Exclusive Analysis for the Discerning Investor
President of Investment Research Brian Nelson gives a plethora of reasons why the dividend discount model is dead and expresses his worries about how it continues to be used academically and professionally. Also included is a discussion about why the weighted average cost of capital, or the WACC, is used in the enterprise free cash flow valuation process, or the free cash flow to the firm process. Running time: ~13 minutes.
President of Investment Research Brian Nelson defines the concept of universal value and shows how quantitative statistical methods are inextricably linked to those of fundamental, financial, business-model related analysis. Value does not exist in respective process vacuums! Value is universal. Find out why. Running time: ~10 minutes. Tickerized for Valuentum’s stock and ETF coverage universe. Transcript Hi this is Brian Nelson from Valuentum Securities, and this is the tenth edition of a series that I call “Off the Cuff,” where I get in front of the camera and I talk for ten minutes. This is what we have to talk about today. We have to talk about this concept: The Theory of Universal Value. Value does not exist in vacuums … Read more
President of Investment Research Brian Nelson details his simple new theorem of the stock market that may change everything you believe. Nelson explains using poker as an example, and he goes on to caution about the concept of inertia, and how investing has somehow transformed into a “game” — if investors truly believe there are ‘value’ and ‘growth’ stocks. A must-watch intrigue. Running time: ~11 minutes.
Robert Shiller on what worries him about passive investing from CNBC. “The problem is that if you are talking about passive indexing, that is something that is really free-riding on other people’s work. So people say, ‘I’m not going to try to beat the market. The market is all-knowing.’ But how in the world can the market be all-knowing, if nobody is trying — well, not as many people — are trying to beat it? … The strength of this country was built on people who watched individual companies. They had opinions about them. All this talk of indexes, it’s a little bit diluting of our intellect. It becomes more of a game. It’s a chaotic system. It’s kind of … Read more
Image Source: emmolos The latest memo from Oaktree’s Howard Marks here should be read and then read again. The section on passive investing is an absolute treasure. “Passive investing is done in vehicles that make no judgments about the soundness of companies and the fairness of prices. More than $1 billion is flowing daily to “passive managers” (there’s an oxymoron for you) who buy regardless of price. I’ve always viewed index funds as “freeloaders” who make use of the consensus decisions of active investors for free. How comfortable can investors be these days, now that fewer and fewer active decisions are being made?” — Howard Marks, Oaktree Capital Financial Tech Services: ACIW, EPAY, FDC, FIS, FISV, FLT, GPN, MA, MELI, … Read more
Indexing sounds like an easy way to track the market’s performance, but if your indexed assets are held in financial advisors’ accounts, it can come with a big cost: significant underperformance. Over 20 years, we estimate in this hypothetical example that the cumulative cost as a result of a 1% annual financial advisor fee on indexed assets can amount to as much as 66% of a saver’s initial investment — just for holding an index fund. Please be careful out there!
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
A portion of this article is excerpted from the January 2014 edition of the Dividend Growth Newsletter. Valuentum has two actively-managed portfolios: a Best Ideas portfolio and a Dividend Growth portfolio. Each portfolio has different goals and strategies. The Best Ideas portfolio seeks to find firms that have good value and good momentum characteristics and typically holds them from a Valuentum Buying Index rating of a 9 or 10 to a rating of a 1 or 2. The goal of the portfolio is to generate a positive return each year and to exceed the performance of a broad market benchmark. The Dividend Growth portfolio seeks to find underpriced dividend growth gems that generate phenomenal levels of cash flow and have … Read more
President of Investment Research and award-winning author of Value Trap: Theory of Universal Valuation Brian Nelson explains how US policymakers are stuck between a rock and a hard place, and how the market may be factoring in too high of a probability of a return to normalcy before 2021. This and more in the latest video report. Summary Make sure you review Value Trap on Amazon. Do so here. We think those that bought equities near the bottom of this swoon may be looking to take profits at present levels. The market is currently reflecting an 80%-85% probability of a return to normalcy before 2021, which we believe is too high at this time. Our main concern is that government … Read more
A version of this article was originally published September 2019. The Dividend Cushion ratio is one of the most powerful financial tools an income or dividend growth investor can use in conjunction with qualitative dividend analysis. The ratio is one-of-a-kind in that it is both free-cash-flow based and forward looking. Since its creation in 2012, the Dividend Cushion ratio has forewarned readers of approximately 50 dividend cuts. We estimate its efficacy at ~90%. By Valuentum Analysts Key Takeaways: The Dividend Cushion ratio is a helpful tool to use to cushion your dividend growth or income portfolio against potential dividend cuts. The ratio also helps to assess the growth potential of a company’s dividend, above and beyond current expectations of payout … Read more