Commentary

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]

Jeff Bezos to Quant “value” investors- I’m thinking of expanding $amzn beyond books – should I invest in my business? They all say – No Don’t!!! Our models show companies that invest in their business […more]

Professional Investors do not like to compare investing and the casino, yet they are constantly making forecasts and evaluating their odds when making buy and sell decisions. Whether you are a sports bettor placing a […more]

A market-beating investor on Charles Schwab’s exclusive list of top-tier mutual funds explains why he believes traditional value investing never really worked — and shares his strategy for identifying the best cheap stocks https://t.co/KqVP0FbjpA — […more]

The five largest stocks in the US (AAPL, MSFT, AMZN, GOOGL, FB) dominated S&P 500 performance in 2020, returning 56.0% over the course of the year on a capweighted basis, while all other US stocks returned 15.0% in aggregate. We can further examine implied expectations with VE models to the right. Since the end of 2020, TSLA has passed FB to claim the fifth largest market cap; we have also included insight into TSLA’s valuation characteristics following their recent inclusion and large allocation in the S&P 500. […more]

Incorporating the latest 10 Yr US Treasury yield into our market derived discount rate calculation, the Equity Risk Premium (ERP) per our estimates, is currently at ~6.8% for nonfinancial US firms in nominal terms, significantly higher than the historical median and average of ~4.5%. With the risk free rate historically low, equity investors seem to be demanding a fair amount of protection, though the market appears overvalued despite the high ERP. […more]