Weekend Update 6/10/17

Weekend Update

Good morning everyone.  Looks like summer may finally be arriving here in Connecticut.  Monday it didn't even get out of the 50s. But today we make 80 (or so they say).

I thought I'd re-start my quote of the day from my garage sale quotes book.  Since we had the Comey testimony this week:

"Men of genius are admired; men of wealth are envied; men of power are feared; but only men of character are trusted"

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
I finally had a "good" week.  I was actually up a bit while the R3K was down.  Part of it was my largest holding, BAC-WTA,  popping 10%.  It was very strange - after Comey's testimony, it felt that Financials got the most uplift and Tech stocks actually faltered.  Perhaps just coincidence, but perhaps not?

Here is where I stand year to date:

Component	YTD
Overall	+4.91%
Select	+11.21%
Formula	+2.85%
Miscellaneous	-6.09%
Dividend	+5.63%
R3K	+8.96%
MFI Index	-0.17%

As I assume most of you tune in for the MFI component, you can see my Select portfolio is very good (up 11.2%).  Recall also that that results includes a cash component that was 20% at start of year and is still 10%.  The tables in the MFI Select section of my blog exclude the cash component.

MFI Formula has really struggled the past 45 days.  Now just up 2.85% (it has cash as well).  The MFI Index is really poor - actually losing money thus far in 2017.  That is compromised of 50 stocks from official screen at start of year (with a $100m market cap).  Then as a final benchmark, I also track GARIX, this is a Gotham mutual fund that uses a version of MFI.  It is up 2.2% this year.

So, the struggle has been real in magic formula investing in 2017.  Greenblatt did say that it only outperformed 5 of 8 years. But of the 12 years I have tracked, it has won just 5 so far.  Now statistically,  a 62.5% free throw shooter (5 of 8) can have a stretch of 12 free throws where they hit just 5 - that is not that unlikely.  But the more free throws you shoot and stay under the 62.5%, the more you question whether you are really a 62.5% FT shooter.

MFI Select

As my fearless readers know, I have two MFI portfolios with real money.  The first is "MFI Select", which I rebooted in August 2012 (I had quit MFI in frustration for over a year and spent time thinking about it).  It consists of 4 tranches of 5 stocks each.  It is very free form.  I have my own screen that I use in conjunction with the official screen.  It has been very successful.  The real goal of both my MFI Select and MFI Formula approaches is to avoid the "stinker" stocks that are pretty regular in the screens.

Here are few stats to chew over (using my tracking of official screen 50 stocks over 100m):

• The standard deviation of individual stock returns is 49%.  My quick and dirty look at S&P 500 showed standard deviations less than 1/2 of that.  So individual stock risk is much higher in MFI.
• If you go back to my "Bored & Beer-Infused Ramble" in December 2016 I have a graph showing the distribution of returns.  It showed that 14% of MFI stocks (historically) have had annual returns of -40% or worse.  These are the stinkers.
• If you could somehow identify these tail stocks and exclude them, your returns would go from 8.2% to 19%.  I am sure that would be more than satisfactory.

Now of course we cannot identify in advance all stinker stocks. That would take a Delorean and Doc Brown.  But if can just find a way to have fewer, "that would be enough" (to quote Hamilton). Onward.

Here are my 4 current tranches:

8/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CSCO	$31.20	$31.37	$0.26	1.4%	13.1%
GNC	$19.79	$7.46	$0.38	-60.4%	13.1%
VLO	$54.73	$65.26	$2.00	22.9%	13.1%
MSGN	$16.68	$22.00	$0.00	31.9%	13.1%
GILD	$79.33	$64.70	$1.46	-16.6%	13.1%
Totals				-4.2%	13.1%
11/15/2016	Start	Current	Dividend	Pct Gain	R3K Gain
MPAA	$26.55	$28.93	$0.00	9.0%	13.0%
ATHM	$22.61	$44.99	$0.00	99.0%	13.0%
AMGN	$145.14	$164.06	$2.00	14.4%	13.0%
RHI	$43.23	$47.25	$0.70	10.9%	13.0%
CA	$31.11	$31.71	$0.51	3.6%	13.0%
Totals				27.4%	13.0%
2/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
AKRX	$19.10	$33.24	$0.00	74.0%	7.0%
YY	$41.08	$58.85	$0.00	43.3%	7.0%
KLAC	$85.11	$101.98	$1.08	21.1%	7.0%
WNC	$17.65	$21.10	$0.06	19.9%	7.0%
RGR	$52.75	$68.00	$0.92	30.7%	7.0%
Totals				37.8%	7.0%
5/6/2017	Start	Current	Dividend	Pct Gain	R3K Gain
WSTC	$24.15	$23.20	$0.00	-3.9%	1.5%
TGNA	$25.75	$22.89	$0.07	-10.8%	1.5%
TIME	$15.05	$13.85	$0.00	-8.0%	1.5%
MSGN	$23.55	$22.00	$0.00	-6.6%	1.5%
QCOM	$54.93	$57.05	$0.57	4.9%	1.5%
Totals				-4.9%	1.5%

Overall, very good (as I'll show in a second).  Two tranches winning and two losing - but winners are more than offsetting losers.  And if you look at individual stock returns, you see just one worse than -40% (GNC). So I have a stinker rate (on open positions) of 5%. Much better than 14% in tracking history.  BTW, my stinker rate of all my stocks since my 8/2012 reboot is just 2%.  I think that is a large part luck, 6 or 7% would be my target.  It is also helped that since August 2012 we have had a pretty good bull market.

Here are my results in table form:

Category/Tranche	August	November	February	May	Total
Initial Investment	25,000	25,000	25,000	25,000	100,000
Current Tranche	-4.2%	27.4%	37.8%	-4.9%	15.3%
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	76.8%	282.8%	152.8%	33.3%	136.4%
Current Balance	44,191	95,691	63,209	33,314	236,405
R3K Current Tranche	13.1%	13.0%	7.0%	1.5%	8.6%
R3K Overall Gain	89.0%	92.5%	73.1%	61.9%	79.2%
R3K Balance	47,256	48,125	43,285	40,486	179,152
Annualized IRR	12.5%	34.1%	23.7%	7.3%	19.4%

So a couple "almost interesting" thoughts.  First my overall IRR (19.4%) is amazingly close to the 19% I mentioned above from the tracking studies if you could remove entirely the 14% stinker rate.  Second, one will note pretty substantial variation between my tranche dates.  November has been the best (34%) and May the worst (7.3%).  I think that is chance (I had a couple huge gainers from November: NHTC was up over 300% in one tranche).  But this also means in this table that November results going forward get more weight (currently almost 3x more weight than May) as I just roll forward every year - selling the five stocks and using proceeds to buy 5 new stocks (though in reality I do add money and I am not quite as spread and that is another reason my actual results do not quite match up with this more hypothetical table, which assumes you started with $100k and never add $).

Here is month by month changes.  I have really been doing well in 2017.

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
6/1/2017	53.40%	230,599	177,203
Current	57.25%	236,405	179,152

Then finally, here are how stocks did individually during the week:

Stock	Last Week	Current	Dividend	Change
MSGN	21.55	22.00	-	2.1%
ATHM	42.33	44.99	-	6.3%
AKRX	33.26	33.24	-	-0.1%
AMGN	159.15	164.06	-	3.1%
MPAA	29.50	28.93	-	-1.9%
YY	59.23	58.85	-	-0.6%
RHI	47.34	47.25	-	-0.2%
CA	32.19	31.71	-	-1.5%
WNC	20.28	21.10	-	4.0%
RGR	66.05	68.00	-	3.0%
KLAC	105.88	101.98	-	-3.7%
QCOM	58.58	57.05	-	-2.6%
WSTC	23.19	23.20	-	0.0%
TGNA	23.70	22.89	0.07	-3.1%
TIME	12.80	13.85	-	8.2%
VLO	62.10	65.26	-	5.1%
CSCO	31.98	31.37		-1.9%
GILD	65.40	64.70		-1.1%
GNC	7.58	7.46		-1.6%

MFI Formula

Same series of charts.  Recall that MFI Formula has been going since October 2014.  It is entirely formula (quant) driven.  I take official 50 over 100m screen and then I throw out the 17 smallest market cap stocks.  I then take the subset of remaining stocks that have a dividend yield of at least 2.4%. Finally I allow myself optionality to pitch out one and then I use random number generator to pick my five.

While this approach through back testing has worked very well (it also tends to remove "stinkers") the results for me thus far have been a bit subpar.  Not a disaster, but not a home run.

7/1/2016	Start	Current	Dividend	Pct Gain	R3K Gain
ILG	$16.76	$26.05	$0.54	58.7%	17.0%
VIAB	$44.00	$35.40	$0.60	-18.2%	17.0%
CPLA	$53.22	$87.50	$1.62	67.5%	17.0%
HRB	$23.62	$26.19	$0.66	13.7%	17.0%
PBI	$17.69	$15.21	$0.75	-9.8%	17.0%
Totals				22.4%	17.0%
10/3/2016	Start	Current	Dividend	Pct Gain	R3K Gain
CPLA	$58.15	$87.50	$1.23	52.6%	13.9%
LDOS	$43.01	$55.37	$0.64	30.2%	13.9%
GME	$27.70	$22.01	$1.13	-16.5%	13.9%
PBI	$18.15	$15.21	$0.56	-13.1%	13.9%
CSCO	$31.72	$31.37	$0.81	1.5%	13.9%
Totals				10.9%	13.9%
12/30/2016	Start	Current	Dividend	Pct Gain	R3K Gain
GILD	$71.69	$64.70	$0.52	-9.0%	8.8%
HPQ	$15.00	$17.80	$0.27	20.4%	8.8%
TGNA	$21.33	$22.89	$0.21	8.3%	8.8%
CA	$31.99	$31.71	$0.51	0.7%	8.8%
SYNT	$19.79	$16.52	$0.00	-16.5%	8.8%
Totals				0.8%	8.8%
4/1/2017	Start	Current	Dividend	Pct Gain	R3K Gain
BKE	$18.45	$17.90	$0.25	-1.6%	3.2%
CSCO	$33.76	$31.37	$0.29	-6.2%	3.2%
GILD	$67.50	$64.70	$0.00	-4.2%	3.2%
OMC	$85.53	$81.50	$0.00	-4.7%	3.2%
SYNT	$16.76	$16.52	$0.00	-1.4%	3.2%
Totals				-3.6%	3.2%

Note no "stinkers" (yet) in open positions.  My overall rate is also right at 2% stinker rate, but again since 2014 we have been in a less volatile market - so my screen does not get all the credit.

Category/Tranche	October	January	April	July	Total
Initial Investment	249,820	249,939	250,180	249,728	999,667
Current Tranche	10.9%	0.8%	-3.6%	22.4%	5.0%
Previous Tranche	5.5%	9.3%	25.2%	-12.5%	8.2%
Tranche -2	0.5%	11.0%	-0.2%	-	2.8%
MFI Overall Gain	17.6%	22.2%	20.3%	7.1%	16.8%
Current Balance	293,748	305,546	301,031	267,472	1,167,796
R3K Current Tranche	13.9%	8.8%	3.2%	17.0%	10.7%
R3K Overall Gain	28.6%	21.7%	20.4%	16.7%	21.8%
R3K Balance	321,357	304,054	301,167	291,382	1,217,961
Annualized IRR	6.2%	8.6%	8.8%	3.6%	6.8%

My open tranches are getting whooped, 5% versus 10.7% for benchmark.  That mirrors the overall results: 16.8% to 21.8%.

By month (you can see recent falloff):

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
6/1/2017	-2.65%	117,824	120,472
Current	-5.02%	116,780	121,798

You can see quite a drop since 5/1.  Here are how individual stocks have done since then:

Stock	Last Week	Current	Dividend	Change
CPLA	95.50	87.50	0.41	-7.9%
GILD	68.11	64.70	-	-5.0%
SYNT	17.60	16.52	-	-6.1%
CSCO	33.97	31.37	-	-7.7%
TGNA	25.78	22.89	0.07	-10.9%
HPQ	18.93	17.80	-	-6.0%
CA	32.80	31.71	0.26	-2.5%
PBI	13.42	15.21	0.19	14.7%
OMC	82.68	81.50	-	-1.4%
BKE	18.80	17.90	-	-4.8%
LDOS	53.49	55.37	-	3.5%
ILG	24.13	26.05	0.15	8.6%
VIAB	42.60	35.40	-	-16.9%
HRB	24.65	26.19	-	6.2%
GME	22.78	22.01	0.38	-1.7%

Not many success stories there.  Frankly just PBI.  Compare that to MFI Select since early May:

Stock	Last Week	Current	Dividend	Change
MSGN	23.35	22.00	-	-5.8%
ATHM	36.24	44.99	-	24.1%
AKRX	33.10	33.24	-	0.4%
AMGN	163.03	164.06	-	0.6%
MPAA	29.57	28.93	-	-2.2%
YY	53.11	58.85	-	10.8%
RHI	47.27	47.25	0.24	0.5%
CA	32.32	31.71	0.26	-1.1%
WNC	21.82	21.10	-	-3.3%
RGR	57.35	68.00	0.44	19.3%
KLAC	100.50	101.98	-	1.5%
QCOM	54.62	57.05	-	4.4%
WSTC	24.11	23.20	-	-3.8%
TGNA	25.79	22.89	0.07	-11.0%
TIME	14.75	13.85	-	-6.1%
VLO	66.11	65.26	0.70	-0.2%
CSCO	34.29	31.37		-8.5%
GILD	67.21	64.70		-3.7%
GNC	7.25	7.46		2.9%

ATHM, YY, RGR have been strong enough to carry the day.

Dividend Portfolio

Here is my current dividend portfolio.  Enough said.

Stock	Initial	Current	Div/Sh	Gain/Loss
TGONF	10.47	13.05	1.97	43%
FDEU	18.21	19.58	0.12	8%
NRZ	16.51	16.33	-	-1%
JQC	7.87	8.64	0.88	21%
PSXP	48.92	47.70	-	-2%
SBRA	24.01	22.86	0.43	-3%
DSL	18.49	20.72	1.71	21%
RILY	13.85	15.50	-	12%
DHF	3.19	3.55	0.14	16%
O	24.79	55.31	19.99	204%
OIBAX	5.09	5.86	2.38	0.62