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November 14, 2019

The Value Factor Illusion and Alpha – Confusing Correlation with Causality

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]

Webinar: Value vs Cheap

30 Minute Introductory Webinar November 7th, at 3:15 Central Time Register Here There is a reason you simply don’t just look for the cheapest doctor, unless results and service don’t matter to you.  The same […more]

The Gross Profitability Trap

“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]