Saturday, January 26, 2019

Change Of Approach?

Change Of Approach?

I am starting to consider a change of approach for my MFI Select.  MFI Select has been running since August 2012.  While it has been successful, it has also been volatile (especially of late).  As a reminder, here is my month to month moves, assuming I started with 100,000:


 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
7/1/2017 60.28%        239,060            178,782
8/1/2017 57.76%        239,924            182,163
9/1/2017 68.85%        251,265            182,419
10/1/2017 75.60%        262,489            186,886
11/1/2017 68.17%        259,061            190,888
12/1/2017 84.17%        280,887            196,716
1/1/2018 92.19%        291,114            198,926
2/1/2018 98.28%        307,410            209,126
3/1/2018 97.96%        299,427            201,471
4/1/2018 96.21%        293,665            197,451
5/1/2018 75.02%        273,091            198,076
6/1/2018 61.79%        265,392            203,603
7/1/2018 68.20%        273,125            204,921
8/1/2018 62.87%        274,585            211,717
9/1/2018 63.61%        282,508            218,902
10/1/2018 65.80%        284,097            218,297
11/1/2018 61.26%        264,512            203,248
12/1/2018 57.71%        265,009            207,297
1/1/2019 39.77%        228,246            188,479
Current 51.56%        252,734            201,174


So you can see I sent from 307,410 on 2/1/18 to a low of 228,246 as of January 1st this year.  That is a 26% drop.  Now I have recovered a chunk of that so far this month.  But it made me think, as a retired person, should I be more spread out to perhaps avoid this type of drop? At this point of my life, I am not really trying to get rich, but rather ensure that I have enough money for the rest of my (and my wife's) life.

Alternative Approach

 Steven D, in the comment section, has espoused that stocks greater than $3b and with a dividend yield > 2.5% (but less than 5%) have done very well over past 4+ years.  While I believe his time period is too short to draw complete conclusions, I am thinking about >$3b and a dividend yield >2% as my filter.

So MFI Formula will be $600m and greater, but Select will be larger than $3b.  But the other twist, to reduce volatility (hopefully) is I will buy 10 stocks in each tranche.  So here is the way it would currently look:

Top 50 over 3b:


Ticker Market Cap Price Dividend Yield
AYI                   4,735      118.79                0.52 0.44%
ALSN                   6,273         48.39                0.60 1.24%
MO                 83,174         44.24                3.00 6.78%
AMCX                   3,660         64.76                     -   0.00%
ABC                 16,985         79.66                1.54 1.93%
AMGN              127,312      198.77                5.29 2.66%
AAPL              750,147      157.76                2.82 1.79%
AMAT                 37,897         39.19                0.80 2.04%
BBY                 16,140         59.34                1.80 3.03%
BIIB                 67,853      336.70                     -   0.00%
HRB                   5,325         25.91                0.99 3.82%
CPRI                   6,501         42.41                     -   0.00%
CBS                 18,449         49.17                0.72 1.46%
CDK                   6,660         51.39                0.60 1.17%
CELG                 61,238         87.62                     -   0.00%
COHR                   3,037      124.99                     -   0.00%
CVS                 66,694         65.45                2.00 3.06%
DNB                   5,368      144.69                1.56 1.08%
DXC                 17,816         63.34                0.75 1.18%
EME                   3,720         64.41                0.32 0.50%
FFIV                   9,519      158.50                     -   0.00%
GILD                 89,294         68.90                2.28 3.31%
EAF                   3,722         12.81                0.23 1.83%
HPQ                 34,482         22.10                0.58 2.62%
IPG                   8,613         22.41                0.84 3.75%
JEC                   9,069         63.77                0.60 0.94%
JAZZ                   7,676      126.93                     -   0.00%
KLAC                 15,520      101.39                2.84 2.80%
LRCX                 26,553      165.49                3.81 2.30%
LEA                   9,995      158.79                2.79 1.76%
LPX                   3,407         24.01                0.52 2.17%
MAN                   4,732         74.74                2.02 2.70%
MAS                   9,584         31.62                0.45 1.42%
MCK                 24,823      127.05                1.46 1.15%
MD                   3,293         36.86                     -   0.00%
MU                 45,778         38.96                     -   0.00%
MKSI                   4,290         79.46                0.78 0.98%
NKTR                   7,601         43.92                     -   0.00%
OMC                 17,175         76.40                2.40 3.14%
PM              113,060         72.73                4.49 6.17%
RTN                 47,698      167.61                3.47 2.07%
RHI                   7,403         60.99                1.12 1.84%
STX                 12,492         43.66                2.52 5.77%
SWKS                 12,856         72.47                1.40 1.93%
TER                   6,577         36.75                0.36 0.98%
TNET                   3,193         45.29                     -   0.00%
UTHR                   5,453      115.93                     -   0.00%
VIAB                 11,686         28.99                0.80 2.76%
WDC                 12,516         43.16                2.00 4.63%
XRX                   6,016         24.54                1.00 4.07%

Then filter out those less than 2%:


Number Ticker Market Cap Price Dividend Yield
1 MO              83,174         44.24              3.00 6.78%
2 AMGN            127,312      198.77              5.29 2.66%
3 AMAT              37,897         39.19              0.80 2.04%
4 BBY              16,140         59.34              1.80 3.03%
5 HRB                 5,325         25.91              0.99 3.82%
6 CVS              66,694         65.45              2.00 3.06%
7 GILD              89,294         68.90              2.28 3.31%
8 HPQ              34,482         22.10              0.58 2.62%
9 IPG                 8,613         22.41              0.84 3.75%
10 KLAC              15,520      101.39              2.84 2.80%
11 LRCX              26,553      165.49              3.81 2.30%
12 LPX                 3,407         24.01              0.52 2.17%
13 MAN                 4,732         74.74              2.02 2.70%
14 OMC              17,175         76.40              2.40 3.14%
15 PM            113,060         72.73              4.49 6.17%
16 RTN              47,698      167.61              3.47 2.07%
17 STX              12,492         43.66              2.52 5.77%
18 VIAB              11,686         28.99              0.80 2.76%
19 WDC              12,516         43.16              2.00 4.63%
20 XRX                 6,016         24.54              1.00 4.07%

Then apply random number generator


Random # Stock
8 HPQ
19 WDC
3 AMAT
18 VIAB
4 BBY
2 AMGN
15 PM
10 KLAC
16 RTN
7 GILD

I will noodle on this a bit more.  I kind of like it.  And these stocks will be easier to buy.
Posted by at

3 comments:

Musings of a Skeptic said...

I've found a lot of things on your website very interesting. In regards to this issue several things to consider:

1. be prepared using a dividend approach for the possibility of an environment like the late 90s where divs were despised. Doesn't mean it's not a valid approach but simply that it won't always hold an edge during every market cycle and at times will drastically underperform.

2.I think if you ran a return attribution analysis you'd find that it's the real losers that are causing you volatility NOT concentration. I run a portfolio with 10-15 stocks total and peak to trough drawdown last year was 9% (i'm not always 100% invested due to disciplines of cutting losers). My suggestion would be to take a hard look at what it would do to performance if you cut every single loser beyond a certain threshold. That level would all depend upon intial sizing. For myself I never want to see greater than -30% because at an initial 5% weighting this would push me near a -2% portfolio impact. I never want to risk more than 2% per trade.

10:23 PM
Marsh_Gerda said...

Thanks for your thoughts. I have actually run an analysis on large amounts of MFI data where I put in rules like "sell early when stocks is down x%" and varied the x to various levels. I found that did not improve results.

I have also wondered about dividend stocks, whether it is because we were in a low interest rate environment or that (for a stretch) the tax treatment of dividends was more favorable. And it is hard to disprove. But my hypothesis is that dividend paying stocks tend to have a more predictable cash flow than non dividend stocks in MFI. And since the biggest assumption in MFI is that the income from the past 12 months is a good proxy for the future, you probably are better with companies with more predictable cash flow.

6:35 AM
Musings of a Skeptic said...

In some ways that isn't that surprising about the sell discipline given that at times one would sell only to have the stock turn out to be a real winner. For myself I'm a deep value trend investor. It comes with drawbacks like any strategy but its one I can stick with.

And in regards to the dividend approach I think its a solid one - it likely tends to screen out troubled companies (although not perfectly of course). My only point was that at times what is best might not be in favor. Then again hopefully we won't lose our heads quite like we did in the late 90s again.

Thanks for your work.

12:30 PM

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