If you subscribe to either of the MFI discussion boards (one is on the Motley Fool site, the other is on Yahoo), then you probably have noticed the discussion about disappearing MFI stocks. Every now and then, a stock will show up as a top 25 stock for a few days or weeks, and then disappear entirely from the list for apparently no reason. This happened to me with TOPT (the stock that is the subject of the post below). It also has happened with GSTL and FTAR, as well as some others on the list.
MFI investors have given several possible explanations for this. Some have argued that small changes in the stock's price can cause it to jump off the list. I don't buy this explanation. I've gone back and checked the departed stocks, and in several instances it will be trading at the very same price that it was trading at before it left the list. Also, the natural progression for most of the MFI stocks that do well is for them to slowly move down the list: they may drop off the top 25 list, but still remain on the top 50. Stocks that do poorly tend to stay on the list -- the only thing that changes is their Pre-Tax Earnings Yield, which goes up. In light of this, I don't think that the disappearing stock phenomenon can be explained by changes in stock price.
Others have argued that the disappearing stocks are caused by the time delay between the point when earnings are reported, and the point when they are entered into the Compustat Database. The Compustat Database is where Joel gets his information, which he then uses to calculate Pre-tax Earnings Yield and Pre-tax Return on Capital. I think this is a better explanation, and it explains why some companies are dropped from the list weeks after they report their quarterly financial results. However, this explanation does not explain those stocks that are on the MFI list for only a few days, and then disappear (this happened with TOPT and GSTL). I still don't think anyone has explained what is going on with those stocks that are on the list for only a few days.
Any thoughts?
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Hi, I think it happens to everyone. I need to double check this, but it seems that the screen runs the best of that date. We need to check the ones in and the ones dropped. If the ones dropped, are not as good as the new additions, that may be the reason for this. Have you test this?
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