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A “Terrible” Negative Alpha-Generating “Trade” and More

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Let’s walk through some of the news before the Thanksgiving holiday, and one of the bigger missteps we made during 2017. By Brian Nelson, CFA I’d like to run through the news before many of you take a break for the Thanksgiving holiday. Thanks again for your attention. It means the world to our team that you see and understand the things that we’re doing, the great calls we make with our top-weighted ideas (see here and here), the extensive valuation processes we perform with respect to the discounted cash-flow process (see here), and how we provide that in downloadable pdf form (see here) – and we’re here to talk about our expectations! You can get reports from anybody, of … Read more

How Have Our “Best Ideas” Performed During 2017?

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The top-weighted ideas are getting the job done, while we avoided one of the biggest missteps in all of 2017. We’ve had better years, but 2017 was still a great one. Key takeaways: 1) “The top-weighted ideas in the Best Ideas Newsletter portfolio, Apple and Visa, performed wonderfully from the release of the December 2016 newsletter through November 13, 2017, averaging more than an increase of 45%, excluding dividends, versus a mid-teens percentage advance for the S&P 500, excluding dividends.” 2) “The weighting concept within a portfolio context is an important one because, as a portfolio manager adds more and more ideas to the portfolio, the next best idea is just that–the next best one–so the probability of diluting portfolio … Read more

Alphabet’s Financial Health Unfazed By European Commission Fine

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Image Source: Open Grid Scheduler Alphabet’s second-quarter results revealed a one-time charge that made headlines, but the fine is a drop in the bucket when considering the size of Google’s balance sheet and free cash flow generation. By Brian Nelson, CFA Shares of Alphabet (GOOG, GOOGL), the company formerly known as Google, sold off following the release of its second-quarter report July 24. We’re not making much of the market’s negative reaction to a quarter that revealed 23% year-over-year revenue growth (on a constant-currency basis) and earnings per share north of $5, both the top line and bottom line coming in above Street consensus expectations. Adjusting for the widely-publicized European Commission (EC) fine of $2.7 billion*, which Alphabet accrued in the … Read more

PayPal, Facebook Post Strong Second-Quarter Results

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Image shown: Facebook’s traditional free cash flow (CFO less capital expenditures), in millions. Two of our favorite holdings in the Best Ideas Newsletter portfolio put up strong second-quarter results. We continue to like their respective shares. By Brian Nelson, CFA Online payments processor PayPal (PYPL) and social media advertising giant Facebook (FB) are two of our favorite holdings in the portfolio of the Best Ideas Newsletter. Both forward-leaning, mobile-oriented companies reported second-quarter results after the market closed July 26, and both have traded higher following the release. PayPal’s revenue advanced 20% in the second quarter, after excluding effects from currency exchange, and the company leveraged that growth into an impressive 27% jump in GAAP and non-GAAP earnings per share, the … Read more

Systemic Risk in These Frothy Times

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Let’s talk about index investing, market valuations, and mention how a few ideas in the Best Ideas Newsletter are doing. By Brian Nelson, CFA For most investors during most parts of the economic cycle, index investing (VOO), or holding a broad basket of stocks that approximate the returns of a large market index may make a lot of sense. I have always said this from the very beginning: Individual stock selection is not for everyone. What may not be well-known, however, is that index funds have experienced multi-year periods of both outperformance and underperformance relative to actively-managed funds since the dawning of the very first index fund many decades ago. I’m worried that some investors today may not have this … Read more

Nelson: Reminding You of Some of Our Favorites

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Sometimes we talk way too much about the incremental, the periphery, and the tactical tweaks, and not enough about our favorite ideas included in the newsletter portfolios. Let’s cover four of our favorites. By Brian Nelson, CFA Apple The market has seemingly always had Apple’s (AAPL) shares mispriced. Our fair value estimate of the iPhone giant has been above its trading price for years, and we’ve included the company in both newsletter portfolios since inception. It’s been a win-win for Valuentum investors and dividend growth investors alike. A look at Apple’s rating history (newest to oldest) showcases just how much conviction we’ve had in the idea, and shares have now almost converged to our present $165 per share fair value … Read more

eBay Up 50%+ Since Nelson’s Open Letter to Yahoo CEO

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In February 2016, President of Investment Research at Valuentum penned an open letter to Yahoo’s CEO Marissa Mayer. In it, he said a combination of Yahoo-eBay would be substantially value-creating for shareholders. eBay’s stock has advanced 50%+ since that letter. By Valuentum Analysts We don’t write letters to CEOs often, but when we do, we have good reason. In February 2016, Yahoo (YHOO) had been under major pressure to monetize its stake in Alibaba (BABA), and CEO Marissa Mayer had faced continuous and tremendous criticism during her tenure. Working under the assumption that Yahoo wanted to monetize its stake in Alibaba at that time and put cash to work, President of Investment Research at Valuentum Brian Nelson wrote in an … Read more

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

Fair Value Estimate Changes: Facebook, Twitter, Caterpillar and More…

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  By Kris Rosemann and Brian Nelson, CFA Let’s begin this edition of Recent Material Fair Value Estimate Changes’ with a discussion of some of the highest-profile names that made the list. If you require background reading on why we make changes to our valuation models, please see: What causes fair value estimates to change? Best Ideas Newsletter portfolio holding Facebook (FB) continues to separate itself from other social media companies, and we continue to be impressed by its free cash flow generating prowess and net cash-rich balance sheet. Our most recent fair value estimate increase comes largely as a result of greater optimism regarding the sustainability of the company’s pace of revenue growth, reflected by a hike in our mid-cycle … Read more