FB

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

by

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

Your Role as a Choice Architect

by

“As we’ve shown time and time again, you don’t need to look far to beat the market return (or, by comparison, to have a healthy diet). If something is not on the menu at Valuentum, it means the chef has something better cooking in the kitchen.” — Dear members: — Richard Thaler in his groundbreaking book Nudge (1), co-written with Cass Sunstein, talked about the role of the choice architect. A choice architect is basically someone or some organization that has the responsibility for organizing the context and content in which people make decisions. — A good example of a choice architect might be a cafeteria worker that has to decide how to organize the food in a buffet line … Read more

Keeping the Horse Before the Cart: Valuentum’s Economic Castle Rating

by

Image Source: Ian By Brian Nelson, CFA “In business, I look for economic castles protected by unbreachable moats.” – Warren Buffett In the world of investing, no other saying may be more widespread. The teachings of Berkshire Hathaway’s (BRK.A, BRK.B) Warren Buffett have become a favorite among individual investors, having been adopted by money-management firms and sell-side firms alike in order to better connect with their clients and readers who have been ‘under siege’ by the topic in recent years. The phrase ‘economic moat’ – or sustainable competitive advantage – has simply become ubiquitous in the investment world and perhaps has lost much of its significance and meaning along the way. Most management teams across the globe are now eager … Read more

Brain Teaser – Reflexive versus Reflective

by

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

by

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

Big Cap Tech and Large Cap Growth Continue to Lead Market Higher

by

Image Source: Marco Pakoeningrat By Brian Nelson, CFA We continue to like the areas of big cap tech and large cap growth as the top firms in these areas have strong cash-based sources of intrinsic value: net cash on the balance sheet and strong expected future free cash flow generation. After the close February 1, the market received the quarterly earnings reports from Meta Platforms (META), Amazon (AMZN), and Apple (AAPL), and we were pleased by the trio’s performance during the calendar fourth quarter. We maintain our long-held view that big cap tech and large cap growth will continue to lead the market higher, and we continue to overweight these areas in the newsletter portfolios. The biggest upside surprise was … Read more

The Role of Luck in Investing and How To Think About It

by

Dear members: — For every Amazon (AMZN) that made it, there are hundreds, maybe thousands, from the dot-com era that didn’t. Very few remember Pets.com or etoys.com, both of which went belly up during the dot-com meltdown. For every Tesla (TSLA), there is a DeLorean Motor Co. We might have completely forgotten about DeLorean were it not for the blockbuster movie, Back To The Future, that immortalized its futuristic sports car. — For every streaming enterprise like Netflix (NFLX), there is a Napster that failed. Most of us probably don’t even remember the original Napster, which encountered legal troubles before closing shop shortly after the dot-com bust. For every Alphabet (GOOG, GOOGL), there’s an AltaVista or Netscape. For every Apple (AAPL), there … Read more

Meta’s Threads Launch Immaterial to Meta But Tragic for Twitter

by

Image: Threads logo. Meta has launched a Twitter-killer with its new real-time online conversation app, Threads. By Brian Nelson, CFA Big cap tech continues to innovate and encroach upon each other’s territory, and the latest example is Meta’s (META) expansion into real-time online conversation with its new app Threads that competes directly with Elon Musk’s Twitter. Consumers have been looking for an alternative to Twitter after Musk made a number of big changes to keep the bird app afloat, and Meta’s CEO Mark Zuckerberg is now pouncing on the opportunity to take share in this area. Unlike other rival platforms such as Truth Social (DWAC), users of Threads will be able leverage Instagram to log in to Threads and easily … Read more

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

by

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

Earnings Roundup

by

By Brian Nelson, CFA PayPal Holdings (PYPL) best days may be behind it. We’re not sure why there is so much consumer backlash against the company, but we think the fallout not only has impacted the company’s business fundamentals but also its stock. PayPal’s fall from grace started when rumors began to swirl about its potential interest in Pinterest (PINS), and we no longer can get behind the firm’s shares. As with Meta Platforms (META), we were burned pretty bad last year with PayPal, and while the newsletter portfolios did quite well on a relative basis during 2022, it’s hard to swallow that two of our favorite ideas just didn’t live up to expectations. In any case, PayPal’s shares are … Read more