I know it is not summer. But hit 70 a couple days here in New England. That I will say is a fact. Not an alternative fact. Not Fake News, whatever that is.
You have found your way to the MFI Diary. This is my blog where I discuss many things related to "The Little Book That Beats the Market" by Joel Greenblatt. I have been writing this blog since early 2006 and have tracked my performance with real money and tracking portfolios based on the official Magic Formula Investing (MFI) website. I also have created an MFI Index, which is fifty MFI stocks and is reconstituted once a year.
Finally, I should mention that I am just a guy with a spreadsheet. Not a CFA, not an expert... just a guy. So please use what I write for information, but do your own diligence in making stock decisions.
So welcome!
Last Week
Last week was not a particularly good week for me. The issue has been simple, too many of my stock picks have been getting beaten down post their earnings this quarter. The same thing happened last January/February and it is not exactly fun. Sometimes, I even am pretty sure they will get beaten down (like for GNC), but this is (for better or worse) a buy and hold strategy.
Here are my various portfolios and how they have fared in 2017:
| Component | YTD |
| Overall | +4.50% |
| Select | +4.66% |
| Formula | +1.05% |
| Miscellaneous | +12.09% |
| Dividend | +4.55% |
| R3K | +5.75% |
| MFI Index | +1.34% |
Recall that many of these have a significant cash component (say 20%) as I have committed to increasing my investing allocation in 2017. So overall 4.5% - I guess I am not unhappy about that, but am trailing the R3K benchmark at 5.75%.
The MFI approaches are faltering a bit (from earnings as I mentioned). My Select approach is at 4.66%. This is comprised for 4 tranches of five stocks each that I select based really on whatever I want, so sometimes from the offiicallist but also sometimes from my own analysis.
My Formula approach is struggling at 1.05%. This is also 4 tranches of 5 MFI stocks. These are taken from official screen and based entirely on formula and random number generator. MFI Index is not my money, but tracks how you would be doing if just simply bought all 50 stocks on $100m+ screen on 12/31. The answer is kind of mediocre.
The other two items are "Dividend" and Miscellaneous. The dividend portfolio is my approach is build an income stream as I near retirement (am 57). Does not directly have anything to do with MFI. Miscellaneous are just stocks or options that I trade (most active here). It has done well, but should also be understood this is a higher risk portfolio.
MFI Select
This is real money that I invest using MFI principles. I started it in August of 2012. I actually started investing in MFI in early 2006. But I had very mixed success and quit in 2011. A good deal of it was my fault. I broke the rules a lot and also chased too many speculative names (such as Chinese Reverse merger) on the lists. With the re-boot, I have been much more disciplined and more successful.
Here is how I have done assuming I started with $100,000 spread over the 4 tranches month by month:
| Date | Differential | MFI Value | R3K Value |
| 12/1/2012 | -2.20% | 99,765 | 101,965 |
| 1/1/2013 | -1.78% | 102,798 | 104,575 |
| 2/1/2013 | -2.26% | 102,594 | 104,856 |
| 3/1/2013 | -2.23% | 102,881 | 105,114 |
| 4/1/2013 | -0.43% | 106,804 | 107,234 |
| 5/1/2013 | 2.00% | 110,423 | 108,423 |
| 6/1/2013 | 4.75% | 115,831 | 111,085 |
| 7/1/2013 | 4.29% | 114,888 | 110,597 |
| 8/1/2013 | 6.91% | 124,799 | 117,889 |
| 9/1/2013 | 10.46% | 124,536 | 114,079 |
| 10/1/2013 | 19.67% | 138,655 | 118,990 |
| 11/1/2013 | 19.75% | 143,514 | 123,764 |
| 12/1/2013 | 23.70% | 150,105 | 126,405 |
| 1/1/2014 | 26.63% | 157,138 | 130,503 |
| 2/1/2014 | 24.70% | 150,619 | 125,918 |
| 3/1/2014 | 25.66% | 158,116 | 132,458 |
| 4/1/2014 | 30.38% | 162,991 | 132,616 |
| 5/1/2014 | 29.65% | 162,428 | 132,779 |
| 6/1/2014 | 31.44% | 167,001 | 135,559 |
| 7/1/2014 | 39.23% | 177,971 | 138,740 |
| 8/1/2014 | 31.13% | 167,054 | 135,922 |
| 9/1/2014 | 35.90% | 177,792 | 141,892 |
| 10/1/2014 | 29.38% | 168,321 | 138,944 |
| 11/1/2014 | 26.14% | 168,810 | 142,666 |
| 12/1/2014 | 30.22% | 176,420 | 146,198 |
| 1/1/2015 | 28.17% | 174,306 | 146,140 |
| 2/1/2015 | 20.63% | 162,833 | 142,201 |
| 3/1/2015 | 25.15% | 175,476 | 150,324 |
| 4/1/2015 | 29.95% | 178,565 | 148,612 |
| 5/1/2015 | 37.31% | 186,655 | 149,348 |
| 6/1/2015 | 51.53% | 202,897 | 151,371 |
| 7/1/2015 | 62.69% | 211,437 | 148,743 |
| 8/1/2015 | 40.75% | 192,117 | 151,369 |
| 9/1/2015 | 36.41% | 178,603 | 142,195 |
| 10/1/2015 | 43.12% | 181,175 | 138,052 |
| 11/1/2015 | 69.02% | 217,959 | 148,936 |
| 12/1/2015 | 73.49% | 223,435 | 149,946 |
| 1/1/2016 | 63.33% | 209,514 | 146,186 |
| 2/1/2016 | 49.49% | 187,428 | 137,934 |
| 3/1/2016 | 56.48% | 194,415 | 137,934 |
| 4/1/2016 | 47.34% | 195,770 | 148,430 |
| 5/1/2016 | 46.38% | 194,301 | 147,923 |
| 6/1/2016 | 51.44% | 201,999 | 150,558 |
| 7/1/2016 | 50.41% | 201,092 | 150,680 |
| 8/1/2016 | 52.72% | 207,223 | 154,501 |
| 9/1/2016 | 67.04% | 222,481 | 155,446 |
| 10/1/2016 | 42.98% | 198,563 | 155,582 |
| 11/1/2016 | 41.86% | 195,726 | 153,863 |
| 12/1/2016 | 45.92% | 202,775 | 156,859 |
| 1/1/2017 | 47.19% | 209,503 | 162,313 |
| 2/1/2017 | 47.65% | 212,330 | 164,675 |
| Current | 52.23% | 222,023 | 169,797 |
So overall, pretty good. The $100,000 would be $222,023 (which is about 19% annualized IRR). But you will also note I have gone noweher since 12/1/15. Returns can be lumpy, as JG mentions in his book. Also, I had a few picks that really, really helped (actually a couple MLM plays, which I am more hesitant to go with now - NUS and NHTC). A little off topic, but for anyone thinking about buying a MLM stock, I'd advise watching John Oliver's piece.
Next, let us look at my stocks and how they fared.
| Stock | Last Week | Current | Dividend | Change |
| RHI | 48.59 | 47.96 | - | -1.3% |
| ATHM | 33.01 | 33.42 | - | 1.2% |
| CA | 32.09 | 32.63 | - | 1.7% |
| AMGN | 173.29 | 174.56 | - | 0.7% |
| MPAA | 28.99 | 28.37 | - | -2.1% |
| AKRX | 21.78 | 21.28 | - | -2.3% |
| MSGN | 21.40 | 22.30 | - | 4.2% |
| VLO | 65.49 | 66.72 | - | 1.9% |
| BRCD | 12.35 | 12.33 | - | -0.2% |
| YY | 48.05 | 44.82 | - | -6.7% |
| CSCO | 33.74 | 34.32 | - | 1.7% |
| KLAC | 88.46 | 90.29 | - | 2.1% |
| RGR | 49.70 | 49.85 | - | 0.3% |
| GILD | 69.85 | 69.94 | - | 0.1% |
| CBI | 33.95 | 33.87 | - | -0.2% |
| GNC | 7.64 | 8.63 | - | 13.0% |
| WNC | 20.53 | 20.85 | - | 1.6% |
| Average | 0.9% |
Sadly, the best performer was GNC as it is my smallest holding. It bounced as insiders purchased a pretty good chunk this week post dismal earnings. Here are all my open tranches:
| 5/6/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| BRCD | $7.97 | $12.33 | $0.17 | 56.8% | 18.2% |
| CBI | $37.82 | $33.87 | $0.00 | -10.4% | 18.2% |
| HSII | $18.51 | $21.50 | $0.39 | 18.3% | 18.2% |
| RHI | $38.51 | $47.96 | $0.90 | 26.9% | 18.2% |
| UTHR | $107.99 | $146.71 | $0.00 | 35.9% | 18.2% |
| Totals | 25.5% | 18.2% | |||
| 8/15/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| CSCO | $31.20 | $34.32 | $0.26 | 10.8% | 9.8% |
| GNC | $19.79 | $8.63 | $0.38 | -54.5% | 9.8% |
| VLO | $54.73 | $66.72 | $1.30 | 24.3% | 9.8% |
| MSGN | $16.68 | $22.30 | $0.00 | 33.7% | 9.8% |
| GILD | $79.33 | $69.94 | $0.94 | -10.7% | 9.8% |
| Totals | 0.7% | 9.8% | |||
| 11/15/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| MPAA | $26.55 | $28.37 | $0.00 | 6.9% | 9.6% |
| ATHM | $22.61 | $33.42 | $0.00 | 47.8% | 9.6% |
| AMGN | $145.14 | $174.56 | $1.00 | 21.0% | 9.6% |
| RHI | $43.23 | $47.96 | $0.46 | 12.0% | 9.6% |
| CA | $31.11 | $32.63 | $0.26 | 5.7% | 9.6% |
| Totals | 18.7% | 9.6% | |||
| 2/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| AKRX | $19.10 | $21.28 | $0.00 | 11.4% | 3.9% |
| YY | $41.08 | $44.82 | $0.00 | 9.1% | 3.9% |
| KLAC | $85.11 | $90.29 | $0.54 | 6.7% | 3.9% |
| WNC | $17.65 | $20.85 | $0.00 | 18.1% | 3.9% |
| RGR | $52.75 | $49.85 | $0.00 | -5.5% | 3.9% |
| Totals | 8.0% | 3.9% | |||
| Category/Tranche | August | November | February | May | Total |
| Initial Investment | 25,000 | 25,000 | 25,000 | 25,000 | 100,000 |
| Current Tranche | 0.7% | 18.7% | 8.0% | 25.5% | 12.9% |
| Previous Tranche | 2.8% | 8.0% | 10.7% | -25.2% | -2.6% |
| Tranche -2 | 11.2% | 69.4% | -14.3% | 18.3% | 21.2% |
| Tranche -3 | 41.4% | 14.2% | 8.5% | 33.0% | 24.3% |
| Tranche -4 | 14.1% | 43.7% | 78.3% | 0.0% | 34.0% |
| MFI Overall Gain | 85.8% | 256.6% | 98.1% | 47.5% | 122.0% |
| Current Balance | 46,451 | 89,153 | 49,534 | 36,885 | 222,023 |
| R3K Current Tranche | 9.8% | 9.6% | 3.9% | 18.2% | 10.4% |
| R3K Overall Gain | 83.5% | 86.8% | 68.0% | 57.2% | 69.8% |
| R3K Balance | 41,779 | 46,712 | 42,008 | 39,298 | 169,797 |
| Annualized IRR | 14.6% | 34.5% | 18.3% | 10.7% | 19.5% |
So my 4 current tranches are up 12.9% versus 10.4% for benchmark. That is pretty typical when I look at my MFI benchmarking (U'll write a blog post later this weekend about my benchmarking). Three of my four tranches are leading, but am really hamstrung by poor August tranche - which has the GNC stinker. I have written here extensively about how it it most important (in my view) to avoid stinker stocks (say down 40% or more) rather than find great stocks. MFI has more than it's fair share of stinkers. And if you can go from them being 10% of your holdings to say 5%, you will have really helped your performance.
MFI Formula
Ok, same set of tables here. MFI Formula is as it sounds. A formulaic approach to MFI. (I take the 50 stocks over $100m screen, then go with top 2/3s in market cap. I then discard everything that does not have a 2.4% or greater dividend yield. Finally, I allow myself to throw out one more stock and then use random number generator to pick five stocks. I started this in October of 2014 with real money and have also backtested. In backtesting, it worked very well. With real money, it has been moderately disappointing so far.
| Date | Differential | Value | R3K Value |
| 10/1/2014 | 0.00% | 100,000 | 100,000 |
| 11/1/2014 | 1.63% | 102,288 | 100,658 |
| 12/1/2014 | 0.30% | 101,375 | 101,075 |
| 1/1/2015 | -0.33% | 100,664 | 100,995 |
| 2/1/2015 | 1.67% | 101,281 | 99,611 |
| 3/1/2015 | 3.62% | 106,073 | 102,454 |
| 4/1/2015 | 5.09% | 106,781 | 101,695 |
| 5/1/2015 | 5.78% | 107,859 | 102,077 |
| 6/1/2015 | 5.08% | 108,213 | 103,134 |
| 7/1/2015 | 4.82% | 106,423 | 101,604 |
| 8/1/2015 | 3.71% | 107,112 | 103,404 |
| 9/1/2015 | 4.38% | 101,523 | 97,139 |
| 10/1/2015 | 6.39% | 100,703 | 94,312 |
| 11/1/2015 | 2.93% | 104,835 | 101,907 |
| 12/1/2015 | -3.48% | 99,443 | 102,926 |
| 1/1/2016 | -3.36% | 96,830 | 100,012 |
| 2/1/2016 | -0.72% | 93,797 | 94,367 |
| 3/1/2016 | 4.07% | 98,588 | 94,367 |
| 4/1/2016 | 0.34% | 102,371 | 101,548 |
| 5/1/2016 | -1.91% | 99,774 | 101,200 |
| 6/1/2016 | -0.42% | 103,145 | 103,568 |
| 7/1/2016 | -0.19% | 103,022 | 103,216 |
| 8/1/2016 | 2.56% | 109,419 | 106,857 |
| 9/1/2016 | -0.34% | 106,704 | 107,048 |
| 10/1/2016 | -0.85% | 106,377 | 107,230 |
| 11/1/2016 | 0.42% | 105,421 | 105,003 |
| 12/1/2016 | 1.62% | 110,705 | 109,088 |
| 1/1/2017 | 1.57% | 113,406 | 111,832 |
| 2/1/2017 | 1.32% | 114,809 | 113,486 |
| Current | -3.90% | 114,318 | 118,216 |
You can see February has been a struggle. Basically flay while benchmark has been climbing. A few too many body blows in earnings. Here are how stocks did during week:
| Stock | Last Week | Current | Dividend | Change |
| CPLA | 77.70 | 75.80 | - | -2.4% |
| HPQ | 15.95 | 17.65 | - | 10.7% |
| ILG | 18.98 | 19.09 | - | 0.6% |
| PBI | 13.39 | 14.07 | - | 5.1% |
| GILD | 69.85 | 69.94 | - | 0.1% |
| CA | 32.09 | 32.63 | - | 1.7% |
| SYNT | 18.64 | 17.98 | - | -3.5% |
| TGNA | 24.37 | 24.80 | - | 1.8% |
| XPER | 43.95 | 37.95 | - | -13.7% |
| LDOS | 51.95 | 54.08 | - | 4.1% |
| TIME | 19.25 | 18.30 | - | -4.9% |
| CSCO | 33.74 | 34.32 | - | 1.7% |
| GME | 25.57 | 26.28 | - | 2.8% |
| HRB | 20.51 | 20.05 | - | -2.2% |
| CALM | 38.65 | 37.95 | -1.8% | |
| VIAB | 43.99 | 43.89 | -0.2% | |
| Average | 0.0% |
XPER is the new name for TSRA and it got crushed. HPQ did have a good week to salvage things a bit. Here are the actual tranches:
| 4/1/16 Stocks | Start | Current | Dividend | Pct Gain | R3K Gain |
| CALM | $51.27 | $37.95 | $0.44 | -25.1% | 18.1% |
| HPQ | $12.10 | $17.65 | $0.38 | 48.9% | 18.1% |
| TIME | $15.24 | $18.30 | $0.57 | 23.8% | 18.1% |
| ILG | $13.85 | $19.09 | $0.36 | 40.4% | 18.1% |
| XPER | $30.79 | $37.95 | $0.60 | 25.2% | 18.1% |
| Totals | 22.6% | 18.1% | |||
| 7/1/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| ILG | $16.76 | $19.09 | $0.24 | 15.3% | 13.6% |
| VIAB | $44.00 | $43.89 | $0.40 | 0.7% | 13.6% |
| CPLA | $53.22 | $75.80 | $0.80 | 43.9% | 13.6% |
| HRB | $23.62 | $20.05 | $0.44 | -13.3% | 13.6% |
| PBI | $17.69 | $14.07 | $0.56 | -17.3% | 13.6% |
| Totals | 5.9% | 13.6% | |||
| 10/3/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| CPLA | $58.15 | $75.80 | $0.41 | 31.1% | 10.6% |
| LDOS | $43.01 | $54.08 | $0.00 | 25.7% | 10.6% |
| GME | $27.70 | $26.28 | $0.37 | -3.8% | 10.6% |
| PBI | $18.15 | $14.07 | $0.38 | -20.4% | 10.6% |
| CSCO | $31.72 | $34.32 | $0.52 | 9.8% | 10.6% |
| Totals | 8.5% | 10.6% | |||
| 12/30/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| GILD | $71.69 | $69.94 | $0.00 | -2.4% | 5.6% |
| HPQ | $15.00 | $17.65 | $0.00 | 17.7% | 5.6% |
| TGNA | $21.33 | $24.80 | $0.00 | 16.3% | 5.6% |
| CA | $31.99 | $32.63 | $0.26 | 2.8% | 5.6% |
| SYNT | $19.79 | $17.98 | $0.00 | -9.1% | 5.6% |
| Totals | 5.0% | 5.6% | |||
| Category/Tranche | October | January | April | July | Total |
| Initial Investment | 249,820 | 249,939 | 250,180 | 249,728 | 999,667 |
| Current Tranche | 8.5% | 5.0% | 22.6% | 5.9% | 9.9% |
| Previous Tranche | 5.5% | 9.3% | -0.2% | -12.5% | 1.2% |
| Tranche -2 | 0.5% | 11.0% | - | - | 2.9% |
| MFI Overall Gain | 15.0% | 27.4% | 22.3% | -7.3% | 14.4% |
| Current Balance | 287,248 | 318,418 | 306,080 | 231,434 | 1,143,180 |
| R3K Current Tranche | 10.6% | 5.6% | 18.1% | 13.6% | 12.0% |
| R3K Overall Gain | 24.9% | 18.1% | 16.8% | 13.3% | 18.3% |
| R3K Balance | 311,926 | 295,089 | 292,268 | 282,859 | 1,182,142 |
| Annualized IRR | 6.0% | 11.9% | 11.1% | -4.5% | 6.1% |
You can just see going through these tables the struggle. Not a disaster, but a struggle. Current tranches are up 9.9% versus 12.0% for benchmark. I have avoided any out and out stinkers and at the very least that makes me happy.
I will continue with this approach - I think it makes sense. But it may take more than 2.5 years to bear fruit.
Dividend Portfolio
For those who only care about MFI, you can stop. My dividend portfolio is my approach to building an income stream for investment. It has stocks and closed end funds. I reinvest most of the dividends and many of these are long term buy and hold. Not sexy. But real investing. Compound interest and all that jazz.
| Dividend Stocks | Start | Current | Divvy | Overall Pct Gain | Weekly Pct Gain | 1/1/17 Price | % Chg Since 1/1/17 |
| CSQ | 9.13 | 11.15 | 2.36 | 48.0% | 2.3% | 10.27 | 9.8% |
| AOD | 7.64 | 8.20 | 1.79 | 30.7% | 1.5% | 7.58 | 9.5% |
| SBRA | 22.46 | 25.74 | 0.41 | 16.4% | 0.0% | 24.42 | 5.4% |
| PSXP | 47.04 | 55.98 | 1.08 | 21.3% | -0.4% | 48.64 | 16.2% |
| TGONF | 10.24 | 12.25 | 1.85 | 37.8% | -1.2% | 12.14 | 0.9% |
| JQC | 7.85 | 8.88 | 0.74 | 22.6% | 0.6% | 8.85 | 1.5% |
| PSX | 80.00 | 78.03 | 3.51 | 1.9% | -0.8% | 86.41 | -9.0% |
| DSL | 18.44 | 20.20 | 1.31 | 16.6% | 0.7% | 18.99 | 7.9% |
| GLDI | 10.64 | 9.59 | 0.86 | -1.7% | 1.5% | 8.94 | 8.8% |
| PEO | 20.49 | 19.50 | 0.10 | -4.3% | -1.6% | 20.17 | -2.8% |
| O | 24.43 | 63.19 | 19.57 | 238.8% | 3.9% | 57.48 | 10.2% |
| DHF | 3.19 | 3.44 | 0.06 | 9.7% | 0.6% | 3.36 | 3.4% |
| OIBAX | 5.08 | 5.72 | 2.33 | 58.7% | 0.7% | 5.61 | 2.5% |
| Totals | 26.6% | 4.6% |
I sold my PSX this past week (I had also sold SBRA earlier). When I buy replacements, I will reconstitute. I try to focus more on income stream here than "gains". As I am reinvesting dividends, I am actually better off with price dropping so long as dividends are not decreasing and security is not impaired. Once a quarter or so, I do show my income stream, which is steadily increasing.
Miscellaneous
This is my smallest of my four portfolios. It is also the riskiest. I hold BAC warrants (which have done very well). These are easily my largest single holding across all portfolio - basically equal to #2 and #3 added together (CSQ and AOD). So if BAC crashes, this portfolio will be impaired. I also hold some leveraged ETFs and sell options here. I do not go into details as I think it is too risky for me to appear any sort of expert and I control the risk by making this a very small % of overall investments. I have also really ramped up my SYT (as I saw Warren Buffett was big in this). This is basically merger arbitration. Again risky, but hopefully not as correlated with broader market.
Have a great weekend.
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