MFI Tracking Portfolio 8/25/2017

MFI Tracking Portfolio 8/25/2017

Another month/year has flown by. And so it is time to look at another monthly tracking portfolio as we hit the end of August 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.

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 (although painstakingly slowly).

Onward

 Fearless readers will recall we had a 29 month "losing streak"..  Then we had a 13 month winning streak. Now we have ended an 10 month losing streak, winning 28.8% to 21.5% this month. It feels good to win one.  MFI does tend to be streaky.

Guess what?  The next 6 portfolios are all leading as well.  I am happy about that, even if my personal results have been struggling lately.

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
RCM	3.20	9.97	211.6%	336
HSII	17.90	44.20	146.9%	342
SYNT	18.06	40.74	125.6%	1,511
USNA	59.45	131.95	122.0%	1,464
BPT	15.75	30.85	95.9%	417
NCMI	4.99	9.10	82.5%	338
RHI	43.29	78.18	80.6%	5,557
NATH	52.02	88.70	70.5%	232
FFIV	117.60	189.12	60.8%	7,473
SCMP	11.30	18.00	59.3%	523
CPLA	65.40	104.00	59.0%	775
CSCO	30.46	47.77	56.9%	155,942
MCFT	17.66	27.57	56.1%	329
BBSI	48.23	75.03	55.6%	355
TIME	12.53	18.50	47.6%	1,255
AMAG	16.80	24.40	45.2%	593
ESRX	60.79	88.02	44.8%	35,109
NHTC	19.30	26.47	37.2%	227
LEE	2.15	2.85	32.6%	122
KLAC	88.27	116.21	31.7%	14,191
AVID	4.57	5.92	29.5%	188
EGRX	55.14	69.13	25.4%	894
DISCA	22.66	27.83	22.8%	13,097
IPG	19.31	23.35	20.9%	7,944
VEC	27.43	32.82	19.7%	304
IDCC	69.18	82.60	19.4%	2,444
CSVI	44.00	52.50	19.3%	636
TRNC	13.92	16.50	18.5%	457
MSGN	20.70	24.30	17.4%	1,554
ABC	76.75	89.97	17.2%	17,571
DHX	2.00	2.15	7.5%	101
MD	44.22	47.35	7.1%	4,134
GILD	71.74	75.73	5.6%	96,370
AMCX	60.45	62.81	3.9%	3,898
VIAB	28.41	29.28	3.1%	11,746
MPAA	26.09	26.54	1.7%	506
OMC	70.85	69.32	-2.2%	16,893
UTHR	128.45	122.99	-4.3%	5,984
HRB	28.61	27.06	-5.4%	6,155
TGNA	12.39	11.64	-6.1%	2,719
DLX	66.70	59.22	-11.2%	3,284
PDLI	3.00	2.42	-19.3%	462
FRAN	8.03	6.28	-21.8%	298
AOBC	18.08	14.03	-22.4%	974
GME	17.73	13.27	-25.1%	1,965
MNKD	1.55	1.10	-29.0%	162
AGX	57.16	39.80	-30.4%	916
SQBG	2.82	1.80	-36.2%	178
PBI	11.68	7.26	-37.8%	2,355
CJREF	9.05	2.85	-68.5%	2,247

Four stocks over 100% really helps.  And only 4 stinkers losing 30% or more. Recall long term stinker rate is 14% or so. Here is a listing of every tracking portfolio back to 2006:

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	17.1%	16.0%	1
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%	30.0%	0
2/24/2017	7.6%	17.4%	0
3/31/2017	6.4%	13.6%	0
4/28/2017	5.8%	13.8%	0
5/26/2017	11.1%	15.1%	0
6/29/2017	11.1%	14.7%	0
7/28/2017	12.5%	16.1%	0
8/25/2017	28.8%	21.5%	1
9/29/2017	17.4%	17.2%	1
10/27/2017	18.9%	14.4%	1
11/24/2017	16.1%	13.2%	1
12/29/2017	16.9%	10.1%	1
1/26/2018	4.0%	2.9%	1
2/23/2018	8.3%	7.3%	1
3/29/2018	9.6%	10.9%	0
4/27/2018	6.0%	9.7%	0
5/25/2018	4.2%	7.1%	0
6/29/2018	3.0%	6.9%	0
7/27/2018	4.7%	3.4%	1

So you can see some of the more recent open portfolios are doing better.

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 29.9%. 

Here are those winners:

Stock	Initial Price	End Price	Percent Change
HSII	17.90	44.20	146.9%
SYNT	18.06	40.74	125.6%
BPT	15.75	30.85	95.9%
NCMI	4.99	9.10	82.5%
CSCO	30.46	47.77	56.9%
KLAC	88.27	116.21	31.7%
IPG	19.31	23.35	20.9%
CSVI	44.00	52.50	19.3%
GILD	71.74	75.73	5.6%
VIAB	28.41	29.28	3.1%
OMC	70.85	69.32	-2.2%
HRB	28.61	27.06	-5.4%
GME	17.73	13.27	-25.1%
PBI	11.68	7.26	-37.8%
CJREF	9.05	2.85	-68.5%

Interesting that NCMI did so well and CJREF so poorly, even though both in same industry.

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	237,973
Total Russell 3K	287,661
Dividend	539,183