What to do - what to do
Closing in on my one year MFI - Magic Formula Investing - anniversary:
Here are the overall results: Portfolio up 27% - that is GREAT !!! and here are more details:
Initial Investment: $49885 increased to $63340 (includes div and minus transaction $$)
Index compare over same time period:
Dow + 14.8 %
SP + 12.8 %
Russel 2000 + 7.1%
So far so good - but I also have to add that the stocks I purchased in May (7 of them) are trailing all the indexes quite a bit - so this recap post will look different in 3 month.
Now I am faced with the decision on which stocks to sell and which one's to keep. Here is the list of stocks and the current % results:
CHKE 13.19%
CSGS 13.77%
EGY 4.40% *
ENDP -1.54%
FCX 7.03% *
FTD 110.38%
GBE -1.97%
HAS 40.08%
INSP -5.07%
ITWO 56.41%
KFY 18.46% *
KSWS 13.36% *
NTGR 54.03%
SYNA 8.35%
UST 51.44%
VPHM 55.27% *
I already sold 2 -- GBE and INSP -- and I have a few that are still on the MFI list (noted with *)
Other stocks still look very solid - although if I follow MFI, I should probably sell all that are not on the list any more. Maybe I should keep some of the stars -- FTD does flowers and they will probably blow their numbers away over Valentines. Hasbro recalled a million easy-bake ovens and the stock did not even blink. What to do - what to do ...
posted by Erik Hochstein @ 10:34 AM
2 Comments:
I wouldn't hold onto FTD just because of Valentine's Day. Special flower occasions would have to already be considered by investors in their valuations, and this isn't the first year that there's been a Valentine's day, either.
A lot of discussion on Motley Fool boards and comments in other blogs has occurred over whether or not doing your own due diligence adds or detracts from the magic formula performance. I've come down on the side of it hurting. I think you'd do best just by following the formula to the letter. If you have strong feelings about one stock or another, do it outside your magic formula investing. That's what I'm doing, and it will allow you to do a better comparison between MFI and your own stock-picking prowess.
Hello Erik,
Congratulations with your results with following Greenblatt’s investment thesis.
Greenblatt model makes sense (high ROIC in combination with high EY), but in my opinion one should not opt for picking stocks randomly for this (or any other) list.
I believe you can add to your returns by doing research on durable competitive advantages / business models (compare: Warren Buffett). What Greenblatt says is that companies with high ROIC’s have on average something special (read: a durable competitive advantages).
But there are many factors which can lead to high ROIC’s, for shorter or longer time frames, without the existence of a durable competitive advantage. The ROIC of these companies have the tendency to go to normal ROIC levels.
The ROIC of companies which actually have something special (read: which really have a durable competitive advantage) have the tendency to stay at above average levels. It makes sense to give these extra attention.
Success in investing,
Hendrik Oude Nijhuis
www.magicformulastocks.com
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