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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

What You Should Know About MMORPGs

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The Valuentum analyst team talks about the Chinese gaming industry and the financials of Tencent (TCEHY) and Netease (NTES), in particular. Both generate strong free cash flow and have solid balance sheets, but there are myriad risks to consider, too. ~5 mins. Podcast no longer available. Transcript as follows. Chris Araos: Welcome to Valuentum’s podcast. This is Christopher Araos, and joining us today is Brian Nelson and Kris Rosemann. Today, we’re going to talk about the MMORPG landscape in China. Brian? Brian Nelson, CFA: Thanks for that Chris. I think just to give a little bit of background MMORPG stands for massively multiplayer online role-playing (PC-client) games. Wow, that’s a mouthful. These are very, very popular games across the globe … Read more

The “Uninvestable” Twitter and Netflix Buoyed By Takeout Chatter

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By Kris Rosemann and Brian Nelson, CFA At Valuentum, we like slam-dunk, no-brainer investment opportunities–like Microsoft (MSFT) in the mid-$20s before it doubled, or Visa (V) prior to its strong equity price performance in recent years, or even cigarette-maker Altria (MO) in advance of its ongoing march higher since the dawn of the release of the inaugural Best Ideas Newsletter. Our members count on us to use our knowledge of valuation to sort out “investable” stocks from “uninvestable” ones; good stocks with fundamental promise from bad ones built on fantasy outcomes. Benjamin Graham calls what we do “investing,” while he may call readers that dabble in the two highlighted stocks in this piece “speculators.” There is a difference, and it’s … Read more

China

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Image Source: Mike Behnken Our concerns about China are not new, and neither are your concerns. The potential Treasury Secretary-to-be, Carl Icahn, that is one in a world of a Donald Trump presidency, which has become all-the-more likely now that Ted Cruz and John Kasich have stepped aside, recently brought to light the differences between a capitalist society such as that of the US and a communist nation such as that of China (FXI). Unlike the US government which isn’t necessarily anti-business, even if it isn’t pro-business if existing corporate tax rates are any measure, the Chinese government can make things awfully hard on any company doing business within its borders, if it wants to. What Icahn has been referring … Read more

Apple: Nowhere To Run, Nowhere To Hide

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By Brian Nelson, CFA Today’s stock market is a difficult one. That Apple (AAPL) is selling off after disappointing fiscal second-quarter results is unfortunately no surprise to us, “Apple Will Go Lower… And It Will Be ‘Forced’ Into Acquisitions (January 2016).” There may be “nowhere to run, nowhere to hide” for market participants seeking full exposure to equities. Unfortunately, it’s no consolation to the reader that missed our profit-taking alert in Apple a few months ago, and our discussion to take even more shares off the table “Looking To Trim Apple… (December 2015).” In August 2015, we removed one third of the position in Apple from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio at $108.92 for a … Read more

Seeking to De-risk the Newsletter Portfolios

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There’s never a good reason to panic in investing, but the 276-point slide in the Dow Jones Industrial Average (DIA) January 4, the worst start to a year since the credit crisis in 2008, reminded us why we hold more than a 30% cash position in both newsletter portfolios at the moment: with a US stock market still near all-time highs, we like having ample capital available to scoop up bargains as stocks inevitably give back some of their gains. The question for us is not whether the broader US stock market will decline from here but whether such a decline will be 10%, 20% or more. After all, the S&P 500 (SPY) has essentially tripled from the March 2009 … Read more

The Puzzling Attack on Alibaba

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A large publisher ran a negative article on Alibaba (BABA) last weekend, “Alibaba: Why It Could Fall 50% Further (1)” As the article has successfully struck fear into the hearts of US investors in light of ongoing Chinese market collapse, it has also successfully hurt Alibaba’s stock. There are a few things that we think are worth emphasizing that were lacking in the piece. 1) Alibaba is significantly free cash flow positive. Unlike the many Internet sensations of the late 1990s and early 2000s that were burning through millions and millions of cash every quarter, Alibaba is significantly free cash flow positive (cash flow from operations less all capex). In the June quarter alone, assuming a USD-to-RMB exchange rate of … Read more

The Debt Bubble Is Deflating; Will It Pop?

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The fundamental concerns surrounding the financial health of China-dependent companies across the globe are tangible, and the risk of a currency crisis and eventual credit crunch are real, if they aren’t already happening. Fortescue Metals Group (FMG), the fourth-largest iron ore producer in the world, announced over the weekend, that profits were nearly completely wiped out (down nearly 90%) for the fiscal year ending June 30, even as the firm shipped 33% more tons of iron ore during the period over last year’s mark. The largest iron ore producers, BHP Billiton (BHP) and Rio Tinto (RIO), are only adding to production overcapacity, conditions that are wreaking havoc on the commodity price. Iron ore prices are to remain under pressure as … Read more

The Flight to Safety

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Image Source: Pravine Chester It’s no secret that investors have been disappointed with returns across the equity market in 2015, and this week has not made the unrest any easier to deal with. Money managers across the globe will be looking at a short-term chart of the S&P 500 (SPY), observing that the broad US index has finally broken down from a critical multi-month base, and many will look to “lighten up” on some of their equity positions that they have been reluctantly “letting run” for months. It is no surprise to us why Netflix (NFLX) was one of the market’s worst performers in Thursday’s trading session. The company is trading at nearly 500 times earnings (not a typo), and the low … Read more

Assessing the Fallout from the Collapse in China’s Stock Market…Thus Far

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No longer do we live in an isolated world. If you weren’t convinced of this before the Global Financial Crisis, the credit crunch of late last decade should have changed that. Just as the interconnectedness of global financial markets is undeniable, we think the significance of the health of the Chinese economy is as critically important to the trajectory of equity prices across the globe. That’s why we’re not taking the recent collapse in the Chinese stock market lightly. Here’s what we’re hearing. China’s major restaurant bellwether, Yum! Brands (YUM), owner of KFC, addressed whether a decline in the country’s equity market has impacted sales. Though the company noted that “a very small percentage of customers have been impacted,” we’re … Read more