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About Applied Finance
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...more

Strategy Letter – Valuation 50

April 7, 2020 Applied Finance

It is important to remember that markets attempt to see through temporarily good or bad times to estimate future cash flows and set current valuations. The global health and economic crisis resulting from COVID19 has created one of the greatest periods of uncertainty for market participants to see through, therefore, the fastest plunge of the US stock market ever recorded took place last month. Entering the 2nd week of April, we believe the market participants have likely concluded this is indeed a “temporary” situation, and have now started shifting focus to the recovery of the US economy and other developed regions, which will likely happen in the 2nd half of 2020 and 2021 […more]

Market Valuation Analysis – Take advantage of opportunities that are now available in the marketplace

March 13, 2020 Applied Finance

Applied Finance has aggregated recent performance over the last several weeks to help fully understand the recent market drop’s impact through various sector, style, factor, and industry lenses. We have also compiled updated percent to target median charts to better understand current valuation levels normalized against historic averages. We present this data today with limited commentary, as we will explore this in much more detail in next month’s quarterly write-up. In the meantime, a few main observations […more]

Reclaiming Value & Restoring its Place in Active Management

January 15, 2020 Applied Finance

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]

Valuation vs. cheapness Investing

November 12, 2019 Applied Finance

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]

Faster And Cheaper Aren’t Always Better

October 9, 2019 Applied Finance

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]

Value Versus Cheapness: Same, Same, But Different

July 10, 2019 Applied Finance

Cheapness has existed as an investment concept forever, but it became institutionalized with the Fama/French’s 1993 three factor model. Cheapness has never been the same as hundreds of billions was poured into equity investment strategies focused on buying “low price to something” stocks supported by reams of back test data. In addition, thousands of small investment professionals and amateurs replicate much of the process the large firms employ via access to abundant datasets on Yahoo! Finance […more]

Valuation Dividend – Quarterly Report Q1 2019

April 24, 2019 Applied Finance

The memories are still fresh that the US large cap equity market lost more than 10% of its value in Q4 of 2018, with ~9% alone in December. Barely did investors have a chance to regroup, and the Russell 1000 index rose 8.4% in January and closed 19Q1 14% higher. The Fed that turned dovish was the prime catalyst behind the US equity market rally. On January 4, Fed Chairman Powell indicated inflation was muted and the central bank would be in no hurry to raise rates, leading the R1000 […more]

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