Finally feels like summer here in Southern New England. After not a single day making 80 in May, we strung together 3 straight 90 degree days wed-fri - with Wednesday and Thursday beating old records by 3 degrees! Of course our AC didn't work...
Crazy week in the news cycle. I think my favorite line on Twitter was after Trump admitted he gave the Russians some classified information in meetings. One person tweeted, "Everyone, I am heading to Washington DC this week, let me know if you want me to pick up some classified information or anything."
The thing that seemed odd to me was that the markets did not drop that much. Seems to be a lot of complacency, I even heard one commentator comment that were Trump to get impeached, that it is "already priced in". Are there three more dangerous words to investors than "already priced in"? I promise you, it is not priced in. The markets just don't think it'll happen and when John McCain and other senior republicans used softer wording like "troubled" and Robert Mueller was named - they bought the dip.
I mean who knows? But I am going to predict right now that Mueller will find a lot of ugly stuff. I believe Comey was fired as the investigation was getting to close to Trump and his key people. Mueller will simply pick up that thread. I doubt the Trump campaign was highly sophisticated - so there will be huge money trails and compromising conversations to come out. I now think that when Trump said he was "wire tapped", he already knew at that point that some of his people were caught in compromising positions. So I do believe that a lot of ugly will unfold over the next two months. I plan to be defensive in investing. I do not think "it is priced in".
ou have found your way to The MFI Diary, a blog I have been maintaining since 2006 (MFI being magic formula investing from The Little Book That Beats the Market by Joel Greenblatt). .In it I track performance of my own actual MFI investments along with detailed tracking of picking stocks from the MFI screen and my MFI Index (an index compromised of 50 stocks from screen and reconstituted once a year).
People need to know I am just a guy with a spreadsheet, no finance expertise. So please use what I write for information/entertainment - but if you choose to buy some of the names I buy you should do your own due diligence.
Past Week
This was a rugged week for me. Along with Wednesday's sell-off, I had a cliff dive from CSCO - one of my two or three largest positions. And that was even with anticipating the sell off to some extent - I sold three speculative positions on Tuesday and bought some additional gold (NUGT). Here are my returns so far in 2017:
| Component | YTD |
| Overall | +3.92% |
| Select | +8.64% |
| Formula | +3.77% |
| Miscellaneous | -7.08% |
| Dividend | +4.26% |
| R3K | +6.52% |
| MFI Index | -1.20% |
The first thing that stands out is the MFI Index is getting clubbed by the benchmark: +6.5% to -1.2%. Makes me feel better about my two MFI approaches being +8.6% and +3.8%. Miscellaneous continues to fluctuate a lot for me - it was certainly hurt by BAC warrants this week, which sold off 10% on Wednesday.
I did sell some of my more speculative names this week and I bought some financial type stocks: MTG, SNC and RILY. I will discuss my rational later in the blog.
MFI Select
I have two MFI portfolios - "Select" and "Formula", each consisting of 4 tranches of five stocks. Select has been running since August 2012 when I performed my MFI reboot (after sitting out for a year). It has been very successful. It is pretty free form, I can pick whatever stocks I want, from the official screen or my homemade screen (which always seems to pick up a few names omitted from official screen).
I mentioned it was a bad week. Here are individual stocks for the week:
I mentioned it was a bad week. Here are individual stocks for the week:
| Stock | Last Week | Current | Dividend | Change |
| MSGN | 23.50 | 21.75 | - | -7.4% |
| ATHM | 37.08 | 42.90 | - | 15.7% |
| AKRX | 33.15 | 33.21 | - | 0.2% |
| AMGN | 160.22 | 156.51 | - | -2.3% |
| MPAA | 30.84 | 30.19 | - | -2.1% |
| YY | 53.93 | 53.43 | - | -0.9% |
| RHI | 47.26 | 46.21 | - | -2.2% |
| CA | 31.61 | 31.26 | - | -1.1% |
| WNC | 21.34 | 21.15 | - | -0.9% |
| RGR | 63.00 | 63.70 | - | 1.1% |
| KLAC | 100.04 | 101.78 | - | 1.7% |
| QCOM | 55.32 | 57.67 | - | 4.2% |
| WSTC | 23.12 | 23.10 | - | -0.1% |
| TGNA | 22.66 | 22.89 | - | 1.0% |
| TIME | 12.75 | 11.85 | - | -7.1% |
| VLO | 66.42 | 63.87 | - | -3.8% |
| CSCO | 33.45 | 31.21 | -6.7% | |
| GILD | 66.06 | 64.23 | -2.8% | |
| GNC | 6.72 | 7.28 | 8.3% | |
| Average | -0.3% |
Not too bad here. You can see the CSCO drop at -6.7%. ATHM is actually getting close to being a double. TIME continues drop - their board of directors should be ashamed and relieved of their duties. I figure they though are ripe for an activist investor to jump in.
Here are my 4 tranches:
| 8/15/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| CSCO | $31.20 | $31.21 | $0.26 | 0.9% | 10.6% |
| GNC | $19.79 | $7.28 | $0.38 | -61.3% | 10.6% |
| VLO | $54.73 | $63.87 | $2.00 | 20.4% | 10.6% |
| MSGN | $16.68 | $21.75 | $0.00 | 30.4% | 10.6% |
| GILD | $79.33 | $64.23 | $1.46 | -17.2% | 10.6% |
| Totals | -5.4% | 10.6% | |||
| 11/15/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| MPAA | $26.55 | $30.19 | $0.00 | 13.7% | 10.4% |
| ATHM | $22.61 | $42.90 | $0.00 | 89.7% | 10.4% |
| AMGN | $145.14 | $156.51 | $2.00 | 9.2% | 10.4% |
| RHI | $43.23 | $46.21 | $0.46 | 8.0% | 10.4% |
| CA | $31.11 | $31.26 | $0.26 | 1.3% | 10.4% |
| Totals | 24.4% | 10.4% | |||
| 2/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| AKRX | $19.10 | $33.21 | $0.00 | 73.9% | 4.6% |
| YY | $41.08 | $53.43 | $0.00 | 30.1% | 4.6% |
| KLAC | $85.11 | $101.78 | $1.08 | 20.9% | 4.6% |
| WNC | $17.65 | $21.15 | $0.06 | 20.2% | 4.6% |
| RGR | $52.75 | $63.70 | $0.44 | 21.6% | 4.6% |
| Totals | 33.3% | 4.6% | |||
| 5/6/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| WSTC | $24.15 | $23.10 | $0.00 | -4.3% | -0.8% |
| TGNA | $25.75 | $22.89 | $0.00 | -11.1% | -0.8% |
| TIME | $15.05 | $11.85 | $0.00 | -21.3% | -0.8% |
| MSGN | $23.55 | $21.75 | $0.00 | -7.6% | -0.8% |
| QCOM | $54.93 | $57.67 | $0.00 | 5.0% | -0.8% |
| Totals | -7.9% | -0.8% |
TGNA has really been disappointing of late. They are spinning of Cars.com at the end of May. It seems that Cars.com revenue trajectory has been a bit lackluster of late and I suspect that it cause of TGNA drop. MSGN has also been struggling. To me it looks pretty appealing at $21.75.
But also have great stocks like AKRX and ATHM. So all in all, MFI Select is doing well. Here is a table showing overall IRR:
| Category/Tranche | August | November | February | May | Total |
| Initial Investment | 25,000 | 25,000 | 25,000 | 25,000 | 100,000 |
| Current Tranche | -5.4% | 24.4% | 33.3% | -7.9% | 12.2% |
| Previous Tranche | 2.8% | 8.0% | 10.7% | 19.1% | 8.6% |
| Tranche -2 | 11.2% | 69.4% | -14.3% | -25.2% | 10.3% |
| Tranche -3 | 41.4% | 14.2% | 8.5% | 18.3% | 20.6% |
| Tranche -4 | 14.1% | 43.7% | 78.3% | 33.0% | 42.3% |
| MFI Overall Gain | 74.5% | 273.8% | 144.6% | 29.1% | 130.5% |
| Current Balance | 43,633 | 93,448 | 61,157 | 32,266 | 230,504 |
| R3K Current Tranche | 10.6% | 10.4% | 4.6% | -0.8% | 6.2% |
| R3K Overall Gain | 84.8% | 88.2% | 69.3% | 58.3% | 75.2% |
| R3K Balance | 46,208 | 47,054 | 42,317 | 39,578 | 175,156 |
| Annualized IRR | 12.4% | 33.9% | 23.1% | 6.5% | 19.0% |
The 19.0% was closer to 20% just a couple weeks ago, so there has been a pullback. But current tranches are 12.2% vs 6.2% for benchmark. So even with egg May is laying, I am doing ok. Recall though this table is more hypothetical - as it assumes that when I started in 2012 that I have never added $. In reality, I have added $... and actually quite a bit (+35%) here in 2017.
Here is table showing month by month comparison's of the total balances from this table:
| 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 | 45.60% | 209,503 | 163,936 |
| 2/1/2017 | 45.20% | 212,330 | 167,146 |
| 3/1/2017 | 48.80% | 222,583 | 173,829 |
| 4/1/2017 | 55.70% | 229,473 | 173,735 |
| 5/1/2017 | 55.80% | 231,497 | 175,712 |
| Current | 55.35% | 230,504 | 175,156 |
So really treading water since April 1st.
MFI Formula
This is my formula approach. The formula is based on my backtesting of all the MFI stats I have kept since January 2006. My finding (you should pay me for this!) is that stocks that pay a dividend (I used 2.6% yield in my backtesting) from the official screen do much better. And if you exclude the micro cap stocks from that screen (using about $600m market cap as breakpoint) you do even better.
I have done analysis and thought long and hard about why this improves things. And the answer (I believe) is it removes some "fakes" from the official screen. There are stocks on the screen just masquerading as Magic Formula/Jake's Bubble Gum Shop stocks. But they do not have sustainable earnings... and payment of a dividend weeds many of the stinkers out.
That being said, moving to real money on this approach in October 2014 has not been a homerun. It coincided with some retail names in that category really getting shellacked (like GME and BKE). And the approach does require a little less spreading of risk and you can get same names multiple quarters.
This approach did not have a good week.
This approach did not have a good week.
Here are same series of tables:
| Stock | Last Week | Current | Dividend | Change |
| CPLA | 94.25 | 88.10 | - | -6.5% |
| GILD | 66.06 | 64.23 | - | -2.8% |
| SYNT | 18.41 | 18.50 | - | 0.5% |
| CSCO | 33.45 | 31.21 | - | -6.7% |
| TGNA | 22.66 | 22.89 | - | 1.0% |
| HPQ | 19.30 | 19.00 | - | -1.6% |
| CA | 31.61 | 31.26 | - | -1.1% |
| PBI | 15.68 | 14.99 | - | -4.4% |
| OMC | 83.12 | 83.36 | - | 0.3% |
| BKE | 18.25 | 16.85 | - | -7.7% |
| LDOS | 52.67 | 52.11 | - | -1.1% |
| ILG | 25.97 | 26.73 | - | 2.9% |
| VIAB | 34.61 | 35.20 | - | 1.7% |
| HRB | 26.58 | 25.65 | - | -3.5% |
| GME | 24.03 | 24.22 | 0.8% | |
| Average | -1.9% |
Recall that the "average" is a straight average. In reality, CSCO and CPLA are large positions. But -1.9% is pretty close to my real result (but recall my real result has a cash component in 2017 as I am increasing commitment throughout 2017).
| 7/1/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| ILG | $16.76 | $26.73 | $0.39 | 61.8% | 14.4% |
| VIAB | $44.00 | $35.20 | $0.60 | -18.6% | 14.4% |
| CPLA | $53.22 | $88.10 | $1.21 | 67.8% | 14.4% |
| HRB | $23.62 | $25.65 | $0.66 | 11.4% | 14.4% |
| PBI | $17.69 | $14.99 | $0.56 | -12.1% | 14.4% |
| Totals | 22.1% | 14.4% | |||
| 10/3/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| CPLA | $58.15 | $88.10 | $0.82 | 52.9% | 11.4% |
| LDOS | $43.01 | $52.11 | $0.64 | 22.6% | 11.4% |
| GME | $27.70 | $24.22 | $0.75 | -9.9% | 11.4% |
| PBI | $18.15 | $14.99 | $0.38 | -15.3% | 11.4% |
| CSCO | $31.72 | $31.21 | $0.81 | 0.9% | 11.4% |
| Totals | 10.3% | 11.4% | |||
| 12/30/2016 | Start | Current | Dividend | Pct Gain | R3K Gain |
| GILD | $71.69 | $64.23 | $0.52 | -9.7% | 6.4% |
| HPQ | $15.00 | $19.00 | $0.27 | 28.4% | 6.4% |
| TGNA | $21.33 | $22.89 | $0.14 | 8.0% | 6.4% |
| CA | $31.99 | $31.26 | $0.26 | -1.5% | 6.4% |
| SYNT | $19.79 | $18.50 | $0.00 | -6.5% | 6.4% |
| Totals | 3.7% | 6.4% | |||
| 4/1/2017 | Start | Current | Dividend | Pct Gain | R3K Gain |
| BKE | $18.45 | $16.85 | $0.25 | -7.3% | 0.8% |
| CSCO | $33.76 | $31.21 | $0.29 | -6.7% | 0.8% |
| GILD | $67.50 | $64.23 | $0.00 | -4.8% | 0.8% |
| OMC | $85.53 | $83.36 | $0.00 | -2.5% | 0.8% |
| SYNT | $16.76 | $18.50 | $0.00 | 10.4% | 0.8% |
| Totals | -2.2% | 0.8% |
In the most recent tranche, BKE and CSCO had a tough week. I did not really "want" BKE as I am so down on retail right now... but it is a "formula" and I do that on purpose to take away my biases.
| Category/Tranche | October | January | April | July | Total |
| Initial Investment | 249,820 | 249,939 | 250,180 | 249,728 | 999,667 |
| Current Tranche | 10.3% | 3.7% | -2.2% | 22.1% | 6.2% |
| Previous Tranche | 5.5% | 9.3% | 25.2% | -12.5% | 8.0% |
| Tranche -2 | 0.5% | 11.0% | -0.2% | - | 2.8% |
| MFI Overall Gain | 16.9% | 25.8% | 22.1% | 6.8% | 17.9% |
| Current Balance | 291,949 | 314,521 | 305,483 | 266,805 | 1,178,758 |
| R3K Current Tranche | 11.4% | 6.4% | 0.8% | 14.4% | 8.3% |
| R3K Overall Gain | 25.8% | 18.9% | 17.7% | 14.1% | 19.1% |
| R3K Balance | 314,205 | 297,255 | 294,406 | 284,918 | 1,190,783 |
| Annualized IRR | 6.1% | 10.1% | 9.8% | 3.6% | 7.4% |
My euphoria a couple weeks ago has had a splash of cold water. My current tranches are now trailing by two points. It is easy to be discouraged - but MFI in aggregate is struggling a bit, so it isn't necessarily my picks. Recall the MFI Index is -1.2% for the year.
| 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 |
| 3/1/2017 | -5.09% | 112,930 | 118,024 |
| 4/1/2017 | -1.86% | 116,227 | 118,091 |
| 5/1/2017 | 1.11% | 120,403 | 119,296 |
| Current | -1.20% | 117,876 | 119,079 |
Yuck. After pulling ahead by 2 or 3 points, I am trailing again. It is a struggle.
Dividends and Miscellaneous
These are my other two approaches besides MFI. Misc has been a hot mess recently after a great, great start. It does illustrate the perils of a retail investor out there without a map. At least with MFI, I have a very standardized approach, I trade too much in Misc and take too much risk. I have pulled back the size of it, but it is easy to ready Seeking Alpha etc and think you have the next home run stock.
My dividend approach has been steady. Frankly the only reason it has "underperformed" is that I have a sizable cash component.
I did buy some stocks this week. On the dividend side I bought RILY. This is an asset manager that pays a 2.4% dividend. They actually have scored very highly in my screening and they are rolling up other asset managers. So I will plan on this being a longer term play.
On the Misc side, I bought SNC (already up about 4%) as this is a insurer that is starting to explore strategic options. I also bought MTG, a Mortgage insurer. This is a bet on housing being strong (Millennials are finally going from renting to buying). Plus they are cheap (over 10% earnings yield) and they have strong balance sheet (mortgage insurers had rates and underwriting vastly improve 2010 and forward).
Here are my dividend stocks:
| Stock | Initial | Current | Div/Sh | Gain/Loss |
| TGONF | 10.47 | 12.60 | 1.97 | 39% |
| FDEU | 18.21 | 18.88 | - | 4% |
| NRZ | 16.51 | 16.06 | - | -3% |
| SBRA | 24.01 | 24.08 | 0.43 | 2% |
| JQC | 7.87 | 8.64 | 0.89 | 21% |
| DSL | 18.48 | 20.43 | 1.73 | 20% |
| RILY | 13.85 | 13.80 | - | 0% |
| DHF | 3.19 | 3.49 | 0.11 | 13% |
| O | 24.79 | 54.20 | 19.99 | 199% |
| OIBAX | 5.08 | 5.83 | 2.37 | 61% |
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