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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

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

ALERT: Going to “Fully Invested” in the Best Ideas Newsletter Portfolio

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Image: Since the publishing of the first edition of the book Value Trap, the stylistic area of large cap growth (SCHG) has meaningfully outperformed both the equal-weight S&P 500 (SPY) and small cap value (IWN). Summary of Best Ideas Newsletter portfolio changes UnitedHealth Group (UNH): 0% –> 4%-6% Booking Holding (BKNG): 0% –> 4%-6% Chipotle (CMG): 1%-2% –> 6%-8% Technology Select Sector SPDR (XLK): 0% –> 4%-6% By Brian Nelson, CFA With the debt-ceiling debate behind the markets, the regional banking crisis largely in the rear-view mirror, and the Fed winning the fight against inflation, a continuation of the strength in the markets as witnessed from the October 2022 lows can probably be expected. We “rode” the latest upswing with … Read more

Long Live Apple and Large Cap Growth!

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Image: Since the release of the book Value Trap in December 2018, an ETF that tracks large cap growth (SCHG) has outperformed not only the S&P 500 (SPY), but also the areas of dividend growth (SDY) and small cap value (IWN) by sizable margins. By Brian Nelson, CFA We explained in part why we don’t like the dividends of banking firms in this note here, and we’re starting to see dividend cuts in the regional banking space, with PacWest Bancorp (PACW) as the latest banking entity to slash its quarterly payout. Right now, executives in the regional bank arena seem to be like deer caught in headlights, and we’re even seeing banking deals fall apart. The proposed deal between Toronto-Dominion … Read more

Quick Take: Fed Raises 25 Basis Points; This Banking Crisis Is Far from Over

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Image: FOMC Chairman Powell answers a reporter’s question at the March 20, 2019 press conference. By Brian Nelson, CFA On March 22, 2023, the Federal Reserve raised its benchmark rate 25 basis points, to the range of 4.75%-5%, a move that we think reflects a government agency that is now more or less a deer caught in headlights–given the nascent regional banking crisis in the United States. The bottom line is that the U.S. banking system does not have enough cash on hand to redeem all deposits (it never has), and with respect to U.S. banks, deposit insurance is only up to $250,000 per depositor, per FDIC-insured bank, per ownership category. The U.S. public has grown concerned, and that may … Read more

ALERT: We’re ‘Raising Cash’ in the Newsletter Portfolios

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Image: American Union Bank, New York City. April 26, 1932. Public Domain “We firmly believe that an investment in a bank must come with the acknowledgement of the distinct possibility that another financial crisis may occur at an unknown time in the future. Why? Banks do not keep a 100% reserve against deposits. Our good friend George Bailey knew this very well when he tried to discourage Bedford Falls residents from making a “run” on the famous and beloved Building and Loan.” – Brian Nelson, CFA, September 4, 2013   SUMMARY OF CHANGES Best Ideas Newsletter Portfolio Johnson & Johnson (JNJ): 4%-6% à 0% Exxon Mobil (XOM): 4%-6% à 0% Chevron (CVX) 3%-5% à 0% Dollar General (DG): 3%-5% à 0% Korn/Ferry (KFY): 1%-2% à 0% … Read more

SVB Financial, Silvergate Capital, Credit Suisse Reveal Cracks in Global Financial System

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Image: SVB Financial looks to be collateral damage of the Fed’s rate-hiking cycle, and we can’t rule out that other regional banks could have also managed interest-rate risk wrong. Shares of SVB Financial have collapsed, and other banks could be facing similar issues that have yet to come to light. Image Source: TradingView By Brian Nelson, CFA We don’t include any banks in the newsletter portfolios, but we include slight “exposure” to the Financial Select Sector SPDR (XLF) in the Best Ideas Newsletter portfolio, primarily for diversification reasons. We have never been fans of the banking business model, and here is what we wrote in the first edition of Value Trap: Theory of Universal Valuation: It’s likely we will have … Read more

Goldman Sachs Drops, Morgan Stanley Pops in Bull Market for Advice””

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Image: Morgan Stanley’s Wealth Management division has provided the company with stability, while Goldman Sachs continues to feel weakness across several of its business segments. Image Source: TradingView By Brian Nelson, CFA Banking entities have kicked off fourth-quarter 2022 earnings season. The quarterly results across those that have reported have been mixed thus far, among the largest entities, but perhaps the dichotomy among players was no more pronounced than the market’s reaction to Goldman Sachs’ (GS) and Morgan Stanley’s (MS) respective fourth-quarter 2022 results. Goldman Sachs’ shares fell to the lower end of our fair value estimate range, while Morgan Stanley’s shares surged toward our fair value estimate. We think Morgan Stanley’s shares could run to the high end of … 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