ICYMI: Valuentum's Brian Nelson on the Latest Howard Marks' Memo: "Something of Value"

publication date: Jan 20, 2021
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author/source: Valuentum Analysts
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Valuentum's President of Investment Research Brian Michael Nelson, CFA, explains why there are not really value and growth stocks, why most of the research in quantitative finance is spurious and needs to be redefined on a forward-looking basis, and why enterprise valuation (not the efficient markets hypothesis) should be the organizing principle of finance. Nelson explains his views about valuation, what it means to be a value investor, and investing in the context of Oaktree Capital Howard Marks' latest memo, "Something of Value," January 11, 2021.

Please don't forget to give the second edition of the book "Value Trap" a 5-star rating on Amazon here.

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Tickerized for holdings in the IWM.

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Brian Nelson owns the SPY, SCHG, DIA, QQQ, VOT, and IWM. Some of the other companies written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

2 Comments Posted Leave a comment

Alex Skabry (Sanborn)
I love the emotion. You are so attached.
Alex Skabry (Sanborn)
DCF, yes; but cash flow comes from a source. It comes from a firm's capacity to create value, to sustain profitability.

These are things that are competitive advantages. We see it time and again and in fact, just today in the earnings report of Schlumberger.

SLB's sales went down 33%, in a YoY statement just issued. But it's profits, compared to 2019's closing quarter, were up. During the most difficult times SLB outperformed XLB. There are other important lessons there.

Companies that have found ways to create profitability will not return that genie back to the bottle. We will evolve as a worldwide economy and jobs that have been lost will be lost forever.

But firms like SLB will take those profits and continue to destroy their competition by redeploying them and leveraging up their competitive advantage. Their capacity to create value is on full display.

Mind you, it doesn't make the firm a good investment today. The future of their income streams are truly at risk. But given the same pound of flour, cup of water and yeast, they bake beautiful bread.

The singular guideposts - Value Creation, Value Risk and P/EV. They paint a mosaic and DCF is just the tool that delineates how you got there.

(I do not own nor intend to personally own any shares of SLB, either directly or through an ETF or mutual fund, and it is not a recommendation in any way.)
 

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