Saturday, May 27, 2017

Weekend Update - 5/27/17

Weekend Update

Good morning everyone.  Memorial Day is in front of us, great time to pause and think of those who have passed away.  Definitely for me as my father passed away 3 years ago and yesterday I received a number of mementos from his house (my stepmother is moving and just sold his house).

You 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 comprised 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

 Kind of a tough week for me.  Seems like more stocks going south than north.  I did see an interesting article that explained it a bit to me. The S&P 500 this year has been driven by 5 huge stocks: MSFT, AAPL, AMZN, FB and GOOGL.  Excluding those 5 names, the S&P 500 is 3 points lower. Obviously I do not have any of those names either, so perhaps not a surprise I am trailing benchmark by 380 basis points (recall I am 20% cash).

The underperformance is value stocks overall, my MFI Index is struggling (I will show table in a second) and my tracking portfolios are really struggling (I will publish more on that this weekend).  So does that mean we should give up?  I do not think so.  My MFI is hanging in there, my problems have been more in my miscellaneous portfolio.  Here is where I stand year to date:


Component YTD
Overall +4.33%
Select +9.19%
Formula +4.03%
Miscellaneous -8.20%
Dividend +5.30%
R3K +8.00%
MFI Index -1.83%


So my select and formula (when combined) are about 6.5%.  Given large cash holding, that is not bad compared to 8% for R3K.  But look how bad the MFI Index (-1.83%) is.  Obviously my Misc is also terrible (luckily the smallest of my portfolios).

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).

Here are individual stocks for the week:


Index Portfolio Stock Last Week Current Dividend Change
 44  Select MSGN  21.75   21.45   -    -1.4%
 49   Select  ATHM  42.90   43.03   -    0.3%
 31   Select  AKRX  33.21   33.21   -    0.0%
 46   Select  AMGN  156.51   155.01   -    -1.0%
 48   Select  MPAA  30.19   29.41   -    -2.6%
 32   Select  YY  53.43   57.48   -    7.6%
 39   Select  RHI  46.21   45.90   0.24  -0.2%
 24   Select  CA  31.26   31.82   0.26  2.6%
 34   Select  WNC  21.15   20.88   -    -1.3%
 35   Select  RGR  63.70   63.30   -    -0.6%
 33   Select  KLAC  101.78   104.74   -    2.9%
 36   Select  QCOM  57.67   57.52   -    -0.3%
 40   Select  WSTC  23.10   23.16   -    0.3%
 23   Select  TGNA  22.89   24.07   -    5.2%
 16   Select  TIME  11.85   12.10   -    2.1%
 43   Select  VLO  63.87   62.45   -    -2.2%
 22   Select  CSCO  31.21   31.50  0.9%
 12   Select  GILD  64.23   64.50  0.4%
 42   Select  GNC  7.28   7.21  -1.0%
Average 0.6%


You can see, it was not too bad.  My two Chinese stocks, ATHM and YY continue to be very strong.  TGNA also bounced back very nicely.  Next week the CARS spinoff will occur.  CARS is already trading and has gone from $21 to $27.  As I will get 1 CARS share for every 3 TGNA shares, that $6 bump is worth $2 on TGNA.  Also, there is now a rumor that TGNA may be a buyout candidate x CARS (Nexstar may eye bid for Tegna in stations buyout).

Here are my 4 tranches;

8/15/2016 Start Current Dividend Pct Gain R3K Gain
 CSCO  $31.20  $31.50  $0.26  1.8% 12.1%
 GNC  $19.79  $7.21  $0.38  -61.6% 12.1%
 VLO  $54.73  $62.45  $2.00  17.8% 12.1%
 MSGN  $16.68  $21.45  $0.00  28.6% 12.1%
 GILD  $79.33  $64.50  $1.46  -16.9% 12.1%
Totals -6.1% 12.1%
11/15/2016 Start Current Dividend Pct Gain R3K Gain
 MPAA  $26.55  $29.41  $0.00  10.8% 12.0%
 ATHM  $22.61  $43.03  $0.00  90.3% 12.0%
 AMGN  $145.14  $155.01  $2.00  8.2% 12.0%
 RHI  $43.23  $45.90  $0.70  7.8% 12.0%
 CA  $31.11  $31.82  $0.51  3.9% 12.0%
Totals 24.2% 12.0%
2/1/2017 Start Current Dividend Pct Gain R3K Gain
 AKRX  $19.10  $33.21  $0.00  73.9% 6.1%
 YY  $41.08  $57.48  $0.00  39.9% 6.1%
 KLAC  $85.11  $104.74  $1.08  24.3% 6.1%
 WNC  $17.65  $20.88  $0.06  18.6% 6.1%
 RGR  $52.75  $63.30  $0.44  20.8% 6.1%
Totals 35.5% 6.1%
5/6/2017 Start Current Dividend Pct Gain R3K Gain
 WSTC  $24.15  $23.16  $0.00  -4.1% 0.6%
 TGNA  $25.75  $24.07  $0.00  -6.5% 0.6%
 TIME  $15.05  $12.10  $0.00  -19.6% 0.6%
 MSGN  $23.55  $21.45  $0.00  -8.9% 0.6%
 QCOM  $54.93  $57.52  $0.00  4.7% 0.6%
Totals -6.9% 0.6%


So two good and two bad. But overall good.  Obviously really, really helped by my outstanding (so far) 5 picks in February.


Category/Tranche August November February May Total
Initial Investment  25,000   25,000   25,000   25,000   100,000 
Current Tranche -6.1% 24.2% 35.5% -6.9% 12.9%
Previous Tranche 2.8% 8.0% 10.7% 19.1% 8.4%
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 73.2% 273.2% 148.7% 30.5% 131.4%
Current Balance  43,312   93,307   62,171   32,613   231,403 
R3K Current Tranche 12.1% 12.0% 6.1% 0.6% 7.7%
R3K Overall Gain 87.4% 90.8% 71.6% 60.5% 77.6%
R3K Balance  46,842   47,702   42,902   40,127   177,573 
Annualized IRR 12.2% 33.7% 23.5% 6.8% 19.0%

This table shows results since starting back in August 2012.  Please remember that this table is a bit hypothetical as it assumes I started with 4 tranches of $25,000 and then never added anything.  In reality, I have added money over time when a tranche hits anniversary.

Here is month by month portfolio balances:


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 53.83%  231,403   177,573 

You can see May has been a slight step backwards.

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.

Here are same series of tables:


Index Portfolio Stock Last Week Current Dividend Change
 18  Formula CPLA  88.10   87.90   0.41  0.2%
 12  Formula GILD  64.23   64.50   -    0.4%
 25  Formula SYNT  18.50   18.16   -    -1.8%
 22  Formula CSCO  31.21   31.50   -    0.9%
 23  Formula TGNA  22.89   24.07   -    5.2%
 15  Formula HPQ  19.00   18.47   -    -2.8%
 24  Formula CA  31.26   31.82   0.26  2.6%
 20  Formula PBI  14.99   14.93   0.19  0.9%
 14  Formula OMC  83.36   83.26   -    -0.1%
 9  Formula BKE  16.85   16.80   -    -0.3%
 21  Formula LDOS  52.11   54.88   -    5.3%
 11  Formula ILG  26.73   26.85   -    0.4%
 13  Formula VIAB  35.20   35.13   -    -0.2%
 19  Formula HRB  25.65   26.11   -    1.8%
 10  Formula GME  24.22   22.22  -8.3%

GME and HPQ both had seemingly good earnings, but frustrating poor weeks:




So it goes.  I think good chance these two names move up during the quarter.


7/1/2016 Start Current Dividend Pct Gain R3K Gain
 ILG  $16.76  $26.85  $0.39  62.5% 16.0%
 VIAB  $44.00  $35.13  $0.60  -18.8% 16.0%
 CPLA  $53.22  $87.90  $1.62  68.2% 16.0%
 HRB  $23.62  $26.11  $0.66  13.3% 16.0%
 PBI  $17.69  $14.93  $0.75  -11.4% 16.0%
Totals 22.8% 16.0%
10/3/2016 Start Current Dividend Pct Gain R3K Gain
 CPLA  $58.15  $87.90  $1.23  53.3% 12.9%
 LDOS  $43.01  $54.88  $0.64  29.1% 12.9%
 GME  $27.70  $22.22  $0.75  -17.1% 12.9%
 PBI  $18.15  $14.93  $0.56  -14.6% 12.9%
 CSCO  $31.72  $31.50  $0.81  1.9% 12.9%
Totals 10.5% 12.9%
12/30/2016 Start Current Dividend Pct Gain R3K Gain
 GILD  $71.69  $64.50  $0.52  -9.3% 7.9%
 HPQ  $15.00  $18.47  $0.27  24.9% 7.9%
 TGNA  $21.33  $24.07  $0.14  13.5% 7.9%
 CA  $31.99  $31.82  $0.51  1.1% 7.9%
 SYNT  $19.79  $18.16  $0.00  -8.2% 7.9%
Totals 4.4% 7.9%
4/1/2017 Start Current Dividend Pct Gain R3K Gain
 BKE  $18.45  $16.80  $0.25  -7.6% 2.2%
 CSCO  $33.76  $31.50  $0.29  -5.8% 2.2%
 GILD  $67.50  $64.50  $0.00  -4.4% 2.2%
 OMC  $85.53  $83.26  $0.00  -2.7% 2.2%
 SYNT  $16.76  $18.16  $0.00  8.3% 2.2%
Totals -2.4% 2.2%

The July 1st tranche just has a month to go and has been strong.  I will start listing who qualifies as replacements during next several weeks.  In my 4/1 tranche, you may recall I lamented that 3 retail stocks were qualified: BBY, GME and BKE. While I am down on retail, I bit my lip and followed the formula.  You can see BKE (so far) is under pressure - although it has been pretty volatile in the two months.  BBY popped 20% this week... wish random generator had picked them.


Category/Tranche October January April July Total
Initial Investment  249,820   249,939   250,180   249,728   999,667 
Current Tranche 10.5% 4.4% -2.4% 22.8% 6.5%
Previous Tranche 5.5% 9.3% 25.2% -12.5% 8.1%
Tranche -2 0.5% 11.0% -0.2%  -    2.8%
MFI Overall Gain 17.1% 26.6% 21.8% 7.5% 18.3%
Current Balance  292,584   316,464   304,760   268,387   1,182,195 
R3K Current Tranche 12.9% 7.9% 2.2% 16.0% 9.7%
R3K Overall Gain 27.5% 20.6% 19.3% 15.7% 20.8%
R3K Balance  318,531   301,368   298,496   288,828   1,207,224 
Annualized IRR 6.1% 10.3% 9.6% 3.8% 7.5%

The three point differential of current tranche vs r3K is "normal". So I am not getting "unlucky", just MFI is not working particularly well right now.


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 -2.50%  118,220   120,723 

This is very telling.  I went from ahead at start of May to down 2.5 points.  Here is a listing of all the stocks in May:


Stock Last Week Current Dividend Change
CPLA  95.30   87.90   -    -7.8%
GILD  68.55   64.50   -    -5.9%
SYNT  17.61   18.16   -    3.1%
CSCO  34.07   31.50   -    -7.5%
TGNA  25.48   24.07   -    -5.5%
HPQ  18.82   18.47   -    -1.9%
CA  32.83   31.82   -    -3.1%
PBI  13.29   14.93   -    12.3%
OMC  82.12   83.26   -    1.4%
BKE  18.70   16.80   -    -10.2%
LDOS  52.66   54.88   -    4.2%
ILG  24.11   26.85   -    11.4%
VIAB  42.56   35.13   -    -17.5%
HRB  24.79   26.11   -    5.3%
GME  22.69   22.22  -2.1%
Average -1.6%

CPLA, CSCO, BKE and VIAB all obviously struggling.


Dividend and Miscellaneous Portfolios

Miscellaneous continues to struggle.  I have made it less risky these past few weeks.  It is funny. Not ha ha funny, but ironic funny.  I know my miscellaneous approach is not smart.  I know statistically that I have always struggled with more speculative plays, trying to hit the proverbial home run.

Yet I continue to do it. Why?  The book the "Undoing Project" sheds light on it. At the end, we humans are not as rational as we would like to believe.  We do not necessarily maximize profit, rather we minimize regret.  If I sold one of these speculative stocks today and then it went up 50% next week with some good news - I would have a ton of regret.  Not rational, I know.  

My dividend portfolio has gotten smaller in 2017.  So far, that has been a mistake as CSQ and AOD are each up about 7% since I sold... and they were outsized holdings, so I missed that. But otherwise, chugging along nicely.


Stock Initial Current Div/Sh Gain/Loss
 TGONF   10.47   13.09   1.97  44%
 FDEU   18.21   19.22   -    6%
 NRZ   16.51   16.55   -    0%
 JQC   7.87   8.77   0.89  23%
 SBRA   24.01   23.33   0.43  -1%
 DSL   18.48   20.46   1.73  20%
 RILY   13.85   14.95   -    8%
 DHF   3.19   3.55   0.11  15%
 O   24.79   55.18   19.99  203%
 OIBAX   5.08   5.84   2.37  61%

FDEU and RILY are two recent adds and each off to nice start.

Have a great weekend everyone!
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