Pausing for a look down from Semiconductor Stocks

Technology stocks in general, and semiconductor stocks in particular had a stellar performance in 2019 with a particularly strong finish during the last quarter. What can one expect for 2020? While the old adage that forecasting is hard, particularly with respect to the future, seems true; we can say that standing here in the present there appears to be a lot of good fortune prices in a number of semiconductor stocks. […more]

The insights delivered by this study are truly fascinating.  On one hand, the evidence that price multiples are incomplete in forming a definition of value is obvious, and this should align with intuition.  If broader market participants heed this advice, this study will have been a noble effort to improve the flow of accounting information and analyst forecasts into market prices.  On the other hand, there has never been obvious justification for measures of cheapness to define value in the first place.  Many investors simply use these factors out of convenience or tradition, while many others invest in products built upon them with little understanding of the classification error they introduce.  […more]

Despite decades of academics and practitioners promoting the ”value factor”1, it generates marginal to no long-term alpha. We believe four reasons have contributed to slow the discovery process from the current accepted “value” regime (low price to something) towards a more robust and realistic true value regime (worth measured independent of market price and focused on the value of future cash flows).
1. No theory.  There is no clear link between commonly used “value” variables and true value.  Yet academics and practitioners have developed no viably accepted competing perspective to explain future returns […more]

100 mph pitchers are a rare and treasured commodity, simply because they have been among baseballs’ most effective players. The mention of Randy Johnson, Nolan Ryan, JR Richardson, Bob Feller, all elicit reverence for their amazing careers. Yet what of Steve Dalkowski who Ted Williams once faced off against and said – I could not see the ball […more]

“But this time, it’s different!” More foolish words are rarely spoken in the financial industry, but they always seem to find their way back into the stock market lexicon. A firm’s intrinsic value should always be a function of discounted future cash flows that incorporate a comprehensive understanding of profitability, growth, competition, and risk. Occasionally, alternative approaches can find favor in enough market participants’ stock selection to distort the foundational understanding of firm value. […more]

A corporate performance metric should provide insights into what a firm is worth. Most money managers utilize common earnings-based measures of corporate performance and value, which are suspect and easy to manipulate. Applied Finance developed the Economic Margin (EM) framework to remove the noise inherent in accounting data.

Traditional accounting-based valuation methods provide an incomplete view of a company’s value by not accounting for the investment needed to generate the earnings, cost of capital, inflation or cash flow. […more]