In 1995, Applied finance pioneered Systematic Fundamental Analysis™ to bridge the gap between systematic and fundamental analysis.
How Systematic Fundamental Analysis™ compares to traditional investing approaches:
Most quantitative managers that employ systematic processes rely on multiples that are insufficient do not link to a company’s intrinsic value.
Ratios such as P/E, P/B, P/CF, or a mix of them, aka “cheapness ratios,” come with many shortcomings.
- They rely on noisy accounting data.
- They look at a static point in time, assuming the world stays constant.
- Low multiple companies might mean they are in financial distress.
- They are commodity factors available to everyone on Yahoo! Finance.
- Strategies are built using in-sample rather than live, out-of-sample data.
Applied Finance is fundamental in its investment philosophy and implements that philosophy in a consistent and repeatable systematic manner.
From our inception, we realized the importance of resurrecting the dying practice of traditional security analysis, and this led us to develop the Economic Margin® framework. We designed this framework to properly link a firm’s corporate performance and investment actions directly to an estimate of its intrinsic value. The numerous adjustments we make to company financial statements and footnotes are likely more rigorous than those made by a typical fundamental financial analyst. We have systematized these adjustments and apply them each week to 20,000 companies globally, adding to our database of over 20 million point-in-time, out-of-sample intrinsic value estimates.
We differ from most systematic & quantitative investors in that our interest is not to find factors correlated to stock returns, but rather our approach is driven by understanding corporate actions at a fundamental level. Our belief is that corporate actions lead to predictable wealth creation consequences, which in turn lead to predictable stock return consequences. Applying a unique investment management approach of incorporating fundamental analysis, which is applied in a systematic manner provides the foundation for our repeatable and sustainable investment process.
Contact us to learn more about our Systematic Fundamental Analysis™ and investment management offerings.