Guide To New Readers

Guide To New Readers

Good morning.  With my using Twitter every now and then to alert people to my blog posts, I am getting a few more readers than my historical 30 to 40.  And so I thought it might be helpful for me to point new and not so new readers to a few key blogs in my past.

I will also share here some of my key thoughts and findings as well as a highlight of what the heck I am doing.  As I try to always state, I am just a guy (now retired) with a spreadsheet.  So I have no great insights to investing, no CFA, not even any college credits.  So please always try and do your own due diligence and recognize that while I try to be accurate, I probably can and do make mistakes.

About Me And The MFI Diary

I am a retired actuary.  For those who do not know, an actuary is basically a mathematician for insurance companies and are generally responsible for setting up rating/pricing structures as well as working with the CFO on financial statements such as balance sheet.  We look in the rear view mirror a lot, trying to see patterns in history that might help predict the future.  This can be helpful in insurance, but also horse racing and investing.

Actuaries are often very adept at excel and are also generally pretty good scorekeepers.  We do some pretty cool things as a profession, such as

1. predict shortfalls in social security in the future (The Future Financial Status of the Social Security Program)
2. create indices tracking changes in weather over time (Actuaries Climate Index).
3. Make predictions for gambling on sports (Based on Actual Math)
4. And even jokes about our profession (Actuarial Jokes).

I first read Greenblatt's book (The Little Book That Still Beats the Market) in February of 2006.  I was sold by the patterns of performance in his backtesting by decile.  So at that time, I started investing using his website (Magic Formula Investing).  Being an actuary, I also decided at that time to start keeping detailed records about MFI.  Finally, everyone was talking about Blogs, so I decided to start the MFI Diary.

Just for fun, I just went back and re-read my first post: The Genesis.  It has held up pretty well.

Yahoo Groups

When I first started, MFI was all over the internet. A lot of people were trying it (the book had just come out). One of first things I did was join the Yahoo Group on MFI (Magic Formula Investing - Yahoo Groups).  I was a regular contributor and became (and still am) one of the moderators.  For the first 3 years or so, this was a very active board with some really good research being done.  One thing we were very interested in doing was to be able to create our own list that mirrored the official list.  We wanted to do this in the event the offical site was taken down or went behind a paywall.

Back in those days, the official website was different.  Not only did they give you the top 50 stocks, but they gave you some data points about the return on invested capital and earning yield.  So with those data points and a well-worn edition of the little book that beats the market, we tried to replicate the results.

It was a group effort over several months.  It was not straightforward, but we came pretty darned close.  I highlight the formula in a post I call The Calculation.   After creating a way to calculate earnings yield and ROIC for an individual stock, I needed a way to calculate it for 3000 stocks so I could rank them.  I am good at excel, but automating this was a bit beyond my skill set.

Thankfully, a great guy named Randy Harmelink helped me out.  He is the brains of another great yahoo group (EXCEL Stock Market Functions Add-in - Yahoo Groups).  He maintains and develops stock market functions (SMF) that work with excel through an add-in.  He charges nothing for the work and his formulae allow you to do all sorts of stock market work in excel.  Like I said, great guy.  So Randy and I went through several iterations of taking my framework of an excel spreadsheet with the calculation and expanding it to cycle through several thousand ticker symbols pulling data from financial statements.

So with that, I can create a top 200 list (Top 200 List 10/8/2017) at anytime (well, it does take an hour or so and Yahoo data sometimes gets finicky).  The top 200 lists mirror the official list very closely.  It is pretty uncommon for any stock in the official top 50 not to be in my top 100.

MFI Tracking

For those who have read TLBTBTM (and all of you should read it), you will know that his recommended approach is to buy a basket of stocks from the list four times a year.  And then each basket should be held for a year.  At that point, you sell the basket and buy a new basket.

I decided that while I was starting in Feb 2006 that I also wanted to track how the official stock lists did using that prescribed approach.  So early on, I started saving the top 50 stocks from the list in a spreadsheet once a month and tracking how they did over a year holding period.  This was the birth of my monthly MFI tracking portfolio postings.  Here is my first ever tracking blog post:

January 6th, 2006 Model Portfolio

.  Guess I called it "model portfolio" instead of tracking in 2007.

Now tracking stock performance may seem simple.  But it actually takes a good deal of effort as I have 12 portfolios at any given time, each with 50 stocks.   So I have to automate as much as possible and use Randy's SMFs to streamline.  But you do get issues with stock splits, name changes, special dividends, companies getting bought etc.  Unfortunately, I have to rely on Yahoo Finance for a lot of the data and frankly sometimes they miss things (like a recent USNA stock split).  I try to eyeball and I am pretty familiar with the MFI stocks... so I believe I catch most errors.  But I am sure I have missed a few.

The MFI Tracking portfolios (which I want to iterate, I DO NOT Own, but rather just track) are a great resource for an actuary to dig through and create tools and see what has worked or not worked.  I did get disgusted with MFI in 2011 - I had been burned by some Chinese reverse merger stocks (I know, pretty stupid) and had fallen a bit off the wagon about being very disciplined in following the buy and hold for a year rules (it is so easy to get emotional after a bad earings quarter).  So I quit for a year (MFI Diary Abandons Magic Formula Investing | Mark Carter).

Useful Post List

But I went through all my data and came back with a reboot (which has been highly successful) in August 2012.  Here are a few key posts.

• http://justadrone.blogspot.com/2011/09/had-enough.html
• http://justadrone.blogspot.com/2012/07/reconsidering.html
• http://justadrone.blogspot.com/2012/08/gut-check.html
• http://justadrone.blogspot.com/2012/08/ranking-by-market-cap.html (interesting thoughts)
• http://justadrone.blogspot.com/2012/08/jumping-back-in.html
• http://justadrone.blogspot.com/2012/08/testing-water.html
• Finding the Magic in MFI (some good thoughts about my reboot approach)
• Magic Formula Statistics (some interesting data)
• More Magic Formula Statistics (part 2)
• MFI Thoughts
• Gut Check - Revisited
• MFI Index Thoughts (useful post that discusses my MFI Index, which tracks overall MFI performance).
• Thinking Outloud (thought about whether we bring biases to stock picking).
• Looking At Additional Predictors (playing with different ideas and data)
• Anatomy of A MFI Stock (this post discusses stocks that are on screen for many months)
• White Lies, Lies and Statistics (a must read for everyone)
• Why Has MFI Performed Poorly? (a common question - you should read my answer)
• Long Term View On Oil I could have made SO much money if I had acted on this!
• Rambling Analysis Some useful thoughts here
• Update of Results By Market Cap Decile
• Large Cap Dividend MFI Stocks This is beginning of convincing me to start formula portfolio
• MFI Tracking Analysis: Yield by Market Cap More detailed analysis
• Random Statistics From My MFI Database some good thoughts here as I go two dimensional
• Okay, I Think I Have Convinced Myself
• Results By Market Cap Quintile more good thoughts and tables
• Results By Dividend Yield This is very very interesting.  I had only started tracking dividends in 2009 and in this blog I rolled up my sleeves and backfilled dividends to 2006.  Very telling.
• Count of Stocks By Yield I highlight that fewer stocks are having yields > 2.6%.
• Few Thoughts About Big Versus Small This and next two represent my most recent in depth analysis.  I encourage people to read closely, it is detailed but some very powerful findings.
• Bored & Beer-Infused Ramble Funny title, I generally have done some of my best analysis traveling in Switzerland over long weekends.
• The Bad and The Ugly I feel this is a key post.  I do analysis on the "stinker" effect in MFI stocks and the volatility amongst individual stocks in the screener.

Racing To The Finish Line!

Ok.  Thanks for your patience.  I know the almost 2,400 blog posts I have made would be too much for anyone to digest (unless your name is Watson).

I have tried to boil all those posts into a smaller subset that tracks my evolution and findings over time.  Still turned out to be more than I expected.

Keep in mind that these are just my thoughts.  I know that using backtesting for future investing does not always work.  But I also know that at one point I was worried about saying too much in my blog as some of the back-testing results were off the charts. I also know that what I have analyzed and crunched has given me the confidence to increase my stakes in 2017 by 30 to 40% per tranche/portfolio.  It is not a coincidence that those increases came within a month of my "beer-infused ramble".

Signing off!