INVESTMENT PHILOSOPHY
INVESTMENT PROCESS
Today the irony continues, as the intellectual foundations in financial economics that underpinned Bogle’s incredible success are much less robust than they appeared in the early 70’s, yet the push for passive investing is stronger and more fervent than ever. For proactive, process-oriented, intelligent advisors this will create a great opportunity to distinguish yourself from the growing herd of “commodity” advisors who preach little more than fee minimization, rather than alpha generation or negative alpha avoidance. […more]
Only in 2008 have valuations been as attractive as now. Today, the market is essentially pricing in 0% sales growth over the next five years, not as harsh as the -15% priced in during the 2008 lows, but very harsh compared to the expected 20% to 30% growth these firms have typically delivered over a five year period. Unlike 2008 there will not be liquidity issues driving economic decisions and panicking investors. This is a confidence crisis similar to 9/11. As medical policy catches and surpasses the virus, confidence will return and economic activity will march forward. Already, in China, restaurants have reopened to crowds, and society is returning to business as usual.
The stock market today is trading at valuation levels last seen in 2008, before an unprecedented wealth creation bull market swept away the fear of the Great Recession. Then as now, it’s always about the expectations built into market prices.
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While Applied Finance has long advocated for investors to consider the strategic advantages from incorporating a valuation-based discipline in portfolio construction and stock selection, this study provides compelling evidence that even passive allocations benefit when index weights are formed on intrinsic value characteristics instead of using market cap as a proxy. […more]
Having worked with hundreds of investment managers, analysts and advisors over the past 25 years, I know valuation is an interesting topic. Virtually every investment manager and analyst acknowledges its significance, but almost instantaneously begins justifying why they don’t give it much importance in their process. I’ll note that rarely do investment professionals offer as the reason an admission that they have not really devoted the immense time and study required to deeply understand valuation. I’ll provide my perspective on what I will call common myths/misunderstandings, then I’ll turn to a few insights from our Intrinsic Value Database™ and provide our perspective to current market conditions. […more]
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