Words Cannot Express How I Feel
publication date: Dec 23, 2016
author/source: Brian Nelson, CFA
Image: Another day at the office.
"Now is the time to let us know how much you value our service offering."
By Brian Nelson, CFA
When everyone has a pen, even monumental achievements seem miniscule, unbelievable accomplishments overshadowed, and extreme efforts overlooked. The golden age of publishing is over, perhaps long before the late Harold Ramis’ character Egon Spengler uttered ‘Print is Dead’ in the movie Ghostbusters 30+ years ago.
Tell it like a story. Hook in the reader. No, get to the point. Tell it straight--people don’t have time. Use this picture; no, use that one. No, do this. No, do that. The reality is that everyone is different, all defined by their own experiences and own frame of references, each unique. With content farms that pay for anyone’s take and “fake” news websites, the prestige of being a publisher is no longer. How sad.
The days of giving people their due respect appear to be over, too, unfortunately. Look at how the media, and the left and the right, treated two very accomplished and amazing individuals, Hillary Clinton and Donald Trump, during the campaign process. It was embarrassing to witness--yet New York Times (NYT) subscriptions are soaring. I thought the paper was one of the biggest offenders. Has anything really changed from the yellow journalism of Hearst and Pulitzer though? Hard to say, but at least they were paid fairly for their work.
It has been a long time since I’ve done so, but I had a few days of “downtime” to take inventory of my life. Most of this time was spent cleaning and organizing my office, getting the house in tip-top shape for the appraisal for a refinancing, and spending some quality time with my wife and son. Letting go for just a little bit seemed to lift so much off of my shoulders. Business doesn’t stop though. The ‘what have you done for me lately’ crowd will always be impossible to please. Why do we try so hard to give them what they want? For some, what I do will never be good enough at any price. They will work me to the brink of exhaustion and think nothing of it. The ‘Internet’ to them is some abstract “thing,” not real hard-working people behind it.
Still, the process was one of healing. I came across an old article from my local paper, the Woodstock Independent, announcing the launch of Valuentum. What a proud day that was. It seemed like my family and friends knew more about what I was getting into than I did, and they weren’t happy about it. Most tried to talk me out of it. There was also a Wall Street Journal article from 2009, announcing Morningstar’s (MORN) launch into credit ratings, where I cut my teeth as a director, which now seems so long ago. I was so proud of that team effort—and probably equally naïve. I made so many good friends there. We can’t talk much anymore these days. Honestly, I had no idea what the real world was like, even in my late 20s then.
In many ways, starting my own business has been a culture shock these past 6 years, now in my mid-30s, and I’ve been living in the US for my whole life, in Chicagoland no less. I’m still holding on to the belief that the world is a meritocracy, but I’m not so sure anymore. Look at the corporate capital being destroyed in a search to find the next “big thing,” making things ever-more difficult on “poor” entrepreneurs that actually care about their bottom lines--that must care about their bottom lines. Capital is no longer scarce, and that is a real big problem for millennials and for the generations that will follow. Those with capital to waste will always win, and society will eventually get tired of it. The popularity of Donald Trump and Bernie Sanders speaks to this evolving trend. The seeds are planted for a peaceful revolution, perhaps not in 2020, or 2030, but in this century. Mark my words. History rhymes.
I came across stacks and stacks of printed paper as I sought to organize the past 6 years of my life, of which 90% of those waking years were spent thinking about how to make Valuentum the best it can be for you--family time missed, friendships lost. Boy how beautiful Valuentum’s 16-page reports are when they are printed out. They are just absolutely gorgeous. If you haven’t done so, please print one of them out. Let me know if you’ve done so. I like hearing positive things. There are over a 1,000 reports to choose from, and hundreds more dividend reports, too. I’ve spent so much time working on the layout, the formatting, thinking of the most relevant metrics to include, fine-tuning the spacing on each box on each page, going over every minute detail. Nothing may be more beautiful than those reports, save for my wife and son. The newsletters, too, are a work of art. Each month they appeal to me. Print them out. It may be hard to believe, but everything we do is homegrown--maybe that’s why rejection is so hard sometimes. We’re not just packaging others’ work.
Build a methodology and apply it systematically across a vast coverage universe, they say. I did. We call it the Valuentum Buying Index, and some get the idea that just the analyst-driven calculation of fair value estimates alone, one component of the index, is about as much as others do, if they do that at all. How much work goes into the discounted cash-flow process is enough for even the most talented investment analyst to get their head around--oh and the painstaking review and upload process! In many ways, it seems like the more we do, the more we get punished. How many times I must have had to explain that no two companies are ever the same in our hand-selected close comps section of relative value, and that we choose the close comps to apply to every company in each hand-selected industry group, not just the one company that is highlighted. Do they know how difficult it is to implement a systematic process in full transparency across hundreds of industry groups and thousands of companies? Of course not. But we’ve done it.
Oh the ridicule we’ve endured for the size of our fair value range in some cases. How some belittle our work for the fair value range being so wide in some cases, but yet when those same companies show extreme share price volatility, nothing is said. Human nature? How can this be though? The broader S&P 500 has more than tripled since the March 2009 bottom (200%+), and readers belittle our work because we mostly use a 20%-25% margin of safety around a discounted cash-flow derived fair value estimate. The very idea that any intrinsic value estimate is based on future forecasts, and because the future is inherently unpredictable, a range of fair value outcomes is not only reasonable, but it is the right way to approach the art of valuation. There are too many people teaching the wrong things.
The Dividend Cushion ratio is absolutely amazing. For as many income investors out there, I think we’ve come as close as possible to finding the holy grail of a tool to avoid dividend cuts. But many don’t get it. Of course we understand that not all debt will be coming due in the next 5 years. Of course we know that companies have financial flexibility. But just like a corporate credit rating, which measures a company’s probability of default, the Dividend Cushion ratio acts as a measure of a company’s likelihood of cutting its dividend. It’s a groundbreaking financial metric, and an absolute shame for anyone that invests in dividend-paying stocks not to be aware of it. Unfortunately, the more I’ve tried to explain and encourage readers to understand the in’s and out’s of the Dividend Cushion ratio, the less progress I make. I tried too hard one time, perhaps frustratingly, and now I’m trying to restore a bridge, but I do believe that I’ve been treated unfairly.
How I love the comprehensive suite of investment research we provide. Interested in fair value estimates? They’re here. Want to see the discounted cash flow model? Here you go. 16 page report? Download it. Dividend report? Yep. Recent commentary? It’s here. Too much? Look at the newsletter portfolios for ideas. Want a systematic methodology? Try the fair value ranges or the VBI. Demand statistical backtesting? Check out our learning center. I love it, but I worry that for some reason, everything has to be put in one article for the reader to see all that we’re doing. That’s impossible for us to do--and upsetting if we truly have to. I don’t want to conform to the presentation style of others. I sometimes wonder if the modest updates we write sometimes are taken as our entire research suite on a company, instead of just a tiny part of it--or that readers think we’re just writing a couple newsletters and nothing else. My goodness—if only we wrote a couple newsletters. How easy that would be. The real work is in the DCF! When others don’t have what we have and only write articles, it’s hard for others to see how much more we are doing if we don’t put everything in each article, too, no?
When readers sometimes give greater weight to the comments section of an article than to the author, something is very, very wrong. How I endured the wrath of commenters on our Kinder Morgan (KMI) call on Seeking Alpha. Boy were they wrong, wrong, wrong! It was so upsetting. I couldn’t imagine if a doctor or lawyer wrote an article, and the comments of random anonymous posters were given greater weight than a doctor or lawyer’s professional opinion. Well, welcome to the world of financial publishing! How it has gotten worse in only the past few years, too. Most readers don’t know the difference between the letters after a writer’s name, nor do they care, and I think the financial business is one in which you really don’t need any qualifications at all to manage money, but yet managing money is somehow a badge of honor? Can you believe that? It’s so distressing. It’s probably no surprise why there is so much “noise” out there in the financial media, no?
I don’t think anything will ever be good enough. One time, a member canceled his $150 subscription as a second opinion, even as he opted to pay a financial advisor $7,500 year, saying the financial advisor “prints out reports for him.” Who is going to do what I do when being a financial advisor is so much more financially rewarding, right? I think this is another reason why the blogosphere doesn’t have as much quality information to help investors, and why many have been led astray. Most long-time writers have given up as a result of the abuse, perhaps saying the juice is not worth the squeeze, and have instead gone into asset management or opened up their own hedge fund, where their writing is inconsequential. Making a living only as a writer this day and age is a tough and sometimes degrading one. The bullying…the haters. Everyone is a publisher, too – everyone has their own fantastic social media feeds, or so they think. Welcome to 2017--the financial publishing business is under attack. TheStreet (TST) is at risk of delisting, and Morningstar has lost tens of thousands of subscribers in recent years.
With 2016 coming to an end, I think I need to talk about the returns of the newsletter portfolios, but I’ll limit it to just this paragraph to avoid any criticism about my being too promotional. Know this: What most may not understand is that we have a 35% cash position in the Dividend Growth Newsletter portfolio, and we’ve been able to keep pace with market returns regardless of this drag. Do you know what that implies about how good our underlying picks have been in order to do so? Simply incredible – and the risk-adjusted returns with such a large cash position are even more incredible. How about the Best Ideas Newsletter portfolio? Roughly 90% of large cap money managers trailed the benchmark index during the past 5 years, and we’re exceeding performance by ~30 percentage points. These returns in the context of all else that we do, from providing fair value estimates, extensive commentary and beyond. Amazing. What more can we do? What more could any research provider with unlimited resources do?
Yet, it seems the conversation is less about the things we’ve achieved for members, but instead it is more about what some other author wrote on some other website, or how despite adding value in our Gilead (GILD) – for – J&J (JNJ) trade, a write-up about the drug maker is what is wanted, or how Netflix (NFLX) is doing, even though it’s not even part of the newsletter portfolios, or how maybe Yahoo (YHOO) was bailed out by Verizon (VZ), or how somehow, someway we were still wrong about the MLPs (AMLP). I wonder if readers truly think that these MLP models must go away tomorrow for us to be correct? It just can’t be that they think this. We warned about Kinder Morgan and the MLPs in June 2015. The group overshot to the downside, Kinder Morgan cut its dividend (as we predicted), and the group came surging back to our estimate of their intrinsic values. In fact, Kinder Morgan sits right about at our estimate of its intrinsic value now, having railed more than 40% from the bottom. As for Netflix, we don’t think the company will encounter trouble until the next downturn.
If you’ve made it this far, I wanted to let you know that we are making Valuentum more exclusive. We’ll be taking a hiatus from publishing our daily article or two on Seeking Alpha for at least six months, meaning that www.valuentum.com is still the place to be to access all of our content, as it always has been. Nothing has changed. I love Seeking Alpha, always have and always will, and all that they have done for us, but we must learn to stand tall by ourselves. We have way too strong of an identity. I wanted to let you know only in case you think that any Seeking Alpha emails are ours. They are not. Your membership with us grants access to our website, all of the reports (16-page and dividend), two newsletter products, commentary, ETF analysis, and if you are at the financial advisor level, the quarterly publications—Ideas100, Dividend100, DataScreener—and access to the DCF models, and much more as an institutional member. Importantly, you have access to me, our team, which is the biggest part of our product. In many ways, it is our product.
Thank you for reading. May time with your family and friends be restful and comforting during this special time of year -- Happy holidays!
<edited December 26, 2016, 1:29pm>
Brian Nelson, CFA
President, Investment Research
Valuentum Securities, Inc.
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