Weekend Update - 5/6/17

Weekend Update - Happy Derby Day!

If you have not been to the Derby... Go!  Louisville is a charming city.  And the Derby is an entire weekend of fun.  I have been twice, once as a kid just out of college in the infield and once for my 50th birthday in box seats.  Either way is an absolute hoot.

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 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

Kind of a funny week.  Overall I gave back some of the ground I had been gaining.  But it was virtually all in my Miscellaneous portfolio.  That seems to be where I always get in the most trouble as I tend to speculate and swing for the fences more there.  I guess that is ok, so long as I keep in moderation.  But it does suck when a stock or two crashes and burns.

Component	YTD
Overall	+5.39%
Select	+9.63%
Formula	+7.61%
Miscellaneous	-6.31%
Dividend	+4.24%
R3K	+7.35%
MFI Index	+0.81%

What my year to date table shows is that my two MFI tranches are really starting to pick things up.  They are now both beating the Russell 3000 and that is with a decent cash component through part of the year (I will have put 50% of my starting cash to work starting next week with new tranche).

The table also shows how far miscellaneous has fallen, now at -6%. Recall just a month or so ago it was +11%. I know I need to "step away from the batter".  Then my dividend portfolio is solid, but continues to be 65% cash as I wait for the pullback that may never happen.  My big sales were AOD and CSQ - they are up almost 7% and 8% since I bailed.  Ouch.

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).

Today my May 6th tranche hits a year.  I sold CBI yesterday and will sell the other 4 names on Monday. For record keeping, I will shut it down as of Friday's closing prices.  I have bought my five new stocks.  They will start as of Friday's closing prices for my record keeping. I will list the five new stocks in a separate post.

Here are my four tranches (May will end up losing slightly).

5/6/2016	Start	Current	Dividend	Pct Gain	R3K Gain
BRCD	$7.97	$12.57	$0.17	59.8%	20.0%
CBI	$37.82	$29.30	$0.28	-21.8%	20.0%
HSII	$18.51	$21.65	$0.52	19.8%	20.0%
RHI	$38.51	$46.91	$0.90	24.1%	20.0%
UTHR	$107.99	$122.84	$0.00	13.8%	20.0%
Totals				19.1%	20.0%
8/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$31.20	$34.39	$0.26	11.1%	11.5%
GNC	$19.79	$7.19	$0.38	-61.7%	11.5%
VLO	$54.73	$65.34	$1.30	21.8%	11.5%
MSGN	$16.68	$23.55	$0.00	41.2%	11.5%
GILD	$79.33	$67.80	$1.46	-12.7%	11.5%
Totals				-0.1%	11.5%
11/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
MPAA	$26.55	$30.03	$0.00	13.1%	11.3%
ATHM	$22.61	$35.13	$0.00	55.4%	11.3%
AMGN	$145.14	$163.81	$1.00	13.6%	11.3%
RHI	$43.23	$46.91	$0.46	9.6%	11.3%
CA	$31.11	$32.69	$0.26	5.9%	11.3%
Totals				19.5%	11.3%
2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$33.08	$0.00	73.2%	5.4%
YY	$41.08	$51.41	$0.00	25.1%	5.4%
KLAC	$85.11	$100.94	$0.54	19.2%	5.4%
WNC	$17.65	$22.09	$0.06	25.5%	5.4%
RGR	$52.75	$60.00	$0.44	14.6%	5.4%
Totals				31.5%	5.4%

So you can see that May is about a push, August is struggling due to GNC and then November and February are both soundly thrashing benchmarks.

Here is a table that shows a summary of every tranche I have had as well as cumulative stats and annualized rate of return:

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	-0.1%	19.5%	31.5%	19.1%	18.7%
Previous Tranche	2.8%	8.0%	10.7%	-25.2%	-3.4%
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	84.3%	259.1%	141.4%	40.1%	131.2%
Current Balance	46,070	89,780	60,340	35,024	231,215
R3K Current Tranche	11.5%	11.3%	5.4%	20.0%	12.0%
R3K Overall Gain	86.3%	89.7%	70.6%	59.5%	71.7%
R3K Balance	41,779	47,417	42,645	39,886	171,727
Annualized IRR	13.8%	33.1%	23.0%	8.8%	19.7%

So you can see my current tranches are up 18.7% versus 12.0% for benchmark. Next week the 19.1% for May will drop to "Previous tranche" and the newest tranche will replace it.  I always remind people that this table is a bit hypothetical as it assumes the initial investment of $100,000 (not true for me) and then assumes you never add more money to MFI (not true for me) and do not have a cash component.  In February I increased my average stock size by almost 30% and will be doing the same in May.

Here is a table that shows month by month moves of the portfolio versus R3K.  At the end you come to the balances from the green table above: 231,215 to 171,727.

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
3/1/2017	52.99%	222,583	169,589
4/1/2017	54.43%	224,094	169,663
5/1/2017	60.53%	231,497	170,967
Current	59.49%	231,215	171,727

So you can see I gave back a bit in first week of May.

Then here are how stocks did in first week of May.

Stock	Last Week	Current	Dividend	Change
RHI	46.05	46.91	-	1.9%
ATHM	34.60	35.13	-	1.5%
AKRX	33.45	33.08	-	-1.1%
MPAA	30.32	30.03	-	-1.0%
AMGN	163.32	163.81	-	0.3%
CA	32.83	32.69	-	-0.4%
WNC	22.78	22.09	-	-3.0%
YY	48.97	51.41	-	5.0%
RGR	60.45	60.00	-	-0.7%
MSGN	24.95	23.55	-	-5.6%
KLAC	98.22	100.94	-	2.8%
BRCD	12.47	12.57	-	0.8%
VLO	64.61	65.34	-	1.1%
CSCO	34.07	34.39	-	0.9%
HSII	21.50	21.65	0.13	1.3%
UTHR	125.70	122.84	-	-2.3%
GILD	68.55	67.80		-1.1%
CBI	30.08	29.30		-2.6%
GNC	7.78	7.19		-7.6%
WNC	22.78	22.09	-	-3.0%
Average				-0.6%

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:

7/1/2016	Start	Current	Dividend	Pct Gain	R3K Gain
ILG	$16.76	$25.54	$0.39	54.7%	15.3%
VIAB	$44.00	$36.82	$0.60	-15.0%	15.3%
CPLA	$53.22	$94.40	$1.21	79.7%	15.3%
HRB	$23.62	$25.27	$0.66	9.8%	15.3%
PBI	$17.69	$15.49	$0.56	-9.3%	15.3%
Totals				24.0%	15.3%
10/3/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CPLA	$58.15	$94.40	$0.82	63.7%	12.2%
LDOS	$43.01	$54.47	$0.64	28.1%	12.2%
GME	$27.70	$24.00	$0.75	-10.6%	12.2%
PBI	$18.15	$15.49	$0.38	-12.6%	12.2%
CSCO	$31.72	$34.39	$0.81	11.0%	12.2%
Totals				15.9%	12.2%
12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$67.80	$0.52	-4.7%	7.2%
HPQ	$15.00	$18.91	$0.13	27.0%	7.2%
TGNA	$21.33	$25.75	$0.14	21.4%	7.2%
CA	$31.99	$32.69	$0.26	3.0%	7.2%
SYNT	$19.79	$18.62	$0.00	-5.9%	7.2%
Totals				8.1%	7.2%
4/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
BKE	$18.45	$19.90	$0.25	9.2%	1.6%
CSCO	$33.76	$34.39	$0.29	2.7%	1.6%
GILD	$67.50	$67.80	$0.00	0.4%	1.6%
OMC	$85.53	$83.69	$0.00	-2.2%	1.6%
SYNT	$16.76	$18.62	$0.00	11.1%	1.6%
Totals				4.3%	1.6%

Wow, will you look at that!  All four of my open tranches are leading!!  Yes, that is satisfying. But has not always been that easy as summary table shows:

Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	15.9%	8.1%	4.3%	24.0%	11.1%
Previous Tranche	5.5%	9.3%	25.2%	-12.5%	7.9%
Tranche -2	0.5%	11.0%	-0.2%	-	2.8%
MFI Overall Gain	22.9%	31.2%	30.2%	8.5%	23.2%
Current Balance	306,940	327,849	325,688	271,018	1,231,494
R3K Current Tranche	12.2%	7.2%	1.6%	15.3%	9.1%
R3K Overall Gain	26.7%	19.9%	18.6%	15.0%	20.0%
R3K Balance	316,633	299,563	296,702	287,112	1,200,010
Annualized IRR	8.2%	12.2%	13.4%	4.5%	9.6%

Again, you will see current tranche is winning now by 2 points (11.1% to 9.1%).  And in total, I have broken out to a 3 point lead.  Again, a bit hypothetical as I have added along the way.  As part of my adding money to MFI in 2017, I increased January by 30% and April by 34% (recall at first I did not increase April as that was when I was moving a bit more to cash, but did so retroactively - at that time the April Portfolio was virtually unmoved in aggregate).

Here is the month by month table:

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	3.15%	123,149	120,000

Quite a move, going from 5% down on March 1st to 3% up today. But if you look back you'll see other swings, so do not get to comfortable with that lead yet.

Here are how the stocks did in past week:

Stock	Last Week	Current	Dividend	Change
CPLA	95.30	94.40	-	-0.9%
GILD	68.55	67.80	-	-1.1%
SYNT	17.61	18.62	-	5.7%
CSCO	34.07	34.39	-	0.9%
TGNA	25.48	25.75	-	1.1%
HPQ	18.82	18.91	-	0.5%
CA	32.83	32.69	-	-0.4%
PBI	13.29	15.49	-	16.6%
OMC	82.12	83.69	-	1.9%
BKE	18.70	19.90	-	6.4%
LDOS	52.66	54.47	-	3.4%
ILG	24.11	25.54	-	5.9%
VIAB	42.56	36.82	-	-13.5%
HRB	24.79	25.27	-	1.9%
GME	22.69	24.00		5.8%
Average				2.3%

A very good week. PBI was great and it is more important than VIAB as I have PBI in two tranches. I did see this week where TGNA will soon by spinning off Cars.com.  So I will have to make some adjustments as it will become a composite of two tickers.

Miscellaneous/Dividends

Gold has been grinding down my miscellaneous portfolio and then it had a biotech (NVIV) get sold off sharply on Friday.  I have sold off a few names in this portfolio of late - itis  clear it is just too speculative for me (that is why I do not list buys here, as I would feel 10x worse if readers lost money).  On the dividend side, I did buy my first new name in a long time: NRZ.  I am in at 16.67 and this is a mREIT that has about an 11% yield.  It is not the worlds safest play either, but had sold off a bit and this seemed like good entry.

Have a great derby day!