Scale: Linear | Log Size: M | L

Compare: IAR vs S&P Nasdaq Dow

Tomorrow I head off for a week of vacation. I'll probably try to ignore my blog, the yahoo groups board and the stock market. That should be healthy.

Tracking Scorecard

Tonight I will devote my blog to the monthly tracking portfolios I have been running since January 2006. These portfolios have almost entirely been 50 stocks at 101m or greater market cap. I did have one or two early that were just 25 and I did have several with smaller market caps. That should do it for the introduction, on to the scorecard!

First a graph showing the distribution of actual annual returns of stocks that have closed. This is about 775 stock years with an average return of 9.9% and standard deviation of 41%. To read this chart, it shows the midpoint of a return range and then the proportion of stock years in that range. So the 15% return really means 10 to 20% return and about 11% of the stock years are in that range.


Now this table shows stock year returns by market cap decile. This table shows that there is a strong correlation between market cap and return so far. Somewhat interestingly the standard deviation (ie "risk") seems fairly constant from decile to decile.

Size Decile	Gain	Max MC	Stdev
1	11%	212	57%
2	2%	329	31%
3	-2%	412	37%
4	-4%	573	40%
5	9%	805	32%
6	4%	1,012	42%
7	12%	1,686	43%
8	28%	3,211	33%
9	14%	5,957	37%
10	25%	117,016	39%
Overall	10%
Correlation	0.71

The final score card shows a distribution of results assuming random portfolios. So if you had held a portfolio of 30 stocks, you'd have a 9% chance of being under water. You'd have a 26% chance of being at a 5% gain or less... those good at math will realize that means the probability of being between 0% and 5% is 26% - 5% = 21%. What you will notice when reviewing the table is the more stocks you have held, the "tighter" the distribution, meaning you are more likely to be clumped about the mean of 10%. Clear as mud I am sure.

	10 Stocks	20 Stocks	30 Stocks
Losing Money	23%	14%	9%
Less than 5%	37%	30%	26%
Less Than 15%	67%	71%	76%
Less than 20%	33%	29%	24%
Less than 25%	88%	94%	97%
Less than 30%	93%	98%	99%
More than 30%	7%	2%	1%

Good Buy to TGB

I sold TGB today. It was a double for me. I bought them at $2.50 and sold at $5.49. I think it got well above $6 back in the go-go days in October. Still, can't and won't complain. They are off the list and so I am moving on. They may still have upside as they did increase their reserves substantially during the year.

I am beginning to wonder if I'll ever be able to sell VALU. It is one lightly traded stock. It often has a dollar spread between the bid and the ask. Another lightly traded stock is UG (what was I thinking buying a stock with that name?). They announced earnings today (United-Guardian Reports Substantial Earnings Increase). With that announcement (which was very confusing as they said nothing about the past quarter) they traded a grand total of 6700 shares. Oh well, I have a couple more months on both those names.

With TGB moving from open to closed, my best open stock is now VSNT, up all of 27%. It was up over 50% at the start of 2008. MSTR is another software company that was up 50% for me and is now up 7% (which I am thankful for, trust me). Only 8 of my 33 holdings are in the green. But Cramer says we have seen the bottom... so no need to worry!

Insider/Guru Buying

One change in my strategy of late is to give more consideration to what insiders and gurus are doing. I subscribe to GuruFocus.Com which tells you recent buys by a list of gurus. Based upon that, I bought ELOS recently (Guru=Seth Klarman). Of course I bought ODP after Greenblatt bought it. Then I bought HBMFF as Jim Jubak added it to his portfolio. I almost bought COH last week, when I saw their CEO backed up the truck. Since then it has gone from $27.81 on Wednesday to $32.78 today.

Are there other choices out there? Well, chew on this. Post TPX having sub-par earnings, Director Christopher Masto bought over 4 million shares last week around $12 a share. That is $40m+... not sure how much money Mr Masto has, but that is not a small bet.

USMO was bought by its CFO recently. It isn't on the list right now, but I think that is simply a data issue as they just came out with quarterly earnings.

Outside of MFI, I just bought a big chunk of ACF at a bit over $11. Ian Cummings has been buying it by the bucket full. I don't think you can go too wrong by following his footprints.

I see today that BVF is in the news on a negative watch today. This is old news and should not impact the stock that much going forward. It does illustrate they used to be run by crooks (in my opinion).

Looks like today will be a strong day.

Best Day Yet

I think today may have been my best day yet. Overall up 4.1%. Of course that is on the heels of a dreadful 9 months and the 4.1% was pretty much in line with the broader markets. Still I can not deny that it felt good to have a day in the green.

IAR was up 18.7%
HGG was up 11.6%
JTX was up 9.8%
BBSI was up 8.1% and the list goes on.

HBMFF eeked out a minor gain post their earnings this morning, which as mentioned had so-so earnings today. They might fall off the list entirely.

USHS announced their earnings this evening (U.S. Home Systems Reports Fourth Quarter and Full Year 2007 Financial Results). They are clearly no longer an MFI stock as they are not making money... but I don't think the floor will fall out further than it has already. I still have about 2 months left to hold them.

CHCG was my one loser today, down another 17% on the heels of their 38% drop on Monday.

I am considering buying another stock. COH, DELL and TEX are on my short list... I am looking at fewer small cap stocks.

Good news, the refiners which have really been beaten down did recover a bit today. Oh well, I am going to watch American Idol.

No Black Monday Replay

I was wondering yesterday if we were going to have a replay of the black Monday in Oct of 1987 (I am old enough to remember). We didn't. Still, not a great day for many MFI stocks, including ones I own.

CHCG announced their earnings (China 3C Group Reports Fourth Quarter and Full Year 2007 Financial Results). While they made 47 cents per share in 2007, they said 2008 would be a "transitional" year and they would make less. Ai-yi-yi, talk about being thrown to the wolves. CHCG ended up down 38%. I have had quite a few of these fiascos of late. I know it is because I have too many microcaps, but still you'd expect some to have good news and go up a ton.

HBMFF announced their earnings after the bell (HudBay Reports Fourth Quarter and Annual 2007 Results). Not sure what people were expecting, but bottom line the quarter sucked compared to a year ago (22 cents vs 1.32). This stock was recommended by Jim Jubak because of their strong Zinc holdings. So I am optimistid that they won't get torched too badly today as the value of mining companies is driven largely by what they have in the ground.

I didn't own TPX, but it dropped a bunch yesterday as well and is now $10 from a high of $33. I remember TPX was on the first MFI screen I ever looked at over 2 years ago and I kicked myself many times for not buying it. Now it is cheaper than February of 2006. It has been a testing ride with the MFI formula.

Refiners have been crushed of late. HOC is now down 18% for me and FTO is down 25%. These stocks were double digit in the green less than a month ago. I did find a website That shows refining margins and explains why these stocks are down (Refining Margins)).

Things Can Always Get Worse

Not much to say, it has been a bloodbath in the markets and my portfolio continues to do worse than the benchmarks. I can't even bear to look or print the graphs. If it was possible to drop straight down, that is what you'd see. Not sure what is going to stench the bleeding, seems like every day there is more bad news. Health Insurers like Humana were down a ton this week. Bear Stearns could not even turn the lights on yesterday. I still say the steep decline in our universe of stocks (which thankfully doesn't include financials) is related to all the margin calls out there and the inability of institutions to sell their asset backed securities as credit markets are frozen.

What worried me is when the Fed finishes lowering interest rates, what do they do then? What if inflation really starts to kick up? What if unemployment starts to rise faster (seems possible). Then the Federal budget is spiraling out of control.

I did sell DGX this week. It ended up down about 10% for me, which sad to say makes it a great stock. I replaced it with ELOS. This is a stock that Seth Klarman has been buying actively and one of the few stocks that was actually upbeat about 2008.

I saw in Barron's where the CEO of HGG bought shares ( HHGregg Head Buys Despite Sector Softness). That makes me feel good.

Stocks with debt continue to drop. IAR is now down 65% for me and WNR is down 69%. Ouch.

I will get some excitement on Monday. CHCG will be having their earnings call first thing in the morning. I think the market realizes that they have sold the stock off too far. CHCG was just over $1.80 on Tuesday (which was the 441 point day) and rose to $2.27 by Friday. Even with the rise, I am down over 50% from when I first bought them. I do believe that they could still quickly double with some positive earnings as they should be a little more immune than other stocks to the US downturn. They did re-affirm guidance (China 3C Group Reaffirms Fiscal 2007 Financial Estimates). They expect to earn 43 to 47 cents in 2007 (at a price of $2.27) and they are growing!

VALU announced their earnings in their typical poorly formatted release which provides no color at all (Value Line, Inc. Announces Third Quarter Earnings). Still they were up 18% over last year, which might get them close to where I bought them.

BVF had their earnings call this week as well (Biovail Reports Fourth Quarter and Year-End 2007 Financial Results, Provides Strategy Update). After a zillion adjustments, they had an ok quarter. They in a state of transition (like so many of my stocks). I am starting to 2nd guess my purchase of them, but oh well.

KSW also had a decent quarter (KSW Reports Record 2007 Profits and Record Backlog). They have a strong backlog and pristine balance sheet. At under $6 they are so very cheap.

I feel better, while it has been a bloodbath I do truly believe I have some good stocks at cheap prices. Sooner or later the pendulum will swing back.

Tough Sledding

Things are never so bad they can't get worse. The stock market and my portfolio got crushed last week. Hard to believe, as I have had plenty of bad weeks since July, but this was the worst week to date. Sometimes I feel snakebit. I bought JTX and then the very next day they announce earnings with revenues down 15% (Jackson Hewitt profit falls 34% on slow start to tax season). The stock proceeded to drop 39% in the week. I guess the good news is that I have virtually a year to recover.

It is hard not to feel snakebit, same thing happened with ODP. But realistically, we all should realize that stocks don't go down because we buy them. I have just had a bad run.

Of the 20 stocks that I have bought (and still own) since September, only 2 are in the black (PACR & SIMG). AXCA also went up nicely, but I sold when they were taken over.

I do think I understand what is happening to some extent. There has been so much turmoil in the credit markets that highly leveraged hedge funds are desperate for cash to meet their margin calls (Carlyle Fund Misses Margin Calls ) of hundreds of millions or even billions of dollars. They can't sell their bonds as those markets are literally frozen. So they have to sell stocks. And what stocks do they sell first? Ones that had so-so earnings. Smaller stocks. My stocks. At some point, the de-leveraging will end. Everyone should read a great book called "When Genius Failed" about the meltdown of Long Term Capital Management more than a decade ago. We are seeing that all over again, except there are multiple LTCMs around and no one to bail them out. People with liquidity right now have their absolute pick of the deals from these desperate sellers. While it has been painful for me, part of me would like to see the hedge funds get their just desserts as I have always been astonished that people would share 20% of their profits AND pay 2% of invested assets to these people that Warren Buffett lampooned.

There is a TON of cash sitting on the sidelines, just waiting to pounce. When that cash thinks the market has been totally oversold, they will jump in and reap the benefits. The key is to be patient. As George Harrison sang, "All Things Will Pass".

Two Plus Two

I used to watch the "A - Team", a very corny show with Mr. T. They would always have some crazy plan utilizing all their skills. At the end, their leader would say, "I love it when a plan comes together".

Now consider two headlines today on two MFI stocks:

HOC - they talked about higher margins by increasing their usage of cheaper low grade oil (Holly Stock Rises on Margin Expectations). You can read the article, but the key point is they are going to ramp up their usage of lower grade oils from 5,000 bpd to 50,000 bpd. The analyst estimates that would be worth $15 a barrel in higher margins. That seems pretty exciting. In a quarter, if true that would = 15 x 45,000 x 90 = $61m. That is huge. HOC averaged making 110m in operating earnings quarterly in past 4 quarters. Makes you wonder why the stock only went up 31 cents? Now the second headline and the plan coming together.

HW - remember this stock? I have lost a fair chunk of change on HW. But if go back and look at my posts a year or so ago, I mentioned they had a proprietary technology to help refiners use low grade oil more efficiently. Interestingly, they were up 9% today as they had an analyst's day (Headwaters Incorporated Comments on Sixth Annual Analyst Day Conference). Now if you bother to read that link, you'll see them comment on their HCAT technology.

Ready to connect the dots? HW is located in Salt Lake City. One of HOC's refineries is in Salt Lake City. It seems quite clear to me with these two things being on the same day and the two sharing Salt Lake City that they are related. Now if HW has a proprietary technology that can save a medium sized refiner like HOC $240m a year, then what is that technology worth?

Disclosure: I will be buying HW on Tuesday.

I did close and then "re-buy" my JTX position yesterday. At $20.29 it seems so so cheap. I know there are issues with lending the people their money when they file taxes. But I think some compromise will be found and it should not knock over 33% off the value of a company. Taxes seems pretty recession-proof to me.

Finally TCK had some excellent news (Teck Cominco Reports New Billion Tonne Copper Resource at Quebrada Blanca). Now think about that. A Billion Tonnes of Copper. I guess that is a metric tonne. A metric tonne of copper is going for $8000. It will obviously cost $ to mine it, but that seems like it will be worth a lot. I was surprised TCK was only up a couple % on the news.

More on Idearc

IAR got absolutely crushed this week. It went from $6.91 to $4.82, which is well below the $15 price I bought them at in December and much much further below the mid 30s they traded at last summer.

It didn't help that their new CEO, one week on the job, had to resign because of health. And then a major competitor, RHD absolutely imploded this week going from $17.48 to $7.09 on subpar earnings and suspension of their dividend (R.H. Donnelley Delivers Strong 2007 Results and Exceeds Free Cash Flow Guidance).

But I still think the market has way over-reacted to IARs problems. Is there risk? Yes. Is there a reasonable chance of a 100% return in the next 12 months? Yes. Barron's had a great lead story today on companies with heavy debt and suggested there may be some gold in the hills to mine. Listen to what they said:

Idearc: Any stock trading with a P/E ratio of two and a dividend yield of 25% is worth a closer look. Verizon Communications spun off its yellow-pages business as Idearc to its shareholders in 2006 rather than sell to private-equity buyers. Because it viewed the yellow pages as a stable business, Verizon put $9 billion of debt on Idearc, effectively creating a public LBO. That debt is proving a millstone amid a sudden weakening in phone-directory industry trends. The company's CEO resigned for health reasons last week, just a week into the job. Idearc's shares, which hit $38 last spring, now fetch under $5, valuing the company at less than $1 billion. At issue is whether recent troubles merely reflect a weak economy or a permanent shift by advertisers away from print directories. Despite its heavy debt, Idearc isn't going away anytime soon. This year's cash flow is expected to cover interest payments by a factor of two to one. Even with revenue declines in 2008, Idearc should have ample earnings to pay the annual $1.37 dividend. If revenue declines persist, Idearc could cut the dividend in order to focus on debt repayment. With its stock down 75% this year, Idearc could surge on any signs its business is stabilizing. No Safer Choice: Rival R.H. Donnelley (RHD) also has a lot of debt and similar business problems.

I found that very interesting. I did buy two new stocks on Friday: HBMFF and BVF. I also have decided to hold PACR for another year and bought shares to get me to my target holdings. I think the next stocks on my shopping list are DELL and HIRE. I am typing on my new Dell laptop, I think they have really improved their products. HIRE has been just pummeled and interestingly lists CPS (just bought by EFX) as a competitor in screening.

While it wasn't a great week, a bad Friday and I had my travails with IAR... my portfolio actually held up well. Not to say I am ecstatic, but it no longer seems the world is ending. I was really helped by spikes in my HR stocks such as HSII and KFY. I think they'll be placing lots of executives as IAR is showing and then TRID also had their president resign (Trident Microsystems' stock down after president resigns).

I had bought HURC at $35, so I got to enjoy their surge, thought they were not part of my MFI portfolio.

Good luck everyone.