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Thinking Slow: 3 Research Blind Spots That Changed the Investment World

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Dear members: — Daniel Kahneman in his text Thinking, Fast and Slow (1) divided the human psyche into two systems. The first system is instinctive and emotional, often set on autopilot, while the second system is slower and more logical, requiring a calculating conscious. Many of the maxims the investment world takes for granted today suffer from conclusions that are made rapidly, almost without thinking, driven by our first system, creating what I call research blind spots. — In World War II, Allied bombing raids were suffering from very high casualty rates. It was estimated that for those pilots that were flying at the beginning of the war, only about 10% survived, a terrible loss rate. Bombing was crucial to the Allied … Read more

Nvidia Shines in Second Quarter of Fiscal 2026

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Image Source: Nvidia By Brian Nelson, CFA On August 27, market darling Nvidia (NVDA) reported better than expected fiscal second quarter results with both revenue and non-GAAP earnings per share coming in ahead of the consensus forecast. Total revenue increased 56% from the year-ago period, to $46.74 billion (consensus was at $46.13 billion), with Data Center revenue of $41.1 billion advancing by a similar clip, the latter coming in slightly below the consensus estimate of $41.29 billion. In the quarter, GAAP and non-GAAP gross margins were 72.4% and 72.7%, respectively. GAAP and non-GAAP earnings per diluted share were $1.08 and $1.05, respectively. Consensus was at $1.01. Blackwell Data Center revenue increased 17% on a sequential basis, and there were no … Read more

Nvidia Reports Better Than Expected First Quarter Results

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Image: Nvidia’s shares are flirting with all-time highs. By Brian Nelson, CFA On May 28, Nvidia (NVDA) reported better than expected first-quarter fiscal 2026 results with revenue and non-GAAP earnings per share coming in higher than the consensus forecasts. Revenue increased 69% from the year-ago period thanks to strength in Data Center revenue, which was up 73% from a year ago. Gaming revenue was a record $3.8 billion, up 42% from a year ago. Professional Visualization revenue was up 19% from a year ago, while first quarter Automotive revenue was up 72% from last year. First-quarter non-GAAP gross margin was 71.3%, while first quarter non-GAAP diluted earnings per share was $0.96. Management had the following to say about the results: … Read more

3 Undervalued Stocks to Consider Buying Now

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Dear readers:   With the markets retracing most of their recent drawdown, we’re taking a victory lap as we didn’t panic, nor should have you. We highlighted our wait-and-see approach amidst the worst of the pullback, and we expect the Magnificent 7 (large cap growth and big cap tech) to continue to propel the markets higher, as they have done.   We’ve been busy rolling valuation models as we finetune our assumptions for a great number of companies under coverage. While doing so, we came across three undervalued stocks that are also included in the simulated newsletter portfolios. We think they’re prime for highlight.   The three stocks are UnitedHealth Group (UNH), Nvidia (NVDA) and Alphabet (GOOG). We spend a lot of time on discounted cash-flow valuation, … Read more

Magnificent 7 Earnings Reports Not Bad Thus Far

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By Brian Nelson, CFA   Shortly after Trump’s Liberation Day, where the President unveiled lofty tariffs on numerous countries, we released our wait-and-see outlook for the equity markets, which thus far has proven to be the right move, with the markets largely recovering from the depths reached in April. The S&P 500 (SPY), for example, is down just 3.3% year-to-date, excluding dividends.   A lot has happened since Liberation Day, including easing of tariffs to a 10% baseline for most, if not all, countries, with the key exception of China, where tariffs remain extremely elevated and prohibitive. Many countries are now reportedly negotiating trade agreements with the White House, and we expect China to be added to that list soon, even if … Read more

Trump Tariffs Higher than Expected; What We’re Doing

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By Brian Nelson, CFA The Trump tariff increases came in larger than what we were expecting, and it remains to be seen how they will flow through the global economy, as we monitor potential retaliatory tariffs from other countries. As it relates to the equity markets, we’re taking a wait and see approach at the moment as we monitor new policy changes related to trade, immigration, fiscal (tax), and regulations. In short, we’re not overreacting to the sell off as we won’t have a great handle on the tariff impact to companies for a few quarters when they report results post-tariff increases. That said, we’re expecting continued market volatility, with meaningful risk to the downside, before trade uncertainty alleviates in … Read more

Taiwan Semiconductor Benefiting from Strong Smartphone and AI Demand

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Image: Taiwan Semiconductor released better than expected results. By Brian Nelson, CFA Taiwan Semiconductor (TSM) reported excellent third quarter results on October 17. In the quarter, consolidated revenue came in at NT$759.69 billion, net income was NT$325.26 billion while diluted earnings per share was NT$12.54 (US$1.94 per ADR unit), all coming in ahead of expectations. On a year over year basis, revenue grew 39%, while net income and diluted earnings per share increased 54.2%. On a sequential basis, revenue advanced 12.8%, while net income leapt 31.2% higher. Return on equity was 33.4% in the quarter, up 7.6 percentage points on a year-over-year basis. On a US-dollar basis, third quarter revenue of $23.5 billion advanced 36% year-over-year, ahead of guidance calling … Read more

Brain Teaser – Reflexive versus Reflective

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Dear members: — Jason Zweig of the Wall Street Journal, wrote in his pioneering text, Your Money and Your Brain, a few fun examples of how sometimes the psychological process of anchoring and adjustment can trip us up. — In one notable example, Zweig wrote about how two psychologists Amos Tversky and Daniel Kahneman had asked volunteers to spin a wheel of fortune numbered from 0 to 100. The contestants didn’t know that the wheel was rigged to produce either a 10 or a 65 for the experiment. — After spinning the wheel, the contestants were then asked whether the percentage of total United Nations membership made up of countries in Africa was higher or lower than the number that came up. … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Micron Issues Strong Outlook, Points to Multi-Year Opportunity in AI

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Image Source: Micron By Brian Nelson, CFA On March 20, Micron (MU) reported better than expected second quarter fiscal 2024 results that showed considerable revenue growth and a nice beat with respect to non-GAAP earnings per share. Revenue advanced to $5.82 billion versus $3.69 billion in the same period last year, while non-GAAP net income swung into positive territory at $0.42 per share, up from a loss of $1.91 during the second quarter of fiscal 2023. Operating cash flow surged to $1.22 billion in the quarter from $343 million in the same period a year ago. Here’s what management had to say about the performance in the quarterly press release: Micron delivered fiscal Q2 results with revenue, gross margin and … Read more