Navigating the Current Equity Landscape with an Emphasis on High Profits and High Growth Reopening and inflationary themes conjure many competing narratives on the proper way to build portfolios or allocate capital in preparation for […more]
Given the significant volatility over the previous 12 months in overall market returns and style-based indices, we believe it is helpful to provide ongoing guidance related to the aggregate intrinsic value characteristics of popular indices […more]
In our Valuation Beta working paper, we emphasized the valuation vs cheapness contrast between intrinsic value and book to price (HML) classifications. This highlighted that “cheap” HML classifications unsupported by intrinsic value were a source […more]
With massive stimulus and deficit spending, rising inflation concerns have become a concern for investors. It is often assumed that higher levels of inflation bode well for the relative performance of value stocks. We explore the relationship between inflation and value stocks and why this link may not be as strong as investors might think.
Navigating allocation decisions in the face of rising inflation requires more careful stock selection than the current set of passive investment vehicles or factor-based alternatives are equipped to deliver. […more]
Many investors have abandoned their security analysis discipline in the search for low-cost investment products, and most academic research has applauded that decision for decades. Applied Finance has established an extensive out-of-sample systematic track record to confidently defy these trends with a disciplined valuation approach. Because of this, we believe investors benefit from valuation-based investment decisions, not only at the individual stock level, but also by aggregating data across entire investment landscapes. While notable regime shifts between value and growth preferences can be studied with an intrinsic value framework, we encourage investors to consider a comprehensive valuation metric in all of their stock selection, portfolio construction, and asset allocation decisions. […more]
Many traditional value advocates are publishing material that points out the potential future benefit of value investing. It makes sense; they certainly cannot use recent performance when selling their investment process. This claim that “value […more]
Many investors have chosen sides in the partisan “value vs. growth” debate to define their investment ideology and market their products. Instead of choosing sides in this arbitrary debate, since 1995, Applied Finance has advocated for a robust valuation-centric philosophy emphasizing economic principles centered around profitability, growth, competition, and risk. Equipped with this point of view, it is clear that value and growth managers are both aware of important considerations when estimating intrinsic value, but staunch advocates of either perspective suffer from incomplete frameworks. Value advocates are correct that valuation should matter, but commonly used methodologies suffer from poor ex-post performance and lack a robust economic justification, especially when a dividend discount model tautology assumes that negative growth unconditionally generates positive stock market returns. Growth managers are correct that positive growth potentially creates shareholder value, but absent a reliable corporate performance and valuation framework, they too often lack the ability to understand the required future growth and profitability expectations embedded in stock prices. […more]
The transition into Q4 is accompanied by a notable milestone. The Applied Finance Group turns 25 years old today! We want to take this opportunity to thank our research partners that appreciate the merit of […more]
In the past 5-10 years, investors have seen drastic underperformance from traditional value factors. Russell style indices, which use sales growth, earnings growth, and book/price to determine value and growth, have seen a strong divergence in performance since the 2008 recession. Let’s examine Russell Value/Growth Anomalies, Share Repurchases and Intellectual Assets.
“High risk” stocks, based on smaller market caps and higher levels of leverage, outperformed the overall US market by nearly 11.4% on a cap-weighted basis in Q2. This is attributable to improving investor expectations regarding a “v-shaped” recovery following significant underperformance of “high risk” stocks in 2020 Q1 by -22.0%. […more]