Our Judgment for the Long Haul
publication date: Jul 31, 2020
author/source: Brian Nelson, CFA
The figure above shows the performance of the simulated Best Ideas Newsletter portfolio from inception May 17, 2011, through December 15, 2017, relative to its declared benchmark, the S&P 500 (SPY), on an apples-to-apples basis, with dividends collected but not reinvested for both the newsletter portfolio and the SPY, as reported in the monthly newsletter. The simulated Best Ideas Newsletter portfolio outperformed the S&P 500, including reinvested dividends in the benchmark, since inception (May 17, 2011) and since the inaugural release of the newsletter (July 13, 2011) through the end of the measurement period (December 15, 2017). The results are hypothetical and do not represent returns that an investor actually earned. Past results are not indicative of future performance. Valuentum moved to weighting ranges for newsletter portfolio constituents at the end of 2017.---
Note: The August edition of the Exclusive publication will be released Saturday, August 8.---
As you're probably aware by now, Apple (AAPL), Alphabet (GOOG, GOOGL), and Facebook (FB)--key positions in the newsletter portfolios--put up monster second-quarter results July 30, respectively. We'll be addressing the quarterly reports more in depth on our website in the coming days, but Apple is now a ~$410 per share stock, trading up 6%+ on the session, and now Facebook is trading over $250, up 7%+ on the session. Now at all-time highs, Facebook has been one of the top weightings in the Best Ideas Newsletter portfolio for some time. Its poor performance during 2018 is now history! Alphabet, while facing some weakness today, hit all-time highs earlier this month.---
Our pounding the table on big cap tech, large cap growth and the NASDAQ during the past many months has been a boon for members, too, but let me elaborate a bit. I'm still ironing out some of the specifics of the second edition of my book Value Trap, and I was working on explaining how a 60%/40% stock/bond portfolio offered little diversification benefits relative to the S&P 500 during the COVID-19 swoon, but that it cost investors over 90 percentage points of underperformance during the past 10 years through June 30, 2020. However, it just dawned on me: What is even more unbelievable is that that 90 percentage points of underperformance doesn't include any other management fees. The underperformance is far worse. Yikes!
This is an absolute tragedy for retirees that bought into modern portfolio theory the past decade. A tragedy! The Best Ideas Newsletter portfolio, on the other hand, has performed fantastically since inception (see image above), and this is against a backdrop where most money managers trailed their respective benchmarks. Valuentum has delivered in the good times and the bad times, and I am personally exploring new avenues to meet our members' demand for portfolio management services. The Best Ideas Newsletter portfolio put up one of its best years ever in 2019, and then, of course, we were here for you during the COVID-19 crisis, calling both the top with put options on two separate occasions, calling the bottom with a set of outperforming equities and then going fully invested and positive across big cap tech, large cap growth, and the NASDAQ for this huge upswing.---
Let me explain how we view Valuentum. Though a publisher, we operate like a buyside shop highlighting our process in full transparency within simulated newsletter portfolios. The biggest value of Valuentum is our judgment! As long-time members know, our best ideas are included in the Best Ideas Newsletter portfolio, Dividend Growth Newsletter portfolio, High Yield Dividend Newsletter portfolio, and Exclusive publication--and the Exclusive success rates have been highly respectable, if not fantastic. Even our options ideas have delivered out of the gate! We include reports, commentary and other content on our website to provide full transparency to our process (i.e. what we like, what we don't like), but importantly, we use our own methodology to craft the newsletter portfolios.---
We're not a mechanical, automated outfit, trading on spurious correlations (or on just one number or a couple ratios on a basket of stocks). If you're interested in making mechanical changes without judgment, the small cap value factor is a good example of what can happen to you. While we were highlighting put options and outperforming ideas during the market swoon, the small cap value factor fell over 40% during the first quarter of 2020! The media seems fixated on confusing the true definition of value, conflating it with some quant abomination using multiple analysis, but we're doing actual value work via enterprise valuation, and we're hitting the ball out of the park. For those that filled out the survey, we're working hard to make a new business happen, and I'm excited as I've ever been. I'll have more to say about our new initiatives as soon as possible but please stay tuned.
Why do I keep reminding you of our successes? Am I arrogant? Do I enjoy patting myself on the back? Absolutely not. It's as painful for me, as it is for you. But obviously, I'm showcasing the results because I want you to stick with us for the long haul. Anybody can do well during bull markets -- well maybe not everyone, the 60%/40% stock/bond portfolio underperformed greatly -- but where we show our skill is during the tough times, and we delivered hands down during the COVID-19 crisis. Who else would have warned you about the perils of quant factor investing, or how MPT has failed investors? The quants are still debating efficient markets and teaching the CAPM, both of which have been debunked (I'll talk about this in the second edition of Value Trap), and when something doesn't quite pan out like the value factor, they just seek to measure it differently. Quant analysis is far more subjective than you think.---
I wanted to tell you something else, too. Despite all of these successes and the judgment we have offered during the past decade with our work, we've lost about 20%-30% of our membership since the end of 2017, and this is after adding more and more features and newsletters to bolster the product offering. I know this is hard to believe for those paying attention to our work, but this is not abnormal or unusual, or even something to be worried about. It's just how the publishing business works. One can ponder that perhaps they didn't know our best ideas are in the newsletter portfolios or the Exclusive publication, or that they didn't know we showcase our process in full transparency as a means to further augment our decision-making within the newsletter portfolios, or something else, but there's really no good answer. Publishing is just a terrible business.---
But during the past few years, I wanted to let you know I've learned a few things, too. Valuentum has changed me. I've decided that I only want to work with people that want to work with me, that want to pay a fair price for my judgment, and that value us as people (human beings). The days of getting harassed, as in our call with MLPs, or for being questioned on irrelevant tangents, despite the newsletter portfolios and our best ideas doing incredible, are hopefully a thing of the past as we continue to point members to what matters. You know how well we've done, and how hard we work--and you see it every day. I think the work speaks for itself, and I'm going to let it.---
With that said, we'll be recording the annual conference call for Exclusive members today, so if you have any questions, please submit them to firstname.lastname@example.org, and we'll incorporate them into the recording. The conference call will be posted to the website as soon as possible, either this evening or over the weekend. The Dividend Growth Newsletter and High Yield Dividend Newsletter will be released tomorrow, August 1, and the Exclusive publication will be released Saturday, August 8. We're looking to make a number of changes to the newsletter portfolios in the coming weeks as well, so please stay tuned.
I've never been more excited about our work and initiatives to meet the needs of our members for the long haul! I hope you are, too, and I hope you stick with us. Thank you for your continued membership, and may you have a fantastic weekend!
Brian Nelson, CFA
President, Investment Research
Valuentum Securities, Inc.
Related ETFs: XLK, PSCT, ARKK, XT, SKYY, KWEB
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Brian Nelson owns shares in SPY and SCHG. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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