Applied Finance, a thought leader in valuation and portfolio construction, is a true “value” investment management company. Unlike the majority of firms today that focus on low multiples to define “value”, we define value as identifying companies trading below their intrinsic value. Our Valuation Driven™ approach forms the foundation of our investment decisions
Applied Finance is 100% employee owned, with the average tenure of our 10 partners being over 17 years.
History of Innovation
Research has always been a critical part of Applied Finance’s culture. In 1995, we humbly began in a Chicago basement, with the idea to create a better approach to measure corporate performance and value companies than existed at the time.
Our roots were and remain dedicated to answering two questions critical to any investment decision:
- What is a firm’s economic performance?
- What is a firm worth?
We developed the Economic Margin® framework to measure a firm’s economic, rather than as-reported accounting performance, leading the industry with primary research into:
- Capitalizing R&D
- Estimating size and leverage risk premium
- Modeling competitive advantage through Economic Profit Horizons
Ultimately, creating a direct link from corporate performance to valuation.
Shortly thereafter, we began assembling a technical team that today includes a unique mix of professionals with diverse functional, educational and cultural backgrounds. The result is a special workplace that values: accomplishment, stability, and ethics in the pursuit of excellence for our clients.
Since 1995, over 20 million individual, point-in-time, company valuations have been calculated. Each week we calculate approximately 20,000 intrinsic value estimates to continually expand our knowledge and improve our strategies.
Our proprietary research analytics provide the foundation for our repeatable and sustainable investment process.
Buying stocks trading below their intrinsic value forms the foundation of our strategies.
As obvious as that phrase seems, we believe there is much to appreciate in its meaning and implementation that is too often is either ignored and/or misunderstood in the investment community.
First, we focus our efforts on understanding a firm’s intrinsic value, not its cheapness. While there has been an abundance of academic research and marketing expenditures promoting cheapness as a desirable stock attribute, we disagree. After controlling for valuation, cheapness provides no tradable excess returns. We instead believe it is important to develop realistic, accurate, empirically tested estimates of intrinsic value from which to evaluate candidates for inclusion into our various strategies.
Second, we actively cultivate a vibrant valuation culture within our investment group through an ongoing commitment to:
- Develop and maintain a deep professional expertise
- Oerform ongoing theoretical and applied valuation research
- Continually review our valuation efficacy.
Lastly, we understand it’s easy to perform a valuation, but extraordinarily difficult to perform a valuation that accurately estimates a company’s intrinsic value.
Unlike any other firm, Applied Finance over the past 25 years has developed and maintained original, proprietary research to properly model equity risk premiums and Economic Margin® sustainability. This enables us to avoid the unrealistic assumptions common to most valuation approaches practiced today.
In addition, we archive 20,000 valuations weekly, over 20 million since 1995, that allow us to understand how well we value the stocks we own in our portfolios and just as importantly those we do not so we continually learn and grow our knowledge base from our mistakes.