ACAS

CFA Institute Blog: “Hide-‘Til-Maturity” Accounting

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The Silicon Valley Bank collapse recalls the tussle over the accounting for financial instruments after the global financial crisis [GFC] in 2009, particularly the debate about whether some financial instruments should be carried at amortized cost (held-to-maturity, HTM) rather than at fair value (available-for-sale, AFS), or what is referred to as the “mixed measurement model.”  — Sandy Peters, CPA, CFA To read the article on the CFA Institute Blog >> —– Related: 4 Very Good Reasons Why We Don’t Like Dividends of Banking Stocks Banks & Money Centers: AXP, BAC, BBT, BK, C, DFS, FITB, GS, HBC, JPM, KEY, MS, NTRS, PNC, RF, STI, TFC, USB, WFC Valuentum does not believe the long-term dividend health of any financial institution can be accurately … Read more

Something New!

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Hi everyone: To stay true to our mission, you’ll find something new regarding our methodology. In the coming weeks, you’ll see this table in our work going forward. We just wanted to let you know. We appreciate your membership very much!   ——————————————— About Our Name But how, you will ask, does one decide what [stocks are] “attractive”? Most analysts feel they must choose between two approaches customarily thought to be in opposition: “value” and “growth,”…We view that as fuzzy thinking…Growth is always a component of value [and] the very term “value investing” is redundant.                          — Warren Buffett, Berkshire Hathaway annual report, 1992 At Valuentum, we take Buffett’s thoughts one step further. We think the best opportunities arise from an understanding of … Read more

New Payment Option! Valuentum Research Update!

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Hi everyone: — We’re excited to say that we’re adding additional payment flexibility at Valuentum. — Many members have expressed interest in paying via other providers, and we have added Square to the mix. You can use credit or debit card or bank (ACH) to pay via invoice. — With all of the goings-on in the financial technology and payments space, we wanted to continue to provide members options to pay their memberships how they want and through who they want. You can always reach out to us at info@valuentum.com. — You’ll notice that we’ve also tightened our focus at Valuentum during the past 12-24 months in advance of what has certainly become a more difficult 2022 than even some … Read more

Our Report on the Regional Banks and Asset Management Stocks

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Image Source: Carlssa Rogers Structure of the Regional Banks/Asset Management Industry The regional banking and asset management industry is based almost entirely on the confidence of intermediaries and counterparties that make up the building blocks of the financial system. An investment in a bank or asset management firm must come with the acknowledgement of the distinct possibility that another financial crisis may occur at an unknown time in the future. Though we don’t expect one anytime soon given the recent favorable stress-test results of the largest US banks, it’s worth noting that there have been three significant banking crises during the past three decades alone: the savings and loan crisis of the late 1980s/early 1990s; the fall of Long-Term Capital … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

Risky Business: Business Development Companies

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Big name business development companies (BDCs) such as Prospect Capital () and Main Street Capital () continue to be vulnerable equities, in our view, particularly as credit conditions deteriorate. Ongoing pressure in the energy and metals and mining markets has increased the wariness of investors and their propensity to tolerate weak credits (and those tied to them), and several factors loom that may significantly increase the already-high level of business-model risk associated with BDCs. Investing in these relatively obscure publicly-traded “venture capital” entities is not for the faint of heart. The market may bear witness to a surge in defaults within the high-yield arena in coming years, and a prolonged weakness in commodity prices may seal that fate. Mostly overleveraged upstream … Read more

Asset Managers: Capital Retention In the Name of Capital Preservation

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In recent years, the operating theme for many asset managers has shifted to capital preservation, particularly in their efforts to serve the large and growing number of baby boomers and commercial clients managing pensions. This is a reasonably expected change when considering that many investors lost a significant amount of capital during the Financial Crisis, many of which are still recovering. The ramifications of the credit crunch have led to requirements for increased transparency and regulatory compliance, adding structural costs to the asset-management business model, but this is only one side of the coin. The volume of investable assets is set to increase to a whopping $102 trillion by 2020 from ~$64 trillion today, fueled by an increase in the … Read more

Speculative Stocks Sinking

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“The world economy is in its worst shape since the Great Recession. And medium- to low-grade corporate credits will not escape the drag of global malaise.” – Moody’s, September 25, 2015 All is not well in the “medium-to-low grade corporate credit market, and if a warning from Moody’s wasn’t enough, famed activist investor Carl Icahn (IEP) applied more pressure with his controversial and headline-grabbing 15-minute video, “Danger Ahead.” We think it makes sense to be cautious in today’s gyrating market environment, which continues to face a number of tangible headwinds, not the least of which are stretched equity valuations, “broken” technicals, and worsening sentiment. The collapse in China’s stock market, its potential knock-on effects across the global banking system, the … Read more

Prospect Capital Cuts Dividend

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As is often the case, the larger the dividend yield the more risky the payout. I talk about this quite a bit in the video: ‘Dividends, Dividends, Dividends.’ Please have a look. All else equal, we tend to prefer cash-flow-based operating companies such as Microsoft (MSFT) rather than opaque, risky structures such as business development companies (BDC’s), where traditional fundamental analysis is less-informative. Sure enough, a dividend cut at Prospect Capital (PSEC) came in a warm holiday package today. The business development company announced that it will reduce cash dividends to shareholders to $0.08333 on a monthly basis with the following record and payment dates: 8.333 cents per share for February 2015 (record date of February 27, 2015 and payment … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more