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The Valuation Edge is Applied Finance’s monthly newsletter to share our valuation insights with the investment community.  Our goal is the 3EEE’s… Entertain, Engage, and Enlighten the investment community through what we consider to be interesting market observations, economic facts, and company expectations, to better frame the current investment environment.

We hope you join and interact with us on what promises to be an interesting long-term journey through buys, sells, and holds.

This edition highlights our take on the state of passive investing, market outlook for Q32020 and some insights into the Big 5 Tech Companies (FAAMG) among other topics…

The State of Passive Investing – Passive investing has taken on a religious fervor among many advisors, to the point they will not consider an active alternative within their practice, focusing only on fee minimization as the key to their success. Such dogmatic beliefs will not age well, as ongoing finance research shows passive investing on a risk adjusted basis is a losing trade…
The False Bargain of Passive Investing


Looking Backward & Forward on the Market Q2 20 – So where are we now in terms of valuation? The market’s historic crash and rebound over the past 4-5 months had a notable impact on its companies’ valuation attractiveness, similar to the 2008/2009 experience, though executed in a much speedier manner. While the median company in the S&P500 was attractively priced at the end of March, this is no longer the case three months later…
Looking Backward & Forward


Are the Big 5 stocks (FAAMG) overvalued? – Despite concentration levels unseen since the early 1970s, this group of 5 stocks currently offers reasonable valuation characteristics. What expectations sales growth expectations do current market values reflect going forward…
Are the Big 5 currently overvalued?


Concentration Impact on Style Indices– Investors should be aware of the significant distortions regarding style index diversification and skews in the classification assigned to individual stocks…
Big 5 stocks surge in concentration and the effect on style boxes and cap-weighted portfolios


Auto Industry Headaches – Tough sledding when attempting to understand market valuations in the auto industry for companies like Tesla (TSLA) and Ferrari (RACE). Tesla’s valuation is in excess of all three big US automakers, combined, while Ferrari is priced as being worth approximately $4million per sale….
The Auto Industry – Tesla TSLA & Ferrari RACE


Banks to consider – While Goldman Sachs (GS) stock price hasn’t changed much in 5 years… Low rates suggest a poor environment for banks… but there are some smaller banks that look worthy of consideration…
Franchise stocks in the financial sector

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