Deconstructing Value Investing: Valuation vs Cheapness
Thursday, May 21, 2020 | 3:00 PM
Presented by Applied Finance Capital Management
Watch the replay here
“Value Investing” is commonly misunderstood as buying companies at a discount to their intrinsic value. While that may have been true decades ago, today “Value Investing” predominantly consists of buying “low price to something” stocks. The “something” is a fundamental variable such as book value, earnings, and/or sales among others. However, such approaches do not necessarily identify undervalued stocks, only stocks that are “cheap” relative to the chosen fundamental variable.
An important, but unstudied issue for practitioners and academics to understand is:
• Do cheapness strategies independently generate excess returns? Or
• Are cheapness strategies simply correlated to intrinsic value, which generates excess returns?
Drawing from over 20 million real-time valuations performed by Applied Finance since 1995, we explore this issue in depth.
About the Speaker
Rafael Resendes is a founding partner of Applied Finance and co-manages the 5-star Applied Finance Select Fund. Mr. Resendes also serves on Applied Finance's investment committee which oversees their Valuation 50 and Valuation Dividend SMA strategies, which since inception in 2004 and 2012 respectively are both ranked as top 5% strategies according to Zephyr. Mr. Resendes and Daniel Obrycki created the Economic Margin® framework in 1995 to correct for the distortions in accounting-based performance metrics and common valuation techniques such as multiples and perpetuity assumptions. Resendes lectures globally on valuation to CFA Societies and university students, he earned his MBA from The University of Chicago, and a Bachelor of Science in Economic Analysis from UC Berkeley.