Valuentum Exclusive Analysis for the Discerning Investor

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May 30, 2023

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.

Oct 30, 2022

Something New!
Hi everyone: To stay true to our mission, you'll find something new regarding our methodology. In the coming weeks, you'll see this table in our work going forward.

Oct 19, 2022

New Payment Option! Valuentum Research Update!
We're excited to say that we're adding additional payment flexibility at Valuentum. Many members have expressed interest in paying via other providers, and we have added Square to the mix. You can use credit or debit card or bank (ACH) to pay via invoice. With all of the goings-on in the financial technology and payments space, we wanted to continue to provide members options to pay their memberships how they want and through who they want. You can always reach out to us at info@valuentum.com.

Aug 19, 2022

Nelson: The 16 Most Important Steps To Understand The Stock Market
Image Source: Tim Green. We outline the '16 Most Important Steps to Understand the Stock Market.' We think it's important to take a read of these key stock market tenets when things are going great -- and perhaps even more important when things aren't going your way. This continues to be a working document.

Jan 12, 2021

New Issue Airbnb's Shares Pricing In Strong Recovery and Then Some
Image Shown: Airbnb is losing money hand over fist while as it grows into its substantial market opportunity. Source: S-1.  Rental platform Airbnb has been a part of the latest series of IPOs that have soared out of the gates recently. Shares went public at $68 per share December 10, and now the equity is trading at more than $148 per share at the time of this writing. For those that don't know the story of Airbnb (AirBed & Breakfast), the concept started in 2007 when, after discovering that every hotel was sold out during an international design conference in San Francisco, the founders started renting airbeds in their apartment to conference attendees. Thirteen years have now passed, and Airbnb has over 4 million hosts that offer places to stay from private rooms, cabins, and farms to the most luxurious accommodations (even castles and private islands). Its hosts that range from schoolteachers to artists and beyond across ~100,000 cities have been wildly successful, raking in over $110 billion in income since Airbnb's inception while serving over 825 million guests. Much like Uber and Lyft have done with ridesharing and people in other's cars, Airbnb, to a very large extent, with all of its success to date, has provided a solution to make strangers feel comfortable staying in each other's homes.

Nov 19, 2020

Boeing’s Financials Are Absolutely Frightening
The reality is that Boeing’s financials are still pretty scary. During the first nine months of 2020, the company burned through an incredible $15.4 billion in free cash flow, even as it cut capital spending by a few hundred million. As of the end of the third quarter of 2020, its total consolidated debt now stands at $61 billion, with total cash and marketable securities of $27.1 billion. This compares to total consolidated debt of $24.7 billion and total cash and marketable securities of $10.9 billion, as of the end of the third quarter of 2019. The grounding of the 737 MAX and the outbreak of COVID-19 have combined to be an absolute wrecking ball to Boeing’s financials, and it may take a very, very long time before things start looking better on the books. S&P, Moody’s and Fitch still give the company investment-grade credit ratings (BBB-/Baa2/BBB-), but we’re not sure the aerospace giant deserves them. Here’s what Fitch noted October 2020: “…many of the company's quantitative rating factors will be inconsistent with the 'BBB' category for three years (2019-2021) and into 2022.” It’s probably fair to say that Boeing’s debt should be rated junk, but that would cause some severe reverberations in the credit markets, in our view.

Jun 16, 2020

Reiterating Our Bullish Long-Term View on Stocks
Image: The NASDAQ 100 Index remains resilient, bouncing off support, after breaking out to new highs recently. Some of our best ideas are included in the NASDAQ 100, and our favorite concentrations include exposure to big cap tech and large cap growth. We continue to be bullish on equities for the long run. In addition to unlimited quantitative easing and "whatever it takes, squared" Fed policy, today, June 16, the Trump administration announced that it is weighing a $1 trillion stimulus bill to help support the economy. While uncertainties remain regarding specifics of the bill (it might include state assistance, extension of unemployment benefits, etc.), the move is consistent with the outsize spending we expect to further bolster the bull case, "ICYMI -- Stay Optimistic. Stay Bullish. I Am." We continue to emphasize that, in light of unlimited QE and runaway fiscal stimulus, the longer-duration components of intrinsic values are expanding considerably, and as a result, fair values, themselves, are actually rising during this recession and pandemic [a good estimate of the value of the S&P 500 today may be between 3,530-3,920, as outlined in the following: "Scribbles and More Newsletter Portfolio Changes.]."

Jun 15, 2020

ICYMI: Survey Coming Later Today, More Market Volatility Expected
Image: The market's levels of volatility so far in 2020 have been among the greatest in history. Expectations for increased volatility in the marketplace as a result of the proliferation of price-agnostic trading (indexing and quantitative trading) is a key theme of Valuentum's text, Value Trap: Theory of Universal Valuation. We continue to emphasize the importance of due diligence, enterprise valuation, behavioral thinking, the information contained in prices, and stock selection across equity portfolios. Page 256. This week is setting up to be yet another volatile week of trading, but nothing too surprising. We've talked extensively about outsize levels of volatility in the book Value Trap, and many of our predictions regarding the magnitude of volatility have come to fruition, as described in this note here. But as we've also noted in Value Trap, we don't think increased volatility is a transient development. The Fed and Treasury have only further emboldened price-agnostic trading (indexing/quant) with recent bailout actions, and volatility and momentum funds, which exacerbate the swings, will only grow as a percentage of trading volumes. The magnitude of market volatility during the COVID-19 crisis has certainly been immense. During March for example, the Dow Jones Industrial Average had 8 consecutive days with a 4% move in either direction (this is the first time in history this happened--not even during the tumultuous times of the Crash of 1929 or Black Monday of 1987 or the Great Financial Crisis did this happen). Intra-day volatility has also been considerable, and it has become commonplace for equity futures to swing wildly before market open. Now, more than ever, investors need a steady hand at the wheel.

Jun 12, 2020

*ALERT* Scribbles and More Newsletter Portfolio Changes
Image: Why are stock prices increasing while the near-term economy and near-term earnings outlook isn't as bright as before...How unlimited quantitative easing, runaway government spending, increased inflation expectations impact equity values...Why this year's earnings expectations or next year's earnings expectations don't matter much...Why Valuentum thinks equity values are rising today, even as the near-term outlook remains unclear. Scribbles on page 76 of Value Trap. "I know it sounds crazy to say so during a global pandemic and during a recession, but the right multiple and the right earnings to use to value this market is an 18-20x multiple on $196 earnings, putting a fair value range on the S&P 500 today of 3,530-3,920. The S&P 500 is trading at about 3,000 today." -- Brian Nelson, CFA

Jun 8, 2020

ICYMI -- Stay Optimistic. Stay Bullish. I Am.
Image: My great-grandfather (second from left) and his buddies in the 88th Division of the United States Army during World War I, at the time of the Spanish Flu pandemic of 1918-1919. He would serve under Major General William Weigel, become proficient in the 37mm gun, and take part in the largest offensive in U.S. military history, the Meuse-Argonne Campaign. As a corporal, he would survive the Great War and the Spanish flu pandemic, returning to the U.S. in May 1919 from the port of Saint-Nazaire, France on his way to Omaha, Nebraska. First of all, I wanted to reiterate how bullish I am on equities for the long haul. There are no risk-less investments when it comes to the stock market, of course, but this "win-win" scenario we seem to find ourselves in today appears to be one-of-a-kind in history. Here's what it boils down to. If the U.S. economy re-opens and everything turns out to be "fine," or at least better-than-expected, it's hard not to be bullish on stocks. We can then possibly look to pre-COVID-19 earnings numbers for 2021 and 2022 with some adjustments here and there, and that means the bull market is on (and new heights may be in sight). On the other hand, if the U.S. economy re-opens and economic numbers don't live up to expectations, which could happen, there will likely be even more stimulus--but investors might be bullish in this scenario, too. For starters, there's been more money created during the past few weeks or so than during the entire year following Lehman Brothers' failure (there's even talk of more money creation with another round of stimulus). We cannot forget that, while stock values are calculated on the basis of future free cash flow expectations, they are priced nominally (not inflation-adjusted), and stock investing is one way to combat the risk of inflation as strong companies price goods ever higher to outpace rising costs to reap in ever-higher earnings. Even if this excess money in the economy is not translated into inflation in physical goods and services, however, it may translate into inflating equity prices specifically, as has arguably (or perhaps undeniably) been the case during the period of 2010-2019. But there's more to this line of thinking...