ATVI

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

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

3 Dividend Growth Stocks for the Long Run

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Image Source: Mike Mozart By Brian Nelson, CFA Stock prices and returns are in part a function of a company’s net cash position on the balance sheet and the free cash flows that it will generate in the future for shareholders. We call net cash and future expected free cash flow generation the two primary cash-based sources of intrinsic value in determining a company’s fair value estimate. When it comes to assessing dividend health, we examine these two cash-based sources of intrinsic value, too. For example, a company with a strong net cash balance has greater financial flexibility than a firm with a large and prohibitive net debt position. Entities that generate strong free cash flows in excess of their … Read more

ICYMI: Questions for Valuentum’s Brian Nelson

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Valuentum’s President Brian Nelson, CFA, answers your questions. Q: What Is Valuentum? A: In short, it is a strategy that combines the concepts of value and momentum within individual stocks. We measure value through the cash-based sources of intrinsic value – net cash on the balance sheet and future expected free cash flow. We measure momentum rather simply, generally via relative strength or other technical and momentum indicators. We like stocks with strong net cash positions on the balance sheet, ones that are generating tremendous free cash flow, and have strong secular growth prospects such that the prospect for expectations of free cash flow can continue to be ratcheted higher. Today, most Valuentum stocks are included in the stylistic area … Read more

Top Dividend-Related News: MSFT, AAPL, ASML

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Image: Microsoft’s shares hit a record high in July! By Brian Nelson, CFA Microsoft’s (MSFT) shares hit an all-time high July 18 on news that it would raise prices on its Office products to account for the integration of AI into its tools. We’ve yet to test the new features that are collectively called 365 Copilot, but the new features will add $30/month to the overall price of the software, a meaningful percentage step-change that seems to be quite a needle-mover. Copilot, at the moment, will be a voluntary upgrade, but we think that over time, AI may become an entrenched feature across Microsoft’s entire product line-up, whereupon average selling prices across its customer base will meaningfully increase. AI may … Read more

Call Me Unconcerned

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Image: Large cap growth has dominated returns the past five years. The Best Ideas Newsletter portfolio continues to have significant exposure to this area. By Brian Nelson, CFA When it comes to the financial markets, the debt ceiling debate is nothing to worry about. Countries (sovereigns) cannot generally default on debt that is denominated in their own currency. The concern that there will be any sort of calamity if the U.S. government doesn’t raise the debt ceiling is far overblown, in our view. The political will of the U.S. to pay its debt will only resolve itself in time, and any risk premium built into Treasuries as a result of the debt ceiling showdown will be fleeting. Of course, nobody … Read more

Nice! — NASDAQ-100 Follows Through on Breakout

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Image: NASDAQ-100 breaks through August 2022 resistance. NOW READ: There Are No Free ‘Income’ Lunches ———- It’s Here!  The Second Edition of Value Trap! Order today!   —– Tickerized for holdings in the QQQ. Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.         Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and … Read more

Chipotle Hits All-Time High, Microsoft Doesn’t Disappoint in Calendar First-Quarter 2023

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Image: Ideas in the Best Ideas Newsletter portfolio are doing great! Shares of Chipotle are up ~45% so far in 2023, while shares of large cap growth giant Microsoft (orange) are up more than 20% year-to-date. By Brian Nelson, CFA The UK Competition and Markets Authority (CMA) has decided to block Microsoft’s (MSFT) deal with Activision (ATVI). The CMA noted that the combination would “result in the most powerful operator in the fast-developing market for cloud gaming, with a current market share of 60%-70%, acquiring a portfolio of world-leading games with the incentive to withhold those games from competitors and substantially weaken competition in this important growing market.” Microsoft has been willing to work with regulators to get the deal done, … Read more

Microsoft Is Betting Big on Artificial Intelligence (AI); Fiscal Q2 Shows Meager Revenue Growth, Weaker Cash Flow Generation

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  Image: Microsoft believes artificial intelligence (AI) will be the next platform wave, and the company is going full steam ahead to incorporate AI across its business systems. Image Source: Microsoft “The age of AI is upon us and Microsoft is powering it. We are witnessing non-linear improvements in capability of foundation models, which we are making available as platforms. And as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It’s being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT.” – Microsoft CEO Satya Nadella (January 24, … Read more