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Deconstructing Value™
May 21st, 2020 03:00 PM in Central Time (US and Canada)
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Speaker: Rafael Resendes Co-Founder and CIO

“Value Investing” is commonly misunderstood as buying companies at a discount to their intrinsic value. While that may have been true decades ago, today “Value Investing” predominantly consists of buying “low price to something” stocks. The “something” is a fundamental variable such as book value, earnings, and/or sales among others. However, such approaches do not necessarily identify undervalued stocks, only stocks that are “cheap” relative to the chosen fundamental variable.

An important, but unstudied issue for practitioners and academics to understand is:

• Do cheapness strategies independently generate excess returns? Or

• Are cheapness strategies simply correlated to intrinsic value, which generate excess returns?

Drawing from over 20 million real time valuations performed by Applied Finance since 1995, we explore this issue in depth.

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Background Notes:

Over 20 years ago, Applied Finance developed the Economic Margin framework to measure a firm’s economic, rather than as-reported accounting performance, and directly link corporate performance to valuation.  Since launching its Valuation Driven™ database in 1995, Applied Finance has systematically performed and archived for research purposes over 20,000,000 individual company intrinsic value estimates.

Each valuation is performed utilizing Applied Finance’s proprietary research into: corporate performance, risk, growth and competition.

Applied Finance’s ongoing research database provides the foundation to link valuation research to portfolio construction and ongoing market research to expand our knowledge into how markets reward and punish firms.   To our knowledge, only Applied Finance has a live database of individual firm valuations constructed in the same manner with the same valuation framework for an extended period of time. This constitutes Applied Finance’s core Analytic Advantage.

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