Q: What is 10% annualized?

A: Roughly the difference between sticking to the Magic Formula vs. Me Deviating from the formula. Observe my result if I had not deviated:

Though my returns for my deviated porfolio stand at nearly 7% annualized-had I not deviated, had I made NO purchases the result of my porfolio would be that of the above spreadsheet. A 16% Internal Rate of Return, not bad! This unfortunately is not an accurate alternate ending if you will. I made 6 additional purchases of MFI stocks while they were still on the list. That capital would have gone to other MFI stock in my portfolio, increasing my diversification and potentially affecting my rate of return. For better or worse, we'll never know. What I do know is that I would have more money if I never messed with the formula and that is my lesson for you.

Do not underestimate the difficulty of sticking to the formula. It seems only human to want to try to improve upon the model. That said, I'm still making money but not significantly more than the current CD rates.

My question for you dear reader: Would you prefer to have this blog focus on my struggles (read: deviations- factual accounts of my experiences) or should I tailor this to a strict adherence to the model (Read: leave out reporting of any deviations) ?

I only ask because the comment below would leave me to believe that a strict adherence would be more beneficial. Intuitively, sticking to my actual experience while anecdotal might be more realistic and therefore more helpful. Please post a comment to let me know your preference!!

Anonymous said...

Nick,
I've been MFIing almost exactly as long as you. On a $150K investment I've made $12.5K so far. One thing I've noticed from your blog is that you are NOT following the directions!
I know that is harsh but I'm trying to help you. You're supposed to buy 5-7 stocks, wait 3 months or so and buy another 5-7 stocks, etc. etc. until you have 25-30 DIFFERENT stocks. I try to buy my "blocks" all on the same day. I never rebuy a stock...ever! I'm going to buy another 7 stocks for 50K in November all on the same day. Also, somewhere in the book or on the website is the phrase "no further analysis of the selected picks is necessary" HEELLLLOOOOO! You're working too hard at this....it was meant to be a brain dead process. You might as well take the list of the top whatever and throw darts at it to pick 'em. I love investing this way because it's about one step above playing in a sandbox. Try to keep it that way :)

1:50 PM

I agree completely with the comment. Unfortunately, I hate brain-dead activities, but I will try to stick to the model in the future- of course that was my objective when I started doing this in January!

For those doing actual analysis some tips from the CFA Institute:




Till next time-