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]
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]
This article first appeared on RealClearMarkets.com December 29th 2020 DEAR EDITOR: I am an investor. Experts say valuation does not matter. Please tell me the truth; does valuation matter? VIRGINIA O’HANLON 115 WEST NINETY-FIFTH STREET […more]
The 1999 Tech Bubble was an extraordinary period. “Fundamentals don’t matter” “It’s a tech company, not a manufacturer” “Past a certain point of profitability, there’s zero chance the call options tank back to worthless” However, […more]
We venture that few investors would have foreseen stocks at these levels had they known 2020’s timeline of events in advance. We have little if any idea on irrational exuberance or market tops but have some thoughts on where to, and where not to, look for 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]
Investors need to understand the expectations that are built into their investments. When large scale events such as the Covid-19 pandemic occur, investors reprice equities based on new information. Expectations can often exceed reality though. […more]
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