It's been a while. Here are my current holdings and unrealized gains/losses to date.
FCX 50.6%
OVTI 44.4%
FDG 31.0%
HNR 12.3%
CRYP 11.0%
ASPV 9.8%
AXCA 8.7%
PBT 5.9%
LRW 3.5%
MOCO 3.1%
EPIQ 0.8%
LRCX -0.3%
TZOO -0.8%
BPT -1.3%
TRLG -1.3%
HSII -1.5%
FTO -2.3%
KG -3.0%
PNCL -11.0%
JAKK -12.2%
PACR -14.4%
KSWS -19.6%
RAIL -20.0%
NOOF -23.9%
CLHI -26.4%
IVAC -30.5%
OPTI -30.7%
VCI -41.5%
MTEX -53.1%
If MTEX doesn't recover, it could end up as my worst loss (the position currently held by Forward Industries (FORD) which had a 53.87% loss).
Also, I have read many articles which think the RAIL is going to do well. I'd certainly like to see that happen (and it's still in MFI.com).
Saturday, September 8, 2007
9/7/07 new tranche
Been very busy lately so it's been tough to do updates. Not to mention the fact the MFI fund continues to fibrillate along with the market.
Sold the 9/7/06 tranche on Friday. It was my most successful tranche so far, primarily thanks to WNR and FTO, and no stinkers. The final results were:
DEBS 10.65% gain
FTO 40.03% gain
KG -9.52% loss
WNR 139.99% gain (placing it in 2nd so far, since PNCL has the one year record at 144.65%).
(this tranche also previously included SCC which had a cash merger and resulted in a 1.09% loss very quickly).
Total tranche return: 36.04% vs. VFINX 16.29%.
Because they were still in the MFI list, I held on to FTO and KG. I was sad to let WNR go, because I personally believe it still has potential. I even checked to see if it was in the top 100 over $50M (since I only grab the top 25 over $50M for my random picking method). But, it wasn't. And so away it goes. I continue to follow the MFI method to the letter of the book. The other sad thing, of course, was that at its peak, WNR was at a 200% gain. Ah, July and August. It was perhaps an appropriate kick in the nuts that the morning I sold these stocks the market had already declined another 1%. Sure, I was able to buy the next tranche after that decline, but on principle it still sucks.
The new tranche consists of the following stocks:
FTO
KG
BPT
HSII
TZOO
Weighted gain since inception = 11.74% vs. S&P 500 = 7.76%.
Sold the 9/7/06 tranche on Friday. It was my most successful tranche so far, primarily thanks to WNR and FTO, and no stinkers. The final results were:
DEBS 10.65% gain
FTO 40.03% gain
KG -9.52% loss
WNR 139.99% gain (placing it in 2nd so far, since PNCL has the one year record at 144.65%).
(this tranche also previously included SCC which had a cash merger and resulted in a 1.09% loss very quickly).
Total tranche return: 36.04% vs. VFINX 16.29%.
Because they were still in the MFI list, I held on to FTO and KG. I was sad to let WNR go, because I personally believe it still has potential. I even checked to see if it was in the top 100 over $50M (since I only grab the top 25 over $50M for my random picking method). But, it wasn't. And so away it goes. I continue to follow the MFI method to the letter of the book. The other sad thing, of course, was that at its peak, WNR was at a 200% gain. Ah, July and August. It was perhaps an appropriate kick in the nuts that the morning I sold these stocks the market had already declined another 1%. Sure, I was able to buy the next tranche after that decline, but on principle it still sucks.
The new tranche consists of the following stocks:
FTO
KG
BPT
HSII
TZOO
Weighted gain since inception = 11.74% vs. S&P 500 = 7.76%.
Thursday, August 30, 2007
How I measure performance
Just to make it clear so no one has to look back in all my posts, here's how my comparisons to benchmarks work:
1. Individual tranches - I compare the individual purchase dates (5 stocks every two months held for a year) to the return for VFINX (Vanguard S&P 500 Index Fund) including reinvested dividends. I recognize that a Russell 2000 fund might be more accurate, but one, I started with the VFINX and don't feel like recalculating and two, it's not that far off. Basically, I'm trying to see how the tranche is doing against a common measure. I used the fund rather than the actual S&P 500 because I wasn't originally sure that the S&P 500 index includes reinvested dividends, which I have since learned it does. Again, since it was already set up, I haven't changed it. So, in my last post, the gain on the 9/06 tranche (purchased approximately 9/7/06) is more than double the gain on a comparable investment in VFINX. I will be "closing" that tranche next week. If I choose to keep a security, I will still treat it for purposes of my analysis as if "sold" and will include it in the new tranche as if "purchased" on that date.
2. Cumulative tranches - I take a weighted average of the individual tranche gains, both open AND closed and compare it to the weighted average VFINX return. As a result, the maximum period is one year. I don't annualize the open tranches because due to the volatility of MFI stocks, I think it's misleading to annualize returns, either gain or loss. Typically these stocks "spike" up or down at certain events (press announcements, earnings releases, etc) and these can happen at any time during the year. Essentially, this figure is somewhat of a comparison of annual return to VFINX. It is never more than annual.
3. MFI Fund gain since inception (or any other date) - I am also tracking my investments as if it is a fund and am comparing its performance to the S&P 500, as many other funds do (again, with the understanding that it is a slightly imperfect benchmark to be using). When I personally invest more money in these stocks, I treat it as though more shares have been issued in the fund. I picked an arbitrary number of starting shares and have been moving forward as if all gains and dividends are reinvested. So, when I say gain since inception (3/6/06), I am starting from my arbitrary starting share price and comparing it to the current date, much like anyone would evaluate the share price performance of a mutual fund. I also chart the "MFI Fund's" performance against the S&P 500 performance. It lagged for about 9 months, crossed the S&P gain since inception, skyrocketed through July, then came down to earth (I'd attach it, but it's not on the computer I'm currently typing on). For the last few weeks, it has been trading places with the S&P 500 for which is in the lead since inception.
4. Weighted gain - This is my REAL return since inception. Based on real dollars I've invested vs. a comparable investment in the S&P 500. Because a lot of my original investment in this methodology was while I lagged the index, even though I'm now equal since inception, I'm actually well ahead. Since I have been doing this for more than a year (a year and half now) this return is MORE than a year's return. I do not quote it on an average annual basis. This is pure return since inception, on a weighted basis.
If this is still unclear, I'll add some charts soon to make it clearer. I'd be interested if anyone thinks there's a flaw in these methods or if there's a better way to track it (aside from tracking against the Russell 2000...I really don't want to spend the time re-doing my analyses and it just hasn't been that much different from the S&P 500). Maybe I'll fix it if I ever have some free time. Ha!!
-A
1. Individual tranches - I compare the individual purchase dates (5 stocks every two months held for a year) to the return for VFINX (Vanguard S&P 500 Index Fund) including reinvested dividends. I recognize that a Russell 2000 fund might be more accurate, but one, I started with the VFINX and don't feel like recalculating and two, it's not that far off. Basically, I'm trying to see how the tranche is doing against a common measure. I used the fund rather than the actual S&P 500 because I wasn't originally sure that the S&P 500 index includes reinvested dividends, which I have since learned it does. Again, since it was already set up, I haven't changed it. So, in my last post, the gain on the 9/06 tranche (purchased approximately 9/7/06) is more than double the gain on a comparable investment in VFINX. I will be "closing" that tranche next week. If I choose to keep a security, I will still treat it for purposes of my analysis as if "sold" and will include it in the new tranche as if "purchased" on that date.
2. Cumulative tranches - I take a weighted average of the individual tranche gains, both open AND closed and compare it to the weighted average VFINX return. As a result, the maximum period is one year. I don't annualize the open tranches because due to the volatility of MFI stocks, I think it's misleading to annualize returns, either gain or loss. Typically these stocks "spike" up or down at certain events (press announcements, earnings releases, etc) and these can happen at any time during the year. Essentially, this figure is somewhat of a comparison of annual return to VFINX. It is never more than annual.
3. MFI Fund gain since inception (or any other date) - I am also tracking my investments as if it is a fund and am comparing its performance to the S&P 500, as many other funds do (again, with the understanding that it is a slightly imperfect benchmark to be using). When I personally invest more money in these stocks, I treat it as though more shares have been issued in the fund. I picked an arbitrary number of starting shares and have been moving forward as if all gains and dividends are reinvested. So, when I say gain since inception (3/6/06), I am starting from my arbitrary starting share price and comparing it to the current date, much like anyone would evaluate the share price performance of a mutual fund. I also chart the "MFI Fund's" performance against the S&P 500 performance. It lagged for about 9 months, crossed the S&P gain since inception, skyrocketed through July, then came down to earth (I'd attach it, but it's not on the computer I'm currently typing on). For the last few weeks, it has been trading places with the S&P 500 for which is in the lead since inception.
4. Weighted gain - This is my REAL return since inception. Based on real dollars I've invested vs. a comparable investment in the S&P 500. Because a lot of my original investment in this methodology was while I lagged the index, even though I'm now equal since inception, I'm actually well ahead. Since I have been doing this for more than a year (a year and half now) this return is MORE than a year's return. I do not quote it on an average annual basis. This is pure return since inception, on a weighted basis.
If this is still unclear, I'll add some charts soon to make it clearer. I'd be interested if anyone thinks there's a flaw in these methods or if there's a better way to track it (aside from tracking against the Russell 2000...I really don't want to spend the time re-doing my analyses and it just hasn't been that much different from the S&P 500). Maybe I'll fix it if I ever have some free time. Ha!!
-A
Waiting for the next tranche
Nothing going on with the portfolio lately. One day it goes up 1%, the next down...the S&P and my portfolio have been trading places on which is up more since inception. Currently MFI is in the lead, but only slightly (still well up on a weighted basis). Next tranche is on 9/7, coming up. The tranche that I'll be completing is the one that's crushing the benchmark. As of today, it stands at 36.96% vs. VFINX at 15.04%.
All tranches cumulative stands at 7.63% vs VFINX at 7.31%.
MFI fund return since inception stands at 16.06% vs. S&P 500 at 14.51%.
Weighted average MFI = 13.35% vs. S&P 500 = 8.85%.
All tranches cumulative stands at 7.63% vs VFINX at 7.31%.
MFI fund return since inception stands at 16.06% vs. S&P 500 at 14.51%.
Weighted average MFI = 13.35% vs. S&P 500 = 8.85%.
Monday, August 20, 2007
More comments on the subprime debt "crisis"
I put "crisis" in quotes because I feel that term is far too overused. There was an article in the Wall Street Journal this week about a family "trapped" in the subprime mess.
There are clearly two ways to look at this article. One is that the family is a "victim" of unethical mortgage brokers. There is no way a family with $90,000 of combined income could afford a $567,000 mortgage, (2 yr ARM). Their mortgage payments alone (without regard to insurance, taxes, etc.) were $38,400/yr. That's over 42% of their pre-tax gross income. By any mortgage qualification threshold, that's far too high. And that's before any potential reset. The reset is moving them to $50,000/yr, or more than 55% of their gross. Plus, they had virtually no money down. The mortgage company was insane to lend to them.
But, and here's the libertarian in me talking, this family needed to take a little responsibility. How they ever thought they could afford the payments, even before any potential reset, is beyond me. I fully understand that many people don't understand basic finance concepts, but this example goes beyond the pale of irresponsibility. At a bare minimum, they should have recognized that they don't know what they're doing and should have conferred with a professional, i.e. a financial planner, an accountant, etc. I'd say their real estate attorney could have raised a flag, but the attorney may not have known anything about their income (I don't believe that my real estate attorney when I bought my house was privy to any of that information). As a result, the only person they probably conferred with financially was the mortgage broker, who was clearly irresponsible to begin with. I can't even believe they were talking with the same mortgage broker about arranging refinancing.
People have a responsibility to become minimally conversant in financial matters that affect them. I simply can't feel bad for this family because they were so irresponsible. My wife and I on a combined basis make a multiple of what these people make, and yet our mortgage is a fraction of theirs (and we only put 5% down on our house, so our mortgage isn't lower as if we simply had more money to begin with).
Though I doubt that the people who read my blog will cry "elitist!", let me point out that I come from a lower-middle class family, not wealth, and I started my career with college debt balance that equaled my starting pay. I was out on my own immediately after college, so I didn't live rent free with my parents and save up lots of money. The only thing my parents did "give" me was an upbringing that focused on the importance of education and, fortunately, inexpensive tastes. Oh, and I live in a pretty expensive part of the country, too, so an argument of "they had no choice" doesn't hold water either.
Finally, I recognized that unforeseen things can happen to people...illnesses, injuries, lay-offs, etc., but these people couldn't afford their decisions if everything went right.
I've been reading a lot lately about people getting in over their heads and about people who don't have enough saved for retirement. But, time and again, the articles mention all the things these people have bought or the vacations they have taken. My wife and I treat ourselves once and a while (which we can well afford), but we follow a simple rule that seems to be blasphemy to so many:
LIVE BELOW YOUR MEANS. Don't try to keep up with the Joneses, because it turns out the Joneses are living beyond their means as well.
Sorry, I know this is off-topic...however, how does one ever save enough money to participate in MFI if you can't follow that simple rule?
There are clearly two ways to look at this article. One is that the family is a "victim" of unethical mortgage brokers. There is no way a family with $90,000 of combined income could afford a $567,000 mortgage, (2 yr ARM). Their mortgage payments alone (without regard to insurance, taxes, etc.) were $38,400/yr. That's over 42% of their pre-tax gross income. By any mortgage qualification threshold, that's far too high. And that's before any potential reset. The reset is moving them to $50,000/yr, or more than 55% of their gross. Plus, they had virtually no money down. The mortgage company was insane to lend to them.
But, and here's the libertarian in me talking, this family needed to take a little responsibility. How they ever thought they could afford the payments, even before any potential reset, is beyond me. I fully understand that many people don't understand basic finance concepts, but this example goes beyond the pale of irresponsibility. At a bare minimum, they should have recognized that they don't know what they're doing and should have conferred with a professional, i.e. a financial planner, an accountant, etc. I'd say their real estate attorney could have raised a flag, but the attorney may not have known anything about their income (I don't believe that my real estate attorney when I bought my house was privy to any of that information). As a result, the only person they probably conferred with financially was the mortgage broker, who was clearly irresponsible to begin with. I can't even believe they were talking with the same mortgage broker about arranging refinancing.
People have a responsibility to become minimally conversant in financial matters that affect them. I simply can't feel bad for this family because they were so irresponsible. My wife and I on a combined basis make a multiple of what these people make, and yet our mortgage is a fraction of theirs (and we only put 5% down on our house, so our mortgage isn't lower as if we simply had more money to begin with).
Though I doubt that the people who read my blog will cry "elitist!", let me point out that I come from a lower-middle class family, not wealth, and I started my career with college debt balance that equaled my starting pay. I was out on my own immediately after college, so I didn't live rent free with my parents and save up lots of money. The only thing my parents did "give" me was an upbringing that focused on the importance of education and, fortunately, inexpensive tastes. Oh, and I live in a pretty expensive part of the country, too, so an argument of "they had no choice" doesn't hold water either.
Finally, I recognized that unforeseen things can happen to people...illnesses, injuries, lay-offs, etc., but these people couldn't afford their decisions if everything went right.
I've been reading a lot lately about people getting in over their heads and about people who don't have enough saved for retirement. But, time and again, the articles mention all the things these people have bought or the vacations they have taken. My wife and I treat ourselves once and a while (which we can well afford), but we follow a simple rule that seems to be blasphemy to so many:
LIVE BELOW YOUR MEANS. Don't try to keep up with the Joneses, because it turns out the Joneses are living beyond their means as well.
Sorry, I know this is off-topic...however, how does one ever save enough money to participate in MFI if you can't follow that simple rule?
Wednesday, August 15, 2007
Why the market's not done...
I have a friend who recently went through foreclosure with a major mortgage lender. He was "fortunate" in that he managed to find a buyer which covered his defaulted mortgage and left him with a little bit of cash, but unfortunately it was a bargain-basement buyer and he left a lot of his home value on the table. Still, it left him without the scar of a completed foreclosure on his credit report.
Today he received an e-mail from that lender asking him to come back and talking about great rate consolidation offers.
So, in all the talk about "sub-prime mortgage woes", and tighter lending practices, the lenders are still as stupid as ever. The e-mail may as well have said, "Hi! You almost defaulted on a six figure loan with us which would have further exacerbated our "credit woes"! But, that's ok, we think you're a good credit risk! Here's some more money!!"
Brilliant. Watch the market declines continue...
ps. the best part is that I just looked closer at that article. The lender in question was in fact Countrywide. Nice.
Today he received an e-mail from that lender asking him to come back and talking about great rate consolidation offers.
So, in all the talk about "sub-prime mortgage woes", and tighter lending practices, the lenders are still as stupid as ever. The e-mail may as well have said, "Hi! You almost defaulted on a six figure loan with us which would have further exacerbated our "credit woes"! But, that's ok, we think you're a good credit risk! Here's some more money!!"
Brilliant. Watch the market declines continue...
ps. the best part is that I just looked closer at that article. The lender in question was in fact Countrywide. Nice.
Monday, August 13, 2007
New Smart Money article
This month's issue of Smart Money has an article which references The Little Book That Beats the Market. This is significant to me, since that's where I learned about it in the first place. Jack Hough, the Stockscreen columnist, comments on how good his picks did from the 3/06 issue (it actually came out in February. I know because I was tracking those picks, which were based on January stock prices). They returned 33% vs. an S&P return of 22%. The main thrust of his article was against diversification, saying you should just pick 5 - 7 "good" cheap stocks and you won't be dragged down by the losers you might have in a diversified portfolio. I'd link to the article, but it's not up yet at SmartMoney.com. He suggests using the Magic Formula to select the stocks.
There are some significant problems with his article. The vast majority of investors are not smart enough, lucky enough, or do not have enough time to really identify which are the ones that are most likely not to decline. And, my own tranche investing has proven that there are plenty that decline. Fortunately, in the top 25 there are a lot that go up significantly as well, including ones that more than double (PNCL, WNR). But I've also had some that have lost half of their value. Could I have avoided those with some research? Maybe...but I also would have missed out on some of the winners also. Look at WNR even now. It's up 154% since September 2006. Would that seem like a prime candidate to buy into now after that run up? Yet many people, and the MFI website, still say it's a buy.
Or let's take a big loss, MTEX. I haven't sold the position, but I'm sitting on a 41% loss since May. Would I have had any clue that the Texas AG was going to sue them for improper marketing techniques? Maybe, but I doubt it.
I'm willing to say that if this was my career and all I did was track a few companies, I would be able to do well, but even then I would be exposed to much more risk in such a non-diversified portfolio. Joel Greenblatt says that if you can closely identify a smaller number of good companies, you can drop the number of companies you invest in, but I hold that most people can't do that, which is why I think this was an irresponsible article.
Other issues the article doesn't address:
1. When should you sell? The concept is still value investing, so when you hit the point that the stock is "fairly priced" do you take your gains?
2. Beyond simply running a stock screen (such as MFI), how do you pick the 7 best? No discussion of this at all.
It was a highly simplistic article, and quite a shame since I usually find that column fascinating. I'll stick to diversification.
There are some significant problems with his article. The vast majority of investors are not smart enough, lucky enough, or do not have enough time to really identify which are the ones that are most likely not to decline. And, my own tranche investing has proven that there are plenty that decline. Fortunately, in the top 25 there are a lot that go up significantly as well, including ones that more than double (PNCL, WNR). But I've also had some that have lost half of their value. Could I have avoided those with some research? Maybe...but I also would have missed out on some of the winners also. Look at WNR even now. It's up 154% since September 2006. Would that seem like a prime candidate to buy into now after that run up? Yet many people, and the MFI website, still say it's a buy.
Or let's take a big loss, MTEX. I haven't sold the position, but I'm sitting on a 41% loss since May. Would I have had any clue that the Texas AG was going to sue them for improper marketing techniques? Maybe, but I doubt it.
I'm willing to say that if this was my career and all I did was track a few companies, I would be able to do well, but even then I would be exposed to much more risk in such a non-diversified portfolio. Joel Greenblatt says that if you can closely identify a smaller number of good companies, you can drop the number of companies you invest in, but I hold that most people can't do that, which is why I think this was an irresponsible article.
Other issues the article doesn't address:
1. When should you sell? The concept is still value investing, so when you hit the point that the stock is "fairly priced" do you take your gains?
2. Beyond simply running a stock screen (such as MFI), how do you pick the 7 best? No discussion of this at all.
It was a highly simplistic article, and quite a shame since I usually find that column fascinating. I'll stick to diversification.
Friday, August 10, 2007
Good Day
Today. S&P up .04%. MFI Fund up 3.39%. Weighted average stays above. MFI return since inception rises back above the S&P 500. The tranches squeak back ahead of VFINX.
Today's gains driven by AXCA earnings release, CRYP, EPIQ, LRW and WNR.
Not bad for a day that started pretty lousy.
Today's gains driven by AXCA earnings release, CRYP, EPIQ, LRW and WNR.
Not bad for a day that started pretty lousy.
Thursday, August 9, 2007
Wow.
That's literally all I can say about the market lately. Wow. A friend and I were talking today about the gyrations up and down and I compared it to fibrillation. The market is in serious need of a defibrillator. Today's drop was insane. Change in S&P today, 2.96% decline. Change in MFI today 3.35% decline. Decline since peak on 7/19, MFI = 17.51%, S&P = 6.44%. OUCH. I am just barely ahead of the S&P 500 on a weighted basis currently since inception. MFI = 8.64% (an annual average of only 6.08%. What a return since I've been getting 5% on my money market). S&P weighted average since inception (3/6/07) = 8.06% or 5.68% annual average.
Yeeeeesh.
Yeeeeesh.
Litany of Boredom and Frustration
That's what this is starting to sound like. Plus, it's an excuse to quote the Police (saw them this past Friday night...great concert, only we had possibly the worst seats available in Madison Square Garden (but at least we weren't behind the stage)). Back on topic...
Despite the moaning and groaning, I remain committed to the MFI method. Yesterday the MFI fund didn't increase as much as the rest of the market due to a big hit to EPIQ...it dropped over 14% on poor earnings. Fortunately, due to other gains, the MFI fund rose .16% vs. an S&P rise of 1.41%.
What did make me feel good is that the upcoming tranches continued to rise nicely. The September tranche continues to whomp the benchmark, currently standing at 38.3% vs. 17.55% for VFINX. The November tranche, which I recently wrote was on its way to being the first tranche to lose principal is almost back in the black, sitting at a -.31% loss vs. 9.75% for VFINX.
Beyond that, only the January tranche is ahead of the benchmark and not a loss, standing at 11.11% vs. 7.03%. With the rest, I certainly know from a year and 5 months on MFI that time will tell. A lot can happen in the 7 months till those tranches start to become due.
Despite the moaning and groaning, I remain committed to the MFI method. Yesterday the MFI fund didn't increase as much as the rest of the market due to a big hit to EPIQ...it dropped over 14% on poor earnings. Fortunately, due to other gains, the MFI fund rose .16% vs. an S&P rise of 1.41%.
What did make me feel good is that the upcoming tranches continued to rise nicely. The September tranche continues to whomp the benchmark, currently standing at 38.3% vs. 17.55% for VFINX. The November tranche, which I recently wrote was on its way to being the first tranche to lose principal is almost back in the black, sitting at a -.31% loss vs. 9.75% for VFINX.
Beyond that, only the January tranche is ahead of the benchmark and not a loss, standing at 11.11% vs. 7.03%. With the rest, I certainly know from a year and 5 months on MFI that time will tell. A lot can happen in the 7 months till those tranches start to become due.
Tuesday, August 7, 2007
Sad, sad days
Well, I'll start with the good news. On a weighted average, I'm still up over the S&P 500. That matters more, since that's my "real money" compared to if it had been invested in an S&P index fund. Weighted average return since inception = 12.22% vs S&P weighted of 9.81%. This is thanks to the earlier days when I did lag the index.
The sad thing is that yesterday, for the first time, my tranche analysis was below the benchmark (VFINX). Today it stands at MFI tranches (open and closed) = 6.95% and VFINX tranches = 7.84% (it was worse today than yesterday because the MFI fund went down while the market went up).
Today's sad news is the MFI fund's price per share over the inception price fell below the S&P 500 gain for the first time since it crossed it on 12/22/06. MFI gain since inception (non-weighted) = 14.9%. S&P 500 = 15.53%. The fund has lost nearly 15% in value since 7/19. Only three weeks.
Year to date the MFI fund is up 2.21% vs. the S&P 500 at 4.12%.
It will be interesting to see what happens next, but I hope the bloodletting is done. A 15% decline is plenty.
The sad thing is that yesterday, for the first time, my tranche analysis was below the benchmark (VFINX). Today it stands at MFI tranches (open and closed) = 6.95% and VFINX tranches = 7.84% (it was worse today than yesterday because the MFI fund went down while the market went up).
Today's sad news is the MFI fund's price per share over the inception price fell below the S&P 500 gain for the first time since it crossed it on 12/22/06. MFI gain since inception (non-weighted) = 14.9%. S&P 500 = 15.53%. The fund has lost nearly 15% in value since 7/19. Only three weeks.
Year to date the MFI fund is up 2.21% vs. the S&P 500 at 4.12%.
It will be interesting to see what happens next, but I hope the bloodletting is done. A 15% decline is plenty.
Friday, August 3, 2007
Amendment
One additional thought...when I ask if there's a better method than random, let me clarify that I am not comparing this methodology to professionals who spend their full time analyzing companies, etc. I am referring solely to a methodology that is appropriate for someone who is investing on their own but cannot devote the amount of time needed to really identify and track good investments. Nevertheless, plenty of pros do pretty crappy.
Is thinking bad?
Coming back to the topic of allowing bias into the MFI methodology. I was looking at some other blogs and came across this particular one regarding FTD.
Even though it was an MFI selection, this blogger chose to avoid FTD based on a further evaluation, some of which was qualitative. The result? Assuming he had bought FTD on the date of his post and sold it exactly one year later, he would have had a 117% gain!
I don't suggest this blogger is unintelligent. Far from it, he strikes me as very intelligent. In fact, he came up with a very interesting idea. He took the principles in another value investing methodology and cross referenced it with MFI to see if he could further refine the MFI selection process.
Since these selections were made over a year ago, I decided to check the results. The average return, adjusted for splits and dividends, was 24.9% vs. S&P 500 at 21.5%, a respectable 3.5% spread over the index. Here were the results:
(split & div adjusted)
5/30/06 5/30/07 Return
AEO, 20.54, 26.98, 31.4%
BEBE, 14.11, 17.61, 24.8%
DECK, 35.22, 86.87, 146.6%
HNR, 13.74, 9.44, -31.3%
HRB, 21.9, 23.46, 7.1%
KSWS, 26.44, 28.77, 8.8%
NUE, 50.26, 67.17, 33.6%
PTEN, 28.15, 26.4, -6.2%
USNA, 37.25, 40.76, 9.4%
Avg, 24.9%
Sorry, I don't know how to make a pretty chart yet on this thing.
So, the best I could do is compare this to the MFI "fund" on those dates which had a 31.8% return. But that's not fair because the selections above are at one point in time and the MFI Fund benefits from other "tranches". So, I next compared it to my tranche from 5/8/06, which is as close as I'm going to get to those selections. My return on that tranche was 27%. And, for context, between 5/8/06 and 5/30/06, the S&P 500 declined by 5%. Therefore, the 24.9% return above was after buying into a lower market than I did at 5/8/06. (Plus, 5/7/07 to 5/30/07, the market increased 1.4%, which further strengthens the argument, but that's nominal).
Now, as I've said many times, one example does not prove anything. But, consistently, I seem to be finding that entering bias into the system hurts the results.
I'd be curious to see if anyone else has seen a system that has been resulting in better returns. I'd like to stress, I don't know that random is better...it's still too soon to tell, but I haven't found a better methodology yet.
-A
PS. Incidentally, despite my comparison above, I do find his combination of two successful methods to be an intriguing idea. I may play around with it on a mock portfolio to see what happens. Has anyone else done this?
Even though it was an MFI selection, this blogger chose to avoid FTD based on a further evaluation, some of which was qualitative. The result? Assuming he had bought FTD on the date of his post and sold it exactly one year later, he would have had a 117% gain!
I don't suggest this blogger is unintelligent. Far from it, he strikes me as very intelligent. In fact, he came up with a very interesting idea. He took the principles in another value investing methodology and cross referenced it with MFI to see if he could further refine the MFI selection process.
Since these selections were made over a year ago, I decided to check the results. The average return, adjusted for splits and dividends, was 24.9% vs. S&P 500 at 21.5%, a respectable 3.5% spread over the index. Here were the results:
(split & div adjusted)
5/30/06 5/30/07 Return
AEO, 20.54, 26.98, 31.4%
BEBE, 14.11, 17.61, 24.8%
DECK, 35.22, 86.87, 146.6%
HNR, 13.74, 9.44, -31.3%
HRB, 21.9, 23.46, 7.1%
KSWS, 26.44, 28.77, 8.8%
NUE, 50.26, 67.17, 33.6%
PTEN, 28.15, 26.4, -6.2%
USNA, 37.25, 40.76, 9.4%
Avg, 24.9%
Sorry, I don't know how to make a pretty chart yet on this thing.
So, the best I could do is compare this to the MFI "fund" on those dates which had a 31.8% return. But that's not fair because the selections above are at one point in time and the MFI Fund benefits from other "tranches". So, I next compared it to my tranche from 5/8/06, which is as close as I'm going to get to those selections. My return on that tranche was 27%. And, for context, between 5/8/06 and 5/30/06, the S&P 500 declined by 5%. Therefore, the 24.9% return above was after buying into a lower market than I did at 5/8/06. (Plus, 5/7/07 to 5/30/07, the market increased 1.4%, which further strengthens the argument, but that's nominal).
Now, as I've said many times, one example does not prove anything. But, consistently, I seem to be finding that entering bias into the system hurts the results.
I'd be curious to see if anyone else has seen a system that has been resulting in better returns. I'd like to stress, I don't know that random is better...it's still too soon to tell, but I haven't found a better methodology yet.
-A
PS. Incidentally, despite my comparison above, I do find his combination of two successful methods to be an intriguing idea. I may play around with it on a mock portfolio to see what happens. Has anyone else done this?
Thursday, August 2, 2007
Tranche update
Now that (hopefully) the bleeding has slowed, let's take a look at where my tranches stand overall and vs. the benchmark (VFINX)
Purchase date, MFI return, VFINX return
9/06, 37.59%, 15.52%. Ahh, remember the high-flying days when this one was up nearly 60%, led by WNR and FTO? So nice. Still, I'll take a nearly 38% return one month shy of a year any day.
11/06, -1.30%, 7.85%. Will this tranche be the first to actually lose principal? Its poor performance is led by the wipeout that is CLHI, a company in liquidation (half of which has already been distributed) and VCI, which was once nicely up but is now down due to poor 2Q results after a recent acquisition. This title says it all: Valassis 2Q Profit Falls 50 Percent. Lovely. The saving grace of this tranche is FCX, up 51.27%.
1/07, 6.75%, 5.18%. Slight pace ahead of the market. Led by OVTI (28.43% gain) and TRLG (14.75% gain) and dragged down by RAIL (17.02% loss)
3/07, -5.05%, 6.44%. THIS one hurts! 4 loss positions, ranging from a 3.52% loss (PNCL) to a 23.74% loss (OPTI). Only one gain position, LRW at 28.23%. Still more than half a year to go, and much could happen, but OUCH.
5/07, -1.92%, -2.05%. My MFI fund has already given back all its gains since May. All told, this is line with the market as far as I'm concerned. One high flyer, FDG at a 26.26% gain offset primarily by one big loser, MTEX at a 34.54% loss thanks to the Texas AG and a poor 2Q.
7/07, -4.07%, -3.71%. Basically even with the market. Actually has 3 solid gain positions, ranging from 3.24% (EPIQ) to 9.46% (LRCX). Unfortunately, dragged down horrendously by IVAC (29.94%) thanks to a reduced outlook.
Still, overall ahead of the benchmark. Return for open and closed tranches = 9.37% MFI vs. 7.62% VFINX. Overall weighted return since inception for MFI = 16.26% vs. S&P 500 = 9.48% (annualized amounts weighted = approx. 11.48% MFI vs. 6.69% S&P 500. Works for me.
Current MFI Fund price = $51.14/share. Last time at this price was 5/10/07. Peak was on 7/19/07 at $57.93. How's that for a fast decline (of nearly 12%!). The S&P in that same time frame lost nearly 6%. That's in only 10 trading days! Well, this is definitely not boring...
Purchase date, MFI return, VFINX return
9/06, 37.59%, 15.52%. Ahh, remember the high-flying days when this one was up nearly 60%, led by WNR and FTO? So nice. Still, I'll take a nearly 38% return one month shy of a year any day.
11/06, -1.30%, 7.85%. Will this tranche be the first to actually lose principal? Its poor performance is led by the wipeout that is CLHI, a company in liquidation (half of which has already been distributed) and VCI, which was once nicely up but is now down due to poor 2Q results after a recent acquisition. This title says it all: Valassis 2Q Profit Falls 50 Percent. Lovely. The saving grace of this tranche is FCX, up 51.27%.
1/07, 6.75%, 5.18%. Slight pace ahead of the market. Led by OVTI (28.43% gain) and TRLG (14.75% gain) and dragged down by RAIL (17.02% loss)
3/07, -5.05%, 6.44%. THIS one hurts! 4 loss positions, ranging from a 3.52% loss (PNCL) to a 23.74% loss (OPTI). Only one gain position, LRW at 28.23%. Still more than half a year to go, and much could happen, but OUCH.
5/07, -1.92%, -2.05%. My MFI fund has already given back all its gains since May. All told, this is line with the market as far as I'm concerned. One high flyer, FDG at a 26.26% gain offset primarily by one big loser, MTEX at a 34.54% loss thanks to the Texas AG and a poor 2Q.
7/07, -4.07%, -3.71%. Basically even with the market. Actually has 3 solid gain positions, ranging from 3.24% (EPIQ) to 9.46% (LRCX). Unfortunately, dragged down horrendously by IVAC (29.94%) thanks to a reduced outlook.
Still, overall ahead of the benchmark. Return for open and closed tranches = 9.37% MFI vs. 7.62% VFINX. Overall weighted return since inception for MFI = 16.26% vs. S&P 500 = 9.48% (annualized amounts weighted = approx. 11.48% MFI vs. 6.69% S&P 500. Works for me.
Current MFI Fund price = $51.14/share. Last time at this price was 5/10/07. Peak was on 7/19/07 at $57.93. How's that for a fast decline (of nearly 12%!). The S&P in that same time frame lost nearly 6%. That's in only 10 trading days! Well, this is definitely not boring...
Tuesday, July 31, 2007
IVAC explanation
Found the reason that IVAC's heading south:
Intevac Slides on Disappointing Outlook.
Well, at least that explains it. That might also explain why they chose to have their earnings announcement late in the day.
Intevac Slides on Disappointing Outlook.
Well, at least that explains it. That might also explain why they chose to have their earnings announcement late in the day.
Let's talk about something other than declines...
Well, actually, I'm still going to talk about declines, but not just how much stocks have gone down in the past few weeks. I was curious how many positions I hold that are sitting with a loss but are still showing on the MFI screener, implying that they have a potential to rise. I have a feeling some of them may not rise. Let's see what we have:
ASPV, 3.84% loss, purchased 11/06 - still on list. They're actually scheduled to release earnings tomorrow. They recently announced a restructuring. My favorite sentence in this press release: "This reorganization reflects the company's plan to refocus resources and create a more flexible global platform for exploiting new product opportunities through partnerships or acquisitions." Someone paid a lot for that MBA and they're determined to use it! I recall an MBA course in my master's program where I used to keep count of the number of "buzz-words" that the professor used by drawing a little fly in my notebook. By the end of the semester, my notebook was infested. Sounding fancy almost always implies that you're trying to put lipstick on a pig. As I've made clear time and again, I don't follow any of these companies closely enough to make a judgement, and I trust in the MFI method, but I worry about language like that. On the bright side, ASPV expects revenues to rise.
IVAC, 13.17% loss, 7/07 - it's simply too early for me to get worked up about this, since I bought it just before the market decline. They released earnings yesterday and slightly beat analyst estimates. However, for some reason this article says the stock declined 12% in after hours trading yesterday. I have no idea yet why.
KSWS, 18.98% loss, 3/07 - I think this one is on its way to dropping off the list. The list hasn't been updated for 2Q earnings yet, which fell. Additionally, they're predicting a further fall in 3Q. Don't know if this one will recover by the time a year is up and I have no idea if it will end up on the new list.
MTEX, 37.47% loss, 5/07 - Don't even get me started on this one. Class action law suit followed by poor 2Q earnings. I think this is another one that will drop off as soon as earnings are updated on the screener. Even if it doesn't, it's been beaten down because of the lawsuit and likely will stay that way for a long time.
So, why don't I move on? Well, again, as I've said over and over, if I start guessing, I'll probably make things worse (overall). There are many gains I would have missed. My favorite example remains FDG. As I said previously, I chose to hold it after the one year was up and it was still in the list, even though I was sitting on a nearly 23% loss. I even bought more. Since then, it's been one of my high flyers, up 27% since 5/7/07 (vs. a 1.97% loss in the S&P index fund).
BUT...I will be very surprised if MTEX recovers. We'll see. It's got a long way to go in my MFI fund.
NOOF, 4.17% loss, 3/07 - Here's what Motley Fool has to say about NOOF. Showing just how much I look into things on MFI, I didn't even know this was an adult entertainment stock. Should I worry if that industry has trouble making money? They're announcing earnings on 8/8. We'll see what happens.
PACR, 9.41% loss, 7/07 - Another one that's too early to get worked up about. Interestingly, while looking up information, I came across a recommendation on forbes.com from 7/18 recommending this stock. That's not the interesting part. The interesting part is that the most recent recommendation on the site is to invest in FCX, which I'm already sitting on a 56% gain since 11/06. That one is no longer on MFI, but I wouldn't mind seeing it rise some more.
PNCL, 3.64% loss, 3/07 - My superstar from Tranche 1 (3/06), which gave me a 145% gain (some of which I realized) has been hovering around its 3/07 "purchase" price. It still strikes me as a solid company, though, and I think things will improve. Hmm, I'll have to remember to look back at this post later on to see if my ideas are worth anything...
That's it for stocks in a loss position still on the list. We'll see what happens because I do think a few are going to fall off the list.
ASPV, 3.84% loss, purchased 11/06 - still on list. They're actually scheduled to release earnings tomorrow. They recently announced a restructuring. My favorite sentence in this press release: "This reorganization reflects the company's plan to refocus resources and create a more flexible global platform for exploiting new product opportunities through partnerships or acquisitions." Someone paid a lot for that MBA and they're determined to use it! I recall an MBA course in my master's program where I used to keep count of the number of "buzz-words" that the professor used by drawing a little fly in my notebook. By the end of the semester, my notebook was infested. Sounding fancy almost always implies that you're trying to put lipstick on a pig. As I've made clear time and again, I don't follow any of these companies closely enough to make a judgement, and I trust in the MFI method, but I worry about language like that. On the bright side, ASPV expects revenues to rise.
IVAC, 13.17% loss, 7/07 - it's simply too early for me to get worked up about this, since I bought it just before the market decline. They released earnings yesterday and slightly beat analyst estimates. However, for some reason this article says the stock declined 12% in after hours trading yesterday. I have no idea yet why.
KSWS, 18.98% loss, 3/07 - I think this one is on its way to dropping off the list. The list hasn't been updated for 2Q earnings yet, which fell. Additionally, they're predicting a further fall in 3Q. Don't know if this one will recover by the time a year is up and I have no idea if it will end up on the new list.
MTEX, 37.47% loss, 5/07 - Don't even get me started on this one. Class action law suit followed by poor 2Q earnings. I think this is another one that will drop off as soon as earnings are updated on the screener. Even if it doesn't, it's been beaten down because of the lawsuit and likely will stay that way for a long time.
So, why don't I move on? Well, again, as I've said over and over, if I start guessing, I'll probably make things worse (overall). There are many gains I would have missed. My favorite example remains FDG. As I said previously, I chose to hold it after the one year was up and it was still in the list, even though I was sitting on a nearly 23% loss. I even bought more. Since then, it's been one of my high flyers, up 27% since 5/7/07 (vs. a 1.97% loss in the S&P index fund).
BUT...I will be very surprised if MTEX recovers. We'll see. It's got a long way to go in my MFI fund.
NOOF, 4.17% loss, 3/07 - Here's what Motley Fool has to say about NOOF. Showing just how much I look into things on MFI, I didn't even know this was an adult entertainment stock. Should I worry if that industry has trouble making money? They're announcing earnings on 8/8. We'll see what happens.
PACR, 9.41% loss, 7/07 - Another one that's too early to get worked up about. Interestingly, while looking up information, I came across a recommendation on forbes.com from 7/18 recommending this stock. That's not the interesting part. The interesting part is that the most recent recommendation on the site is to invest in FCX, which I'm already sitting on a 56% gain since 11/06. That one is no longer on MFI, but I wouldn't mind seeing it rise some more.
PNCL, 3.64% loss, 3/07 - My superstar from Tranche 1 (3/06), which gave me a 145% gain (some of which I realized) has been hovering around its 3/07 "purchase" price. It still strikes me as a solid company, though, and I think things will improve. Hmm, I'll have to remember to look back at this post later on to see if my ideas are worth anything...
That's it for stocks in a loss position still on the list. We'll see what happens because I do think a few are going to fall off the list.
Sunday, July 29, 2007
Perspective
9.34%. That was the amount that the MFI fund fell in the last two weeks. 8.46% in the past week alone. Rough week? Well, depends on how you look at it I suppose. The fund gave back pretty much all of its gains since May. But, since Jan. 1, it's still up 7.54%. For the trailing 12 months, up a whopping 38.4%. And, since inception, still up 20.88% (18.07% on a weighted basis...as a reminder, the "MFI Fund" is the share price if one were to treat my portfolio like a mutual fund. It calculates gains based on "share price". Weighted is based on the actual timing of the dollars invested).
Even without comparing to the S&P 500, these are pretty nice numbers. S&P was 3.87% since Jan 1, 16.6% for trailing 12 months, and 15.25% since MFI fund inception (9.55% weighted).
Do I wish I had sold WNR when it was up 200% only three weeks ago vs. 142% now? Sure. Could I have predicted that? No. And I probably would have sold when it was up 100% (or lower) and would have missed that extra portion of gains. It works both ways. I continue to believe in the MFI method.
Even without comparing to the S&P 500, these are pretty nice numbers. S&P was 3.87% since Jan 1, 16.6% for trailing 12 months, and 15.25% since MFI fund inception (9.55% weighted).
Do I wish I had sold WNR when it was up 200% only three weeks ago vs. 142% now? Sure. Could I have predicted that? No. And I probably would have sold when it was up 100% (or lower) and would have missed that extra portion of gains. It works both ways. I continue to believe in the MFI method.
Thursday, July 26, 2007
Maybe I shouldn't go on vacation...
...or, The Two Week Massacre! I was away last week and haven't had a chance until tonight to update all my analyses, but saw when I got home on Sunday that it had been a bad week for my portfolio. Then, this week continued the slide, mostly driven by a significant decline in WNR, my high flyer (but today JAKK dropped 15% after its earnings dropped).
It's funny, I'm sitting on a 148% gain on WNR, and I'm upset because I was at 200%. Seems the driver of the decline has been skittishness (is that a word??) about the near-term prospects for refineries. FTO fell behind as well.
Basically everything went down, with few exceptions (and the broader market followed suit this week).
That's the bad news. Good news is that I'm still well ahead of the benchmark. Weighted return since inception for MFI = 23.23% vs. 12.88% for S&P 500. Average annual gain on all open and closed tranches (not annualizing open tranches) = 13.54% for MFI vs. 9.87% for VFINX.
Maybe I should just go back on vacation...I prefer the rollercoasters on the boardwalk!
It's funny, I'm sitting on a 148% gain on WNR, and I'm upset because I was at 200%. Seems the driver of the decline has been skittishness (is that a word??) about the near-term prospects for refineries. FTO fell behind as well.
Basically everything went down, with few exceptions (and the broader market followed suit this week).
That's the bad news. Good news is that I'm still well ahead of the benchmark. Weighted return since inception for MFI = 23.23% vs. 12.88% for S&P 500. Average annual gain on all open and closed tranches (not annualizing open tranches) = 13.54% for MFI vs. 9.87% for VFINX.
Maybe I should just go back on vacation...I prefer the rollercoasters on the boardwalk!
Friday, July 13, 2007
AEO follow-up
American Eagle (AEO) was my first MFI stock to "hit", jumping up early in my holding period and growing relatively steadily. I ended up with a handsome 49.8% gain realized in March.
I was just reading an article on the stock and was interested to see it has barely budged since I sold it in March. AEO was no longer in the MFI list, so I didn't keep it. Since then, the stock has declined 2.8%. Not much, but that included a 3 month run where it declined by 13.1%, so it was apparently up at first. It will be interesting to see by March of next year what the ultimate result will be for the year, mainly as a study in what happens to a stock after you sell it when it drops off the list.
I think I'll set up a tracking portfolio for that, but not for a little while as I'm off on a vacation next week.
-A
I was just reading an article on the stock and was interested to see it has barely budged since I sold it in March. AEO was no longer in the MFI list, so I didn't keep it. Since then, the stock has declined 2.8%. Not much, but that included a 3 month run where it declined by 13.1%, so it was apparently up at first. It will be interesting to see by March of next year what the ultimate result will be for the year, mainly as a study in what happens to a stock after you sell it when it drops off the list.
I think I'll set up a tracking portfolio for that, but not for a little while as I'm off on a vacation next week.
-A
Tuesday, July 10, 2007
Need a new word
I'm getting tired of using the word "tranche." It's actually an inside joke (which doesn't make sense to use here) because I have a client who loved to use the word tranche, only he used the European "traunche"... this is America dammit!! (On an aside, my nephew plays the French Horn (and no, he doesn't get beat up regularly) and I informed him that we would be calling it the Freedom Horn from here on)
Still, "group"? "Batch"? "Desperate attempt to make money"? Invent a word?
Still, "group"? "Batch"? "Desperate attempt to make money"? Invent a word?
Monday, July 9, 2007
New Tranche!
(First of all, I found the workaround for the title thing...turns out this is a known problem they're trying to fix...)
So, what did random.org pick for me today? (drum roll please...)
EPIQ
IVAC
LRCX
PACR
PBT
We'll see how it does. Final tally for the 7/06 tranche, 12.61% gain vs. VFINX gain of 22.55%. My first laggard tranche. (of course, I'd take steady gains of 12.61% over many many years...)
Cumulative of closed tranches: 17.16% vs. VFINX at 10.52%
Cumulative closed and open: 22.8% vs. VFINX 16.1%
Weighted gain life to date: 29.34% vs. VFINX 13.91%
Best stock WNR at 196.55% and still climbing
Worst FORD at a closed loss of 53.87%
-A
So, what did random.org pick for me today? (drum roll please...)
EPIQ
IVAC
LRCX
PACR
PBT
We'll see how it does. Final tally for the 7/06 tranche, 12.61% gain vs. VFINX gain of 22.55%. My first laggard tranche. (of course, I'd take steady gains of 12.61% over many many years...)
Cumulative of closed tranches: 17.16% vs. VFINX at 10.52%
Cumulative closed and open: 22.8% vs. VFINX 16.1%
Weighted gain life to date: 29.34% vs. VFINX 13.91%
Best stock WNR at 196.55% and still climbing
Worst FORD at a closed loss of 53.87%
-A
Friday, July 6, 2007
Some go up...some go down
Big drop in MTEX today. Apparently, someone was misbehaving. Take a look:
Texas AG Sues Mannatech
Caused a 23.44% decline in the stock today, and for me went from being approx. 5% up to 19% down. This was from my May acquisitions, which were beating the benchmark by 10 points. Now it's only leading the benchmark by 6 points. The overall fund is only down today 0.23%. Let's hear it for diversification!
Meanwhile, WNR has continued its ascent. As of today it is up 192% since my November acquisition. Nice.
Monday is the big day for the new July tranche. The 7/06 group looks like it's ending up at 13.76% for the year vs. 22.55% for the benchmark, my first lower tranche (out of 3 complete now with this one).
-A
ps. for some reason this blog interface won't let me type a title today. oh, well. (fixed on 7/10)
Texas AG Sues Mannatech
Caused a 23.44% decline in the stock today, and for me went from being approx. 5% up to 19% down. This was from my May acquisitions, which were beating the benchmark by 10 points. Now it's only leading the benchmark by 6 points. The overall fund is only down today 0.23%. Let's hear it for diversification!
Meanwhile, WNR has continued its ascent. As of today it is up 192% since my November acquisition. Nice.
Monday is the big day for the new July tranche. The 7/06 group looks like it's ending up at 13.76% for the year vs. 22.55% for the benchmark, my first lower tranche (out of 3 complete now with this one).
-A
ps. for some reason this blog interface won't let me type a title today. oh, well. (fixed on 7/10)
Sunday, July 1, 2007
On Benchmarking
There was an interesting article in the WSJ this week about picking the proper index to compare your investing results against. One point it made was that comparing to the S&P 500 is often an improper benchmark since it is 500 large U.S. stocks, whereas a portfolio may consist of small caps, mid-caps, foreign, etc., all of which have done very well over the past few years.
Since the MFI Fund that I am maintaining is primarily small caps, with a very few mid-caps, a more accurate benchmark would likely be the Russell 2000 index. The article goes on to state that usually the best benchmark to use for your overall investment strategy is a combination of benchmarks to match your overall asset allocation strategy. (On a personal note, when I started my portfolio, I was primarily comparing it to the Fidelity Freedom target retirement fund that is a core holding in my retirement plan, since it is where I "would have" put this money had I not started investing under MFI, so that is basically a diversified benchmark).
Well, I'm going to stick to the S&P for a couple of reasons. One, I don't feel like tracking another benchmark (how's that for honesty?). Two, the S&P 500 and the Russell 2000 have not been so far apart as to make a difference for the amount I've been fortunate enough to beat them by this past year and 4 months. Three, most funds compare themselves to the S&P 500 so I'm really only being consistent.
But it's mostly the first reason. :)
-A
Since the MFI Fund that I am maintaining is primarily small caps, with a very few mid-caps, a more accurate benchmark would likely be the Russell 2000 index. The article goes on to state that usually the best benchmark to use for your overall investment strategy is a combination of benchmarks to match your overall asset allocation strategy. (On a personal note, when I started my portfolio, I was primarily comparing it to the Fidelity Freedom target retirement fund that is a core holding in my retirement plan, since it is where I "would have" put this money had I not started investing under MFI, so that is basically a diversified benchmark).
Well, I'm going to stick to the S&P for a couple of reasons. One, I don't feel like tracking another benchmark (how's that for honesty?). Two, the S&P 500 and the Russell 2000 have not been so far apart as to make a difference for the amount I've been fortunate enough to beat them by this past year and 4 months. Three, most funds compare themselves to the S&P 500 so I'm really only being consistent.
But it's mostly the first reason. :)
-A
Q/E 6/30/07 reporting
Well, since I'm treating my portfolio as if it were a mock fund, it's time for end of quarter reporting. Share price as of 6/29/07 = $55.74. 52 week high was $55.91 on 6/19/07. 52 week low was $37.08 on 7/28/06.
Period, MFI return, S&P 500 return
1 month, 7.50%, -1.78%
3 month, 10.49%, 5.81%
6 month (YTD), 15.42%, 6.00%
1 year, 40.07%, 18.36%
Since inception (3/6/06), 29.74%, 17.61%
Average annual since inception, 22.31%, 13.21%
Current 10 largest holdings:
Western Refining (WNR) 7.3%
Labor Ready (LRW) 4.8%
Fording Canadian Coal Trust (FDG) 4.7%
Jakks Pacific (JAKK) 4.2%
Pinnacle Airlines (PNCL) 4.1%
Axcan Pharma Inc (AXCA) 4.1%
Frontier Oil Corp (FTO) 4.0%
Mannatech Inc (MTEX) 4.0%
Mocon Inc (MOCO) 3.9%
Freeport McMoran Copper & Gold (FCX) 3.8%
Period, MFI return, S&P 500 return
1 month, 7.50%, -1.78%
3 month, 10.49%, 5.81%
6 month (YTD), 15.42%, 6.00%
1 year, 40.07%, 18.36%
Since inception (3/6/06), 29.74%, 17.61%
Average annual since inception, 22.31%, 13.21%
Current 10 largest holdings:
Western Refining (WNR) 7.3%
Labor Ready (LRW) 4.8%
Fording Canadian Coal Trust (FDG) 4.7%
Jakks Pacific (JAKK) 4.2%
Pinnacle Airlines (PNCL) 4.1%
Axcan Pharma Inc (AXCA) 4.1%
Frontier Oil Corp (FTO) 4.0%
Mannatech Inc (MTEX) 4.0%
Mocon Inc (MOCO) 3.9%
Freeport McMoran Copper & Gold (FCX) 3.8%
Monday, June 25, 2007
PWEI RIP
One of my holdings, PW Eagle (PWEI), was bought out today by a private company PW Eagle says $400 Million Buyout is Complete. Ended up with a slight loss, which was ok since it was a slightly greater loss the whole time I owned it.
TRLG jumped 10% today as a result of an analyst's change in recommendation. Technically, nothing changed about the company today that I'm aware of. It's "Mr. Market" in action. This increase slightly offset an overall general decline today. My net decline for the day was equivalent to the S&P 500's decline of .32% (I don't EVER get worked up about market declines in points. ONLY percentage. I remember when the market dipped in February the headlines screaming that it was one of the largest declines ever...in dollars. In percent, there was a similar decline on average every year. Naturally, after this, the market had a powerful run up which is now losing considerable steam.
I think Joel Greenblatt is right. Even having revealed that this system works, no one needs to worry about everyone adopting it. Most people are just too irrational about it and undisciplined.
TRLG jumped 10% today as a result of an analyst's change in recommendation. Technically, nothing changed about the company today that I'm aware of. It's "Mr. Market" in action. This increase slightly offset an overall general decline today. My net decline for the day was equivalent to the S&P 500's decline of .32% (I don't EVER get worked up about market declines in points. ONLY percentage. I remember when the market dipped in February the headlines screaming that it was one of the largest declines ever...in dollars. In percent, there was a similar decline on average every year. Naturally, after this, the market had a powerful run up which is now losing considerable steam.
I think Joel Greenblatt is right. Even having revealed that this system works, no one needs to worry about everyone adopting it. Most people are just too irrational about it and undisciplined.
Thursday, June 21, 2007
Steady as she goes...
HNR has settled down a bit, but is still at a handsome gain of 19.46% right now. The best part about it, is that it brought up a "lagging" tranche. I've been comparing each batch of 5 stocks purchased every two months against a comparable purchase of VFINX, Vanguard's S&P 500 index (with all distributions reinvested). Here's where they all stand:
Purchase date, MFI gain, VFINX gain
3/06, 28.80%, 11.04% (CLOSED)
5/06, 27.01%, 14.80% (CLOSED)
7/06, 14.97%, 21.81% (OPEN - all following are still open)
9/06, 49.17%, 19.24%
11/06, 13.33%, 11.33%
1/07, 11.12%, 8.56%
3/07, 1.57%, 9.86%
5/07, 8.77%, 1.11%
Overall average (weighted):
MFI 18.04%, VFINX 11.60%
I'm very happy that of all of these, only two tranches lagged the market, and with no overall loss in any tranche. Plus, 3/07 is really too soon to see where it will end up. Naturally, several of the results were due to one or two "outliers" within the tranche. Examples:
3/06 PNCL 145% gain and AEO 50% gain, offset by FORD 54% loss
5/06 VPHM 59% gain, MVL 44% gain, KMG (Kerr McGee, no longer listed) 36% gain, offset by a loss on FDG of 23%
7/06 KFY up 35%, IVII 28% gain (no longer listed), offset by ORCT down 13%
9/06 WNR up 154%, FTO up 50%
11/06 FCX up 39%, CRYP up 36%, offset by CLHI down 32%
1/07 HNR up 19%, OVTI up 23%, TRLG up 24%, offset by PWEI down 3% and RAIL down 9%
3/07 LRW up 27% offset by OPTI down 24%
5/07 FDG up 20%, JAKK up 14% (I lost 7% on JAKK in the 3/06 tranche)
FORD by far my biggest stinker, PNCL and WNR by far my biggest winners.
Purchase date, MFI gain, VFINX gain
3/06, 28.80%, 11.04% (CLOSED)
5/06, 27.01%, 14.80% (CLOSED)
7/06, 14.97%, 21.81% (OPEN - all following are still open)
9/06, 49.17%, 19.24%
11/06, 13.33%, 11.33%
1/07, 11.12%, 8.56%
3/07, 1.57%, 9.86%
5/07, 8.77%, 1.11%
Overall average (weighted):
MFI 18.04%, VFINX 11.60%
I'm very happy that of all of these, only two tranches lagged the market, and with no overall loss in any tranche. Plus, 3/07 is really too soon to see where it will end up. Naturally, several of the results were due to one or two "outliers" within the tranche. Examples:
3/06 PNCL 145% gain and AEO 50% gain, offset by FORD 54% loss
5/06 VPHM 59% gain, MVL 44% gain, KMG (Kerr McGee, no longer listed) 36% gain, offset by a loss on FDG of 23%
7/06 KFY up 35%, IVII 28% gain (no longer listed), offset by ORCT down 13%
9/06 WNR up 154%, FTO up 50%
11/06 FCX up 39%, CRYP up 36%, offset by CLHI down 32%
1/07 HNR up 19%, OVTI up 23%, TRLG up 24%, offset by PWEI down 3% and RAIL down 9%
3/07 LRW up 27% offset by OPTI down 24%
5/07 FDG up 20%, JAKK up 14% (I lost 7% on JAKK in the 3/06 tranche)
FORD by far my biggest stinker, PNCL and WNR by far my biggest winners.
Tuesday, June 19, 2007
Is being random gambling?
It's funny, on MG's blog http://justadrone.blogspot.com (highly recommended reading), Travis commented that "flipping a coin" (in this case, my use of random.org) seemed too much like gambling. I respect that view, and it's not unlike comments made by a very good friend of mine, ever since I first started discussing MFI and my methodology with him. In fact, whenever I tell him about a stock movement in my MFI portfolio, we refer to it as my "dartboard" stocks.
But, am I in fact gambling? Perhaps. Much less so, I would venture, than someone in Vegas or someone buying a lottery ticket. In fact, significantly less so, I believe. Let's think about it.
I re-read The Little Book that Beats the Market recently for some insight. Let's start with this tidbit. If I select one of 25 stocks from the MFI website, I am picking the top 25 stocks over a certain threshold (in my case, I use the minimum, $50M) based on the MFI criteria. Now, I don't consider the MFI criteria to be a gambling method. I think it's very sound reasoning. Well run companies trading cheaply. Basic value investing.
So, when you have these 25 stocks, that's 25 stocks out of a universe of 3,500 stocks. You are now in the top 0.7% of the MFI stock universe. Consider it to be the inverse of the concept that buying 2 lottery tickets doesn't remotely improve your odds of winning. The difference between any of the top 25 stocks in the MFI universe is minute (at least from a percentile perspective).
However, within those 25, there will be winners and there will be losers. Hence the need for diversification. I'll be interested to see the result of Tony's study http://magicformulainvestor.blogspot.com to get an idea of the ratio. Because I do not have the time or inclination to research individual stocks sufficiently to do better than a "dartboard" approach, I actually think it is more likely than not that my conscious picks will lean towards the losers! I think I'd be gambling more if I tried to pick them myself!
Instead, by utilizing a random method, I am investing with the MFI methodology in an unbiased manner.
The other thing I am doing that I think will make a difference (though only time will tell) is following the methodology rather strictly. Buy and hold for a year. Buying at even intervals through the year. And I am absolutely not trying to time the market. If I really had the ability to time the market, I'd be a wealthy, and probably famous man. I am neither. Don't care about the latter, but working on the former. :)
-A
But, am I in fact gambling? Perhaps. Much less so, I would venture, than someone in Vegas or someone buying a lottery ticket. In fact, significantly less so, I believe. Let's think about it.
I re-read The Little Book that Beats the Market recently for some insight. Let's start with this tidbit. If I select one of 25 stocks from the MFI website, I am picking the top 25 stocks over a certain threshold (in my case, I use the minimum, $50M) based on the MFI criteria. Now, I don't consider the MFI criteria to be a gambling method. I think it's very sound reasoning. Well run companies trading cheaply. Basic value investing.
So, when you have these 25 stocks, that's 25 stocks out of a universe of 3,500 stocks. You are now in the top 0.7% of the MFI stock universe. Consider it to be the inverse of the concept that buying 2 lottery tickets doesn't remotely improve your odds of winning. The difference between any of the top 25 stocks in the MFI universe is minute (at least from a percentile perspective).
However, within those 25, there will be winners and there will be losers. Hence the need for diversification. I'll be interested to see the result of Tony's study http://magicformulainvestor.blogspot.com to get an idea of the ratio. Because I do not have the time or inclination to research individual stocks sufficiently to do better than a "dartboard" approach, I actually think it is more likely than not that my conscious picks will lean towards the losers! I think I'd be gambling more if I tried to pick them myself!
Instead, by utilizing a random method, I am investing with the MFI methodology in an unbiased manner.
The other thing I am doing that I think will make a difference (though only time will tell) is following the methodology rather strictly. Buy and hold for a year. Buying at even intervals through the year. And I am absolutely not trying to time the market. If I really had the ability to time the market, I'd be a wealthy, and probably famous man. I am neither. Don't care about the latter, but working on the former. :)
-A
Monday, June 18, 2007
Harvest Natural Resources
Wow! Here's another example of why it's better not to let me think about things. When it came time to pick my mfi stocks in January, one of the stocks that was randomly picked was Harvest Natural Resources (HNR). Now, when my stocks are picked, I do take a look to see what they are. When I saw that most of their revenue comes from managing oil and gas fields in Venezuela, I immediately didn't want to buy them. I've followed Venezuela's descent into communism and totalitarianism under Hugo Chavez very closely and have been disgusted by the outright theft that Chavez has been perpetrating in the name of the "people." His moves are guaranteed to destroy that country economically. So, it was with significant trepidation that I chose to trust the mfi system and bought HNR.
It wallowed around break-even to a slight loss, which I considered an achievement in itself. I had decided that I would be ecstatic if I didn't lose more than 10% on that particular stock.
Well, today, the Venezuelan National Assembly approved its contract with HNR and voted to release significant funds that were due to HNR in arrears. The result is that the shares surged over 37% today, placing me at a 33.28% gain since early January.
Now, anything can happen, especially in Venezuela under that thug. For all I know, in two days, he'll decide this was a bad thing and will reverse it, because laws and property rights mean nothing to him. But, for now, it goes to show that it's a good thing I don't actually pick 'em. Because I absolutely would have missed this one. Now, my natural inclination is to pocket this gain, but I will continue to follow MFI.
-A
Weighted gain since inception (3/6/06) 28.59% vs. S&P 500 14.67%
It wallowed around break-even to a slight loss, which I considered an achievement in itself. I had decided that I would be ecstatic if I didn't lose more than 10% on that particular stock.
Well, today, the Venezuelan National Assembly approved its contract with HNR and voted to release significant funds that were due to HNR in arrears. The result is that the shares surged over 37% today, placing me at a 33.28% gain since early January.
Now, anything can happen, especially in Venezuela under that thug. For all I know, in two days, he'll decide this was a bad thing and will reverse it, because laws and property rights mean nothing to him. But, for now, it goes to show that it's a good thing I don't actually pick 'em. Because I absolutely would have missed this one. Now, my natural inclination is to pocket this gain, but I will continue to follow MFI.
-A
Weighted gain since inception (3/6/06) 28.59% vs. S&P 500 14.67%
Sunday, June 17, 2007
Cellstar
Here's an interesting one in my portfolio, and an example of why diversification is so important. Cellstar Holdings (CLHI) entered my portfolio in November 2006, under my random method. It has proceeded to lose 28.86% of its value, through 6/15/07. Now, I check the stocks daily to see what they're doing and noticed that this one, after declining, was barely moving at all. So, I started to look into it and determined that this company is in liquidation! This past week, CLHI announced that they had completed selling substantially all their assets and all that was left was the collection of some minor notes receivable, which were expected to be collected by the end of this year. The stock price barely reacted to this news.
Here's the interesting thing. CLHI is still on magicformulainvesting.com . I read recently about the risk, in value investing, of "underpriced" stocks which will remain underpriced. Presumably, the reason CLHI stays at this price is because it's at its liquidation value. However, utilizing the prior year's earnings indicates that the stock still sells at some multiple of earnings that places it high in the mfi universe. However, the price will never increase because it is already at its liquidation value. There is, in actuality, no goodwill to be had.
Now, this news may have already been available when I purchased the stock (although I can see the initial proxy statement proposing dissolution was from 2/07), some might say why didn't I do a little research to determine if this kind of risk was out there? Well, you could just as easily argue, why didn't I do some research on other MFI stocks and not miss a certain winner? That's not the point. I readily acknowledge that I don't have the time or the inclination to research these stocks. I am following the strategy of MFI, not becoming a guru. The MFI strategy struck a chord with me the instant I read about it, and its appeal has not diminished in my eyes, even with CLHI, FORD, and a couple of other "losers." Without it, I would never have even known about PNCL and WNR, which have alone made up for these losses.
MFI Fund price as of 6/15 = $55.09, up 40.41% over 6/15/06 vs. a 22.03% gain for the S&P 500.
Here's the interesting thing. CLHI is still on magicformulainvesting.com . I read recently about the risk, in value investing, of "underpriced" stocks which will remain underpriced. Presumably, the reason CLHI stays at this price is because it's at its liquidation value. However, utilizing the prior year's earnings indicates that the stock still sells at some multiple of earnings that places it high in the mfi universe. However, the price will never increase because it is already at its liquidation value. There is, in actuality, no goodwill to be had.
Now, this news may have already been available when I purchased the stock (although I can see the initial proxy statement proposing dissolution was from 2/07), some might say why didn't I do a little research to determine if this kind of risk was out there? Well, you could just as easily argue, why didn't I do some research on other MFI stocks and not miss a certain winner? That's not the point. I readily acknowledge that I don't have the time or the inclination to research these stocks. I am following the strategy of MFI, not becoming a guru. The MFI strategy struck a chord with me the instant I read about it, and its appeal has not diminished in my eyes, even with CLHI, FORD, and a couple of other "losers." Without it, I would never have even known about PNCL and WNR, which have alone made up for these losses.
MFI Fund price as of 6/15 = $55.09, up 40.41% over 6/15/06 vs. a 22.03% gain for the S&P 500.
Saturday, June 16, 2007
Fording Canadian Coal Trust
FDG continues to intrigue me as a story of the power of mfi. It took a lot of hemming and hawing for me to decide to keep FDG when a year was up. I was at nearly a 23% loss for the year of holding the stock and it had barely budged from that performance. Yet, when it came time to choose 5 new stocks, there it was, still in the list. This was in May. Now in March, which was my one year anniversary of MFI, PNCL was still in the list and was up for sale in my March batch. random.org managed to pick PNCL again, so I didn't need to think about whether I wanted to hold a stock still in the list. But in May, FDG was not picked by random.org and I had to make the call. Do I deviate from my strategy of being purely random, or do I give the system a chance, since it was still a "top" stock?
When PNCL had been up for renewal, I knew I wanted to let it keep riding since it was still in the MFI list. (As of 6/15, it was up 10.6% since March). I had been thinking about this for many months before my first anniversary date. The mfi website says it's purely up to you if you want to keep a stock still on the list. I had been leaning towards doing that for months. But, FDG was the first stock to challenge this idea. Ultimately, I decided I would go with it. So, not only did I keep it, but I bought more, because it was now underweighted due to its losses (and also because I'm investing more in MFI this second year, to make it 25% of my entire investment portfolio. Regardless of its successes thus far, and I hope it will continue, I would never let 30 stocks be a larger amount of my portfolio. The rest of my family's portfolio are in diversified mutual funds and a couple of other stocks, picked for specific reasons and surprisingly doing well).
Right after I "re-bought" it, FDG started to rise. In fact, not only is it profitable since May, but as of Friday, it has regained ALL of the losses from 5/06 - 5/07. The increase since early May is 21.31%. While it's only at a weighted gain since 5/06 of 4.68%, it's still a testament to the power of mfi.
Slightly over three weeks to my third buy/sell date, 7/9.
When PNCL had been up for renewal, I knew I wanted to let it keep riding since it was still in the MFI list. (As of 6/15, it was up 10.6% since March). I had been thinking about this for many months before my first anniversary date. The mfi website says it's purely up to you if you want to keep a stock still on the list. I had been leaning towards doing that for months. But, FDG was the first stock to challenge this idea. Ultimately, I decided I would go with it. So, not only did I keep it, but I bought more, because it was now underweighted due to its losses (and also because I'm investing more in MFI this second year, to make it 25% of my entire investment portfolio. Regardless of its successes thus far, and I hope it will continue, I would never let 30 stocks be a larger amount of my portfolio. The rest of my family's portfolio are in diversified mutual funds and a couple of other stocks, picked for specific reasons and surprisingly doing well).
Right after I "re-bought" it, FDG started to rise. In fact, not only is it profitable since May, but as of Friday, it has regained ALL of the losses from 5/06 - 5/07. The increase since early May is 21.31%. While it's only at a weighted gain since 5/06 of 4.68%, it's still a testament to the power of mfi.
Slightly over three weeks to my third buy/sell date, 7/9.
Wednesday, June 13, 2007
A new analysis
Now, I tried a new step, which was to calculate cumulative gains as compared to the S&P 500, weighted for additional funds committed at different times for the MFI portfolio. Since 3/06, my weighted return is 25.01% (this is total return, not annual return), vs. a weighted total return for the S&P 500 for the same period of 13.51%. Nice!
For context, if my initial investment were calculated as the proverbial $10,000, and each additional investment weighted the same way, total cost of investments to date would be $57,754. Under MFI, I would have $72,199 and under the S&P 500 I would have $65,559, a difference of $6,640 in only a year and 3 1/2 months.
Or if all that was invested was the proverbial $10,000, it would currently be worth $12,501 vs. $11,351 for the S&P 500. Any way you slice it, it's all the same. Again...let's see in three years, but so far great.
-A
For context, if my initial investment were calculated as the proverbial $10,000, and each additional investment weighted the same way, total cost of investments to date would be $57,754. Under MFI, I would have $72,199 and under the S&P 500 I would have $65,559, a difference of $6,640 in only a year and 3 1/2 months.
Or if all that was invested was the proverbial $10,000, it would currently be worth $12,501 vs. $11,351 for the S&P 500. Any way you slice it, it's all the same. Again...let's see in three years, but so far great.
-A
Tuesday, June 12, 2007
MFI Fund Price per Share
For a little bit of entertainment, and because I apparently am very anal when it comes to tracking performance, I set up a calculation of what the price per share would be if my portfolio was a fund...not exactly the same as a fund though. Dividends and capital gains are not distributed (which would approximate a fund in which everyone reinvests dividends and capital gains) and there are no expenses charged. I'm then comparing it to the S&P 500 (which I'm still not sure if it reflects dividends reinvested. I think it does, but I'm not sure. Does anyone know?). If the S&P 500 includes reinvested dividends, and since it doesn't include any expenses, it's a fairly good measure.
So, price at inception for my MFI fund = $42.97 (I took an arbitrary # of shs outstanding, which I won't reveal here). Date of inception was 3/6/06. S&P 500 on that date was $1,278.26.
MFI price at close 6/11/07 = $53.93. 25.52% since inception.
S&P 500 6/11/07 = $1,509.12, 18.06% since 3/6/06.
Now, of course, entry date makes all the difference. At some point soon, for the heck of it, I'll show monthly closes.
I'm showing all this because if there are people out there like me, they're looking to see if people are having success with the MFI method. So far, at least, the answer is a resounding yes. Not far enough along to be "scientific" yet, but at least it's a start.
-A
So, price at inception for my MFI fund = $42.97 (I took an arbitrary # of shs outstanding, which I won't reveal here). Date of inception was 3/6/06. S&P 500 on that date was $1,278.26.
MFI price at close 6/11/07 = $53.93. 25.52% since inception.
S&P 500 6/11/07 = $1,509.12, 18.06% since 3/6/06.
Now, of course, entry date makes all the difference. At some point soon, for the heck of it, I'll show monthly closes.
I'm showing all this because if there are people out there like me, they're looking to see if people are having success with the MFI method. So far, at least, the answer is a resounding yes. Not far enough along to be "scientific" yet, but at least it's a start.
-A
Friday, June 8, 2007
How I encountered MFI
I've been reading Smart Money for years, but had never done much investing in individual stocks. In fact, I usually skipped the individual investment sections and went to the back and read about ways to save, long-term financial planning, etc. However, I always skimmed the investment sections, particularly the stock screen article.
Around February 2006, they had an article where they ran a stock screen using mfi. I was intrigued by the general concept and dropped their stock picks into a tracking portfolio. Then I picked up the book and was even more intrigued. I started playing around with a couple of "test" portfolios, where I tried to be clever as to how to pick them. First, I tried to only pick the top earnings yield, but only if the ROC was greater than 100%. Then, I tried my hand at doing a little research on the stocks.
When I bought my first tranche in March 2006, I used a combination. First, I picked American Eagle Outfitters (AEO) b/c that was on the Smart Money screen, had done very well already, and was still on MFI. I know I missed a nice run up, but I figured I'd try it since it was still there. Ultimately, I did well...a year later I closed that position with a 50% gain. But, I mostly used the system of picking the best earnings yields. I ended up with Forward Industries (FORD), as a result. 50% loss! Ugly! (Had I kept it past a year, it would now be at a 63% loss. Complete stinker). The saving grace was the purchase of Pinnacle Airlines (PNCL), which I ended up closing with a 145% gain. Very nice.
At the same time as this, I continued to try test portfolios. I found that the best thing I could do was enter no bias into it whatsoever. So, by the second buy in May 2006, I went completely random, courtesy of random.org, which is a ridiculously fun website. Let me declare what a geek I am to the world. I had previously used this site to shuffle up my 750 cd collection to force me to listen to albums I hadn't listened to in a while. GEEK.
Well, now what I did was put in my parameters in mfi.com: 25 top picks over $50M market cap. I'd use random.org to randomly shuffle the sequence of 1 - 25. Then, I'd start going right down the list in order, skipping only stocks that I already owned.
The results? Well, very, very good so far as you can see from my earlier post. My May 2006 block of stocks did 27% vs. 15% for my benchmark. There were two early cash mergers (Kerr McGee (KMG) and Portalplayer (PLAY)) which both did well. Marvel (MVL) and Viropharma (VPHM) were great and my only stinker was Fording Canadian Coal Trust (FDG).
Fording actually ended up being an interesting one...I lost money on that one in a year, but it was still in the screen when it was time to buy new stocks and I chose to keep it (and, since it was down, even had to buy more). Interestingly, at this point, not only is it up, but it has almost recovered everything I lost from 5/06 to 5/07. Maybe there's something to this MFI thing after all! :)
More on the background to come before we can move forward...
-A
Around February 2006, they had an article where they ran a stock screen using mfi. I was intrigued by the general concept and dropped their stock picks into a tracking portfolio. Then I picked up the book and was even more intrigued. I started playing around with a couple of "test" portfolios, where I tried to be clever as to how to pick them. First, I tried to only pick the top earnings yield, but only if the ROC was greater than 100%. Then, I tried my hand at doing a little research on the stocks.
When I bought my first tranche in March 2006, I used a combination. First, I picked American Eagle Outfitters (AEO) b/c that was on the Smart Money screen, had done very well already, and was still on MFI. I know I missed a nice run up, but I figured I'd try it since it was still there. Ultimately, I did well...a year later I closed that position with a 50% gain. But, I mostly used the system of picking the best earnings yields. I ended up with Forward Industries (FORD), as a result. 50% loss! Ugly! (Had I kept it past a year, it would now be at a 63% loss. Complete stinker). The saving grace was the purchase of Pinnacle Airlines (PNCL), which I ended up closing with a 145% gain. Very nice.
At the same time as this, I continued to try test portfolios. I found that the best thing I could do was enter no bias into it whatsoever. So, by the second buy in May 2006, I went completely random, courtesy of random.org, which is a ridiculously fun website. Let me declare what a geek I am to the world. I had previously used this site to shuffle up my 750 cd collection to force me to listen to albums I hadn't listened to in a while. GEEK.
Well, now what I did was put in my parameters in mfi.com: 25 top picks over $50M market cap. I'd use random.org to randomly shuffle the sequence of 1 - 25. Then, I'd start going right down the list in order, skipping only stocks that I already owned.
The results? Well, very, very good so far as you can see from my earlier post. My May 2006 block of stocks did 27% vs. 15% for my benchmark. There were two early cash mergers (Kerr McGee (KMG) and Portalplayer (PLAY)) which both did well. Marvel (MVL) and Viropharma (VPHM) were great and my only stinker was Fording Canadian Coal Trust (FDG).
Fording actually ended up being an interesting one...I lost money on that one in a year, but it was still in the screen when it was time to buy new stocks and I chose to keep it (and, since it was down, even had to buy more). Interestingly, at this point, not only is it up, but it has almost recovered everything I lost from 5/06 to 5/07. Maybe there's something to this MFI thing after all! :)
More on the background to come before we can move forward...
-A
Quick comment on the portfolio
It may look strange that I included 2 closed positions on my open positions spreadsheet. They're included because I was really looking to show each tranche. Those two were acquired with tranches that are still open.
Thursday, June 7, 2007
There are other people out there!
I was interested to discover the various blogs of people doing the magic formula investing thing. My first thought is these guys are much more sophisticated than me. I have a lot of respect for the knowledge and in depth analysis everyone else is doing. However, my second thought was that many people seem to be trying alternatives to the system set up by Joel Greenblatt. I started my MFI portfolio in March 2006 and I have been very happy with the results so far. Now, I fully realize it could be pure luck. But, it could also be that I am strictly following the guidelines in the book.
I have a friend who read the book and then said he could never do it because he's too much of a gambler. And, I'll admit, the temptation is always there. i.e.:
1. Hey! This stock is up tons, let's take the profit now!
2. This stock stinks. Time to dump.
3. This stock is doing so well, a year is up, and it's not on the MFI website anymore. Let's keep it anyway!
But, I always remind myself, don't try to time the market and don't try to be clever. I say to myself, "Self, BE DISCIPLINED!". So far, it has paid off. The purpose of this blog will be to share the results of strictly following the plan in the book. All forward looking, no back-testing.
I have a friend who read the book and then said he could never do it because he's too much of a gambler. And, I'll admit, the temptation is always there. i.e.:
1. Hey! This stock is up tons, let's take the profit now!
2. This stock stinks. Time to dump.
3. This stock is doing so well, a year is up, and it's not on the MFI website anymore. Let's keep it anyway!
But, I always remind myself, don't try to time the market and don't try to be clever. I say to myself, "Self, BE DISCIPLINED!". So far, it has paid off. The purpose of this blog will be to share the results of strictly following the plan in the book. All forward looking, no back-testing.
Here's my current portfolio and results:
Sorry for the ugly looking post...it's my first one. It will be interesting to watch how this portfolio continues to do over a three year period. In theory since I'm pretty far ahead of the benchmark, one would expect that I will likely underperform for a period to bring it back to average. We'll see.
Next posts will talk about my HIGHLY SOPHISTICATED method of picking 'em and some of the thoughts I've had on the investments.
-A
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