How Some Members Use Valuentum’s Investment Services
publication date: Oct 13, 2016
author/source: Brian Nelson, CFA
A previous version of this article appeared on our website February 7, 2014. Past performance is not a guarantee of future results.
By Brian Nelson, CFA
Many members have asked about the best way to use our services. Let’s walk through the topic.
We serve a wide variety of investors, including dividend growth investors, value investors, and pure Valuentum investors, among others. Many different types of investors and professionals use our research in a whole host of applications from individual stock-selection to the evaluation of closed-end funds to an overlay in a money-management setting and beyond. We think it's important that you know that, if you're a strict dividend growth or income investor, there are others that use our website to utilize the Valuentum process, fair value estimates and other metrics. Similarly, if you're a practitioner of the Valuentum system, we wanted to make sure that you are aware that we also serve income and dividend growth investors and that our research and analysis evaluates the health and long-term growth potential of a company's dividend. The Dividend Cushion ratio is simply a must-have in your investing toolkit regardless of what kind of investor you are. Many different strategies have significant benefits for many different types of investors.
With that out of the way, let’s get started. At Valuentum, we are bound by an internal code of ethics that prevents us from making any specific and personal recommendations. We don't think this is unique to Valuentum. To our knowledge, other investment research publishing companies are bound by these rules, too. We offer our opinion of an investment via its attractiveness on the basis of the Valuentum Buying Index and the attractiveness of the company’s valuation via our estimate of its fair value range. The Valuentum Buying Index is based on volumes of research and the experiences of many of the most influential investors, from Benjamin Graham and Warren Buffett to Peter Lynch and T. Rowe Price, Jr. On our website, we don’t have buy, hold, or sell recommendations that you might find at brokerage firms, for example (we're not a broker).
On our website and in any correspondence, we can only tell you the goals of our process and newsletter portfolios and/or our opinion of the company’s valuation and business fundamentals. We can’t tell you what actions you should take because we’re not aware of your risk tolerances, personal financial situation, and goals. We can only tell you what we are doing. We can never tell you to buy XYZ company right now, even though this may be what many members want.
It’s perfectly reasonable, however, to assess what we’re trying to do and see if that’s a fit for you. Do the goals of the newsletter portfolios fit well with what you’re looking for? Are you looking for the next incremental idea via our transaction alert emails? Does an in-depth valuation process that covers both discounted cash-flow valuation analysis and relative valuation analysis meet your objectives? Do you want to utilize timeliness indicators in a value-based setting? Does the Valuentum Dividend Cushion ratio help you understand the strength and safety of dividend holdings in your income portfolio? Do you require underpriced ideas with strong dividend growth prospects? You choose your own path, and you decide what is best for you.
That said, our favorite investment ideas at any given time are always included in the actively-managed portfolios—the Best Ideas portfolio and Dividend Growth portfolio—and the goals of the respective portfolios are as follows:
The Best Ideas portfolio seeks to find firms that have good value and good momentum characteristics and typically holds each idea from a Valuentum Buying Index rating of a 9 or 10 (consider buying) to a rating of a 1 or 2 (consider selling). Just like a value manager may not include every single undervalued company in the market in his/her portfolio, not all highly-rated companies on the Valuentum Buying Index are included in the portfolio. We may tactically add to or trim existing positions in the portfolio on the basis of sector or broader market considerations, but we seek to capture a stock's entire pricing cycle (from being underpriced with strong momentum to being overpriced with poor momentum). The goal of the Best Ideas portfolio is to generate a positive return each year and to exceed the performance of a broad market benchmark. We won't always be successful, however.
The Dividend Growth portfolio seeks to find underpriced dividend growth gems that generate phenomenal levels of cash flow and have pristine, fortress balance sheets, translating into excellent Valuentum Dividend Cushion ratios. Firms in the portfolio may have lengthy dividend growth track records, but we focus most of our efforts on assessing the future safety and dividend growth potential of holdings. The goal of the Dividend Growth portfolio is to generate a mid-to-high single digit annual return over rolling three-to-five year periods. Though we apply our best efforts, we may come up short sometimes. That said, we have yet to have a Dividend Growth portfolio holding cut its dividend, and we credit this to the Valuentum Dividend Cushion methodology.
If one of the portfolio’s goals matches up to what you’re looking for, that portfolio or the ideas within it may be of interest to you. Some investors phase into the positions of the portfolios over time and replicate the portfolios in their entirety, while others like to cherry-pick their favorite ideas out of them. Others may wait for the next transaction alert email (long idea) to catch our thoughts on where incremental alpha can be generated in a portfolio setting. And others like to monitor the Valuentum Buying Index rankings list and ‘undervalued’ list for even more ideas. The screens are always available on the left column of our website. And still others like to overlay the Valuentum Buying Index ratings and Valuentum Dividend Cushion ratios with their own process to arrive at a combined strategy. The uses of Valuentum’s services are many and varied.
You may have noticed that we also offer a full suite of products to financial advisors that range from an Excel-based screening tool to ‘Ideas’ and ‘Dividend’ publications that are released on a quarterly basis. Since advisors have a wide variety of clients with different needs and goals, we offer them a wide variety of detailed information. Our research product includes thousands of reports, fair values, fair value ranges, associated commentary, and hundreds of dividend reports with Valuentum Dividend Cushion ratios and expected dividend growth rates. We also have an Excel-based three-stage discounted free cash flow valuation model backing every fair value range in our coverage universe. Some members subscribe to our service only to gain access to the detailed valuation infrastructure behind our fair value estimates.
During the past few years, we've received quite a few questions on which membership plan may be most appropriate. The $149.99/year premium plan is among the most popular among individual investors. It offers complete access to the website, monthly newsletters, newsletter portfolios, and transaction alert emails. Investors of all types can benefit from the advisor plan at $499.99/year, which includes access to the quarterly publications and discounted cash-flow valuation infrastructure. Many individual investors have upgraded their subscription over the years.
We are honored to be working with you, and we hope this helps answer your questions. At any time, please don't hesitate to reach out to us.