MFI Monthly Tracking Portfolio 2/24/17

MFI Monthly Tracking Portfolio 2/24/17


Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of February 2018.  As my faithful readers know, I have been tracking the Magic Formula Stocks as described by Joel Greenblatt in The Little Book That Beats the Stock Market since January 2006.  Every month I take the top 50 stocks over $100m market cap from his website and track how that portfolio of stocks fares versus the Russell 3000 for the next 12 months.  It has been an uphill struggle as the tracking portfolios have under-performed, driven in part by Chinese reverse merger fiascos, for-profit education stocks and home health care stocks all being proverbial albatrosses.

I also encourage new readers to read

Guide To New Readers

(you can also find this in Archives of October 2017)

People ask, does MFI not work anymore?  I am not sure. Perhaps 12 years isn't long enough. Perhaps it works better at a higher market cap cut off (I believe this to be true).  I think too many stocks make the screen over the years by "mistake"... that is they are not true value/cheap stocks. In 2011, we had a bunch of Chinese Reverse Merger stocks that hurt that year and were out and out frauds.  Then we have also had a number of stocks that have a one time spike in earnings that fools the formula.  Frankly, it might do better if instead of a trailing 12 month income look, it used a trailing 24 month look on income, to filter out the one time spikes.

But even with that being said, Value stocks have not exactly been in favor the past couple of years, although this appears to be changing.

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak.

The past two month/years (January and December) have been the worst relative losers to the benchmark of my 130+ month/years.

Guess what?  We are still struggling.  The 50 stocks on the screen got beaten by 9.8 percentage points.  At least that is better than 15.8 point shellacking posted last month. It has been rugged.  Greenblatt warned there would be times people would want to quit and this would ensure in working down the road. 

And 6 of the 11 open portfolios are trailing, by about  points on average (a 3 point improvement from last month),  So you can see why I am excited that both my real money MFI portfolios are beating benchmark.

Here are the 50 stocks in descending performance order (from the portfolio that just hit a year):

Stock	Initial Price	End Price	Percent Change	Mkt Cap
ACHI	2.15	5.17	140.5%	230
KORS	37.30	64.72	73.5%	6,211
MCFT	14.94	25.50	70.7%	278
MBUU	20.84	33.59	61.2%	372
SCMP	11.75	18.00	53.2%	538
SYNT	17.98	26.98	50.1%	1,512
AKRX	21.28	30.12	41.5%	2,665
HRB	19.34	26.82	38.7%	4,240
TRNC	14.61	19.73	35.0%	532
CSCO	33.17	44.00	32.6%	171,840
USNA	58.95	77.40	31.3%	1,436
HPQ	17.15	22.13	29.0%	30,076
DIN	55.12	68.99	25.2%	1,083
BKE	17.58	22.00	25.1%	982
GIB	47.08	58.32	23.9%	14,166
RHI	47.02	57.85	23.0%	6,129
VEC	23.37	28.41	21.6%	251
HSII	21.01	25.50	21.4%	399
TDC	31.28	37.20	18.9%	4,070
BPT	18.07	20.80	15.1%	456
WNC	20.61	23.31	13.1%	1,307
MSGN	22.30	25.05	12.3%	1,674
CA	31.63	35.43	12.0%	13,485
PDLI	2.22	2.48	11.7%	368
BBSI	61.48	68.49	11.4%	451
CPLA	74.59	80.50	7.9%	875
ESRX	71.55	77.00	7.6%	44,247
BIIB	285.13	292.78	2.7%	61,588
RGR	48.63	49.90	2.6%	932
NSR	33.25	33.50	0.8%	1,871
PCO	648.01	634.50	-2.1%	177
PBI	13.23	12.64	-4.4%	2,612
LEE	2.65	2.50	-5.7%	150
OMC	83.71	77.31	-7.6%	20,222
TGNA	25.67	23.52	-8.4%	5,318
IDCC	84.98	75.70	-10.9%	2,840
AVID	5.85	4.83	-17.4%	238
UIS	14.15	11.45	-19.1%	709
UTHR	146.71	118.04	-19.5%	6,680
SPOK	18.35	14.35	-21.8%	388
MPAA	28.37	22.00	-22.5%	561
NLS	15.60	11.95	-23.4%	482
TZOO	9.40	7.20	-23.4%	130
GME	24.46	15.97	-34.7%	2,696
NHTC	26.97	16.87	-37.4%	309
AGX	68.86	39.25	-43.0%	1,068
AGTC	7.25	3.75	-48.3%	131
AOBC	19.45	10.00	-48.6%	1,095
DHX	4.95	1.65	-66.7%	245
CXRX	2.30	0.70	-69.6%	117

Pretty telling when the broader market is up 17%, but over 20% of the 50 stocks are down 20% or more (some much more... average of -40%).  That is a serious albatross to overcome. 8 of the 11 are under $600m market cap.. 78%.  But under $600m only made up 42% of the 50 stocks, but 78% of the stinkers.  This is a trend I see all the time.

Here is a listing of every portfolio I have tracked:

Date	MFI	R3K	Lead
1/6/2006	16.0%	10.9%	1
2/17/2006	21.2%	14.6%	1
3/29/2006	13.0%	9.6%	1
4/7/2006	10.3%	12.1%	0
5/12/2006	20.4%	18.6%	1
5/31/2006	29.2%	23.3%	1
6/30/2006	22.4%	20.0%	1
7/31/2006	19.7%	17.3%	1
8/31/2006	13.0%	13.3%	0
9/28/2006	12.7%	14.6%	0
10/27/2006	10.3%	12.0%	0
11/29/2006	-0.3%	4.8%	0
12/28/2006	-6.9%	3.4%	0
1/26/2007	-10.2%	-6.6%	0
2/27/2007	-3.7%	-1.0%	0
3/26/2007	-9.8%	-5.5%	0
4/27/2007	-10.9%	-5.0%	0
5/29/2007	-11.5%	-6.3%	0
7/3/2007	-30.0%	-15.6%	0
7/30/2007	-19.9%	-11.5%	0
8/30/2007	-12.5%	-8.7%	0
9/27/2007	-19.0%	-18.2%	0
11/2/2007	-40.4%	-34.3%	0
11/28/2007	-40.1%	-38.3%	0
12/28/2007	-36.3%	-40.0%	1
1/25/2008	-36.4%	-35.9%	0
2/26/2008	-51.7%	-41.5%	0
3/24/2008	-40.9%	-36.8%	0
4/25/2008	-25.6%	-31.0%	1
5/28/2008	-22.2%	-33.6%	1
7/2/2008	-11.7%	-25.3%	1
7/29/2008	-10.5%	-20.9%	1
8/29/2008	-13.8%	-17.9%	1
9/26/2008	-4.3%	-10.0%	1
10/31/2008	18.7%	13.9%	1
11/26/2008	50.9%	27.7%	1
12/26/2008	48.9%	32.3%	1
1/23/2009	59.3%	36.4%	1
2/27/2009	92.8%	55.6%	1
3/27/2009	85.8%	48.1%	1
4/24/2009	69.7%	45.8%	1
5/29/2009	31.8%	22.8%	1
6/29/2009	21.3%	24.0%	0
7/29/2009	19.5%	15.9%	1
8/28/2009	7.4%	8.8%	0
9/25/2009	12.6%	12.4%	1
10/30/2009	22.7%	18.3%	1
11/27/2009	24.3%	13.6%	1
12/31/2009	23.7%	18.1%	1
1/22/2010	19.0%	20.6%	0
2/26/2010	18.6%	23.6%	0
3/25/2010	10.0%	15.4%	0
4/23/2010	7.1%	11.4%	0
5/28/2010	19.3%	25.4%	0
6/29/2010	16.7%	25.7%	0
7/29/2010	5.4%	20.1%	0
9/2/2010	7.3%	10.1%	0
9/24/2010	-4.3%	0.3%	0
10/29/2010	-2.9%	10.4%	0
11/26/2010	-8.5%	1.4%	0
1/3/2011	-11.4%	0.1%	0
1/28/2011	-7.6%	4.9%	0
2/25/2011	-5.5%	5.0%	0
3/24/2011	-4.4%	7.4%	0
4/21/2011	-16.0%	3.2%	0
5/27/2011	-12.0%	-0.4%	0
6/24/2011	-9.5%	5.0%	0
7/29/2011	-4.3%	8.1%	0
8/26/2011	12.0%	21.6%	0
9/30/2011	23.5%	29.6%	0
10/28/2011	0.4%	11.5%	0
11/25/2011	13.9%	24.0%	0
12/29/2011	9.9%	15.9%	0
1/27/2012	7.4%	16.6%	0
2/24/2012	7.8%	13.3%	0
3/23/2012	9.1%	15.2%	0
4/27/2012	10.5%	15.3%	0
5/25/2012	23.4%	27.5%	0
6/22/2012	26.1%	24.6%	1
7/27/2012	30.4%	25.7%	1
8/24/2012	26.0%	19.8%	1
9/28/2012	39.3%	22.1%	1
10/26/2012	48.3%	28.9%	1
11/23/2012	45.7%	32.1%	1
12/31/2012	52.3%	33.0%	1
1/25/2013	39.5%	22.0%	1
2/22/2013	46.5%	26.4%	1
3/28/2013	40.1%	21.2%	1
4/26/2013	35.0%	20.5%	1
5/24/2013	20.4%	19.2%	1
6/28/2013	26.9%	24.1%	1
7/29/2013	17.8%	19.0%	0
8/30/2013	17.5%	24.6%	0
9/27/2013	12.9%	17.7%	0
10/25/2013	11.8%	15.4%	0
11/29/2013	12.3%	15.6%	0
12/31/2013	12.7%	11.9%	1
1/31/2014	14.2%	13.0%	1
2/28/2014	15.4%	13.9%	1
3/28/2014	6.1%	12.3%	0
4/25/2014	8.6%	15.8%	0
5/30/2014	5.9%	11.7%	0
6/27/2014	2.5%	9.2%	0
7/25/2014	3.3%	8.7%	0
8/29/2014	-2.2%	1.0%	0
9/26/2014	-0.6%	-0.9%	1
10/31/2014	4.3%	4.4%	0
11/28/2014	-2.9%	2.9%	0
12/31/2014	-9.3%	0.3%	0
1/30/2015	-12.4%	-2.8%	0
2/27/2015	-19.0%	-7.3%	0
3/27/2015	-17.1%	-1.9%	0
4/24/2015	-15.4%	-0.8%	0
5/29/2015	-14.1%	0.1%	0
6/26/2015	-8.7%	0.4%	0
7/30/2015	3.96%	4.02%	0
8/28/2015	5.6%	10.2%	0
9/25/2015	6.5%	13.8%	0
10/30/2015	2.0%	4.0%	0
11/27/2015	8.9%	8.4%	1
12/31/2015	13.7%	12.6%	1
1/29/2016	22.6%	22.4%	1
2/26/2016	27.8%	25.4%	1
3/24/2016	26.5%	19.6%	1
4/22/2016	13.7%	14.8%	0
5/27/2016	14.3%	15.6%	0
6/30/2016	23.2%	16.1%	1
7/29/2016	15.1%	16.0%	0
8/26/2016	10.6%	14.6%	0
9/30/2016	18.6%	18.5%	1
10/28/2016	18.3%	24.1%	0
11/25/2016	7.4%	19.2%	0
12/30/2016	4.7%	20.5%	0
1/27/2017	10.5%	21.2%	0
2/24/2017	7.6%	17.4%	0
3/31/2017	6.9%	17.5%	0
4/28/2017	2.0%	16.3%	0
5/26/2017	7.4%	15.0%	0
6/29/2017	7.3%	14.3%	0
7/28/2017	7.5%	12.0%	0
8/25/2017	14.2%	13.3%	1
9/29/2017	5.8%	9.2%	0
10/27/2017	10.3%	6.7%	1
11/24/2017	11.3%	5.5%	1
12/29/2017	9.2%	2.6%	1
1/26/2018	-1.7%	-4.0%	1

Dividend Subset

My backtracking has shown that MFI stocks that pay a dividend seem to do better. I believe this is because a dividends infers that income flows are more likely to be sustainable.  This tends to extract stocks with large one time payments.  That was true again this month-year. My dividend MFI portfolio (which are stocks I track with a yield of 2.6% or greater) were up 16.6%.  MUCH better than the 7.6% for all fifty MFI stocks I tracked.

Finally, I like to track cash as it is more "honest" than percentages as if you go up by 25% and then down by 25%, that is a different result than up by 5% then down by 5%.  So I track what you would have today if you had spread $100,000 over the first twelve portfolios evenly. I think it is obvious why my formula approach is a function of dividend subset.

Category	Value
Total	220,284
Total Russell 3K	267,318
Dividend	518,049