Valuentum Exclusive Analysis for the Discerning Investor

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The Role of Luck in Investing and How To Think About It
Image: EpicTop10.com.  For every Amazon 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, 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, 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, there's an AltaVista or Netscape. For every Apple, there is a Palm or Blackberry. Who remembers how popular the Palm Pilot and Blackberry were? How about the Motorola Razr? For every Facebook and Instagram, there is a Myspace or Friendster. As investors, we underestimate the role of luck in a company's long-term success. In February 2000, a month before the dot-com market crash, a fledgling Amazon raised $672 million in convertible notes to European investors. If the company hadn't done so, there'd likely be no Amazon today, and one of the wealthiest men in the world, Jeff Bezos, might have just been a mere footnote in stock market history. Amazon would have been insolvent in 2001-2002 just like many of its other dot-com peers.

Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating
Image shown: An examination of the problem that might arise by focusing exclusively on companies that have economic moats, or sustainable and durable competitive advantages.Without an economic castle, an economic moat doesn’t matter. Let's examine Valuentum's Economic Castle™ rating.

“Bought” Low and “Sold” Low with Meta
Image: Shares of Meta Platforms have been on a wild ride the past few years. We didn’t do well with the stock, unfortunately. Let the good times roll in big cap tech and large cap growth! What a fantastic year 2023 is turning out to be and thank you for sticking with us. If Meta serves as any example for you, it should be that you shouldn’t expect us to get everything "right," but it should be very, very clear that we’ve gotten far more things “right” than we’ve gotten “wrong” over the years. Cheers!

Meta’s Threads Launch Immaterial to Meta But Tragic for Twitter
Image: Threads logo. Meta has launched a Twitter-killer with its new real-time online conversation app, Threads. Meta’s launch of Threads may not be too big of a needle-mover at Meta when it comes to new advertising dollar spending, but we like the incremental move toward creating an ecosystem of interconnected apps and properties. We think Twitter’s days are numbered, with the bird app already shedding a large percentage of its workforce just to keep the lights on. We might see a cage match between Musk and Zuckerberg after all.

ALERT: Going to “Fully Invested” in the Best Ideas Newsletter Portfolio
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).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're going to "fully invested" in the Best Ideas Newsletter portfolio today and expect to do the same in the Dividend Growth Newsletter portfolio and High Yield Dividend Newsletter portfolio soon.

Paper: 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.

Earnings Roundup
Let's get Nelson's thoughts on five stocks recently reporting their first-quarter 2023 results: PYPL, DPZ, MNST, BKNG, TXRH.

Case Study: How to Assess Earnings Quality
How a lack of a focus on return on invested capital and economic profit and an emphasis on accounting measures and earnings per share in IBM's executive incentive programs brought down Big Blue. In this case study, let's discuss the five basic areas that we at Valuentum evaluate to assess the quality of a firm's earnings.

Meta Platforms Surges Back to Fair Value Estimate
Image: Meta Platforms’ shares continue to recover from its massive fallout in 2022. We’re sticking with our $225 fair value estimate following the company’s first-quarter 2023 earnings report. Though Meta Platforms is no longer included in the newsletter portfolios, many readers know that we’ve been bullish on the areas of large cap growth and big cap tech for a long time now and that we include Alphabet, Microsoft, and Apple as core ideas in the newsletter portfolios. Year-to-date and over the past year, an ETF that tracks the area of large cap growth (SCHG) has outperformed an ETF that tracks the area of small cap value (IWN) by roughly 9 percentage points. Over the past five years, the outperformance grows to more than 70 percentage points. Without a doubt, large cap growth has been the place to be, and we’ve had a courtside view of why thanks to our fundamental, cash-flow-driven analysis. We expect large cap growth to continue to lead markets, and while we’ve grown skeptical of Meta Platforms, we like that the market is viewing its first-quarter 2023 report positively.

How Do We Use the Valuentum Buying Index?
Image: We highlighted Exxon Mobil to start 2022, and the stock was one of the best performers in the S&P 500 during that year. Exxon Mobil was a “Valuentum” stock during 2022, with shares being undervalued, exhibiting a strong technical breakout, and sporting an attractive dividend yield to boot. The stock was a huge winner. We answer one of the most frequently asked questions about the Valuentum Buying Index.