1) Value investing is defined as buying underpriced stocks and holding them until the market recognizes their true value, based on metrics like price-earnings ratios.
2) Value investing originated in the 1920s and was popularised by Benjamin Graham and David Dodd. One early practitioner was Roger Babson who used earnings multiples to determine "normal value".
3) There are different types of value investing including contrarian investing, cerebral value investing, passive/mechanical value investing, and activist value investing.
Not only are many factors becoming really expensive due to their popularity, the realized historical returns were only half as good as they looked on paper. Since smart beta is all the rage RAFI is doing important work.
Importance of wacc and npv on investment decisionsCharm Rammandala
The purpose of this article is to understand the importance of Weighted Average Cost of Capital and Net Present Value have on the investment decisions. It is vital to ensure all the investment decisions are done after looking at the viability of the investment opportunity and whether it is increasing the shareholder value by exceeding the opportunity cost. This study will primarily look in to the role played by WACC and NPV on the investment decisions.
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q3 2015Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
The Art of Business ValuationMany investors insist on affixing e.docxmehek4
The Art of Business Valuation
Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?
Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investors at any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal.
Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. Anyone with a simple, hand-held calculator can perform net present value (NPV) and internal rate of return (IRR) calculations. The NPV calculation provides a single-point value of an investment by discounting estimates of future cash flow back to the present. IRR, using assumptions Of future cash flow and price paid, is a calculation of the rate of return on an investment to as many decimal places as desired. The seeming precision provided by NPV and IRR calculations can give investors a false sense of certainty for they are really only as accurate as the cash flow assumptions that were used to derive them.
The advent of the computerized spreadsheet has exacerbated this problem, creating the illusion of extensive and thoughtful analysis, even for the most haphazard of efforts. Typically, investors place a great deal of importance on the output, even though they pay little attention to the assumptions. "Garbage in, garbage out" is an apt description of the process.
NPV and IRR are wonderful at summarizing, in absolute and percentage terms, respectively, the returns for a given series of cash flows. When cash flows are contractually determined, as in the case of a bond, and when all payments are received when due, IRR provides the precise rate of return to the investor while NPV describes the value of the investment at a given discount rate. In the case of a bond, these calculations allow investors to quantify their returns under one set of assumptions, that is, that contractual payments are received when due. These tools, however, are of no use in determining the likelihood that investors will actually receive all contractual payments and, in fact, achieve the projected returns.
A Range of Value
Businesses, unlike debt instruments, do ...
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Mark...Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
Not only are many factors becoming really expensive due to their popularity, the realized historical returns were only half as good as they looked on paper. Since smart beta is all the rage RAFI is doing important work.
Importance of wacc and npv on investment decisionsCharm Rammandala
The purpose of this article is to understand the importance of Weighted Average Cost of Capital and Net Present Value have on the investment decisions. It is vital to ensure all the investment decisions are done after looking at the viability of the investment opportunity and whether it is increasing the shareholder value by exceeding the opportunity cost. This study will primarily look in to the role played by WACC and NPV on the investment decisions.
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends | Q3 2015Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
The Art of Business ValuationMany investors insist on affixing e.docxmehek4
The Art of Business Valuation
Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined. Reported book value, earnings, and cash flow are, after all, only the best guesses of accountants who follow a fairly strict set of standards and practices designed more to achieve conformity than to reflect economic value. Projected results are less precise still. You cannot appraise the value of your home to the nearest thousand dollars. Why would it be any easier to place a value on vast and complex businesses?
Not only is business value imprecisely knowable, it also changes over time, fluctuating with numerous macroeconomic, microeconomic, and market-related factors. So while investors at any given time cannot determine business value with precision, they must nevertheless almost continuously reassess their estimates of value in order to incorporate all known factors that could influence their appraisal.
Any attempt to value businesses with precision will yield values that are precisely inaccurate. The problem is that it is easy to confuse the capability to make precise forecasts with the ability to make accurate ones. Anyone with a simple, hand-held calculator can perform net present value (NPV) and internal rate of return (IRR) calculations. The NPV calculation provides a single-point value of an investment by discounting estimates of future cash flow back to the present. IRR, using assumptions Of future cash flow and price paid, is a calculation of the rate of return on an investment to as many decimal places as desired. The seeming precision provided by NPV and IRR calculations can give investors a false sense of certainty for they are really only as accurate as the cash flow assumptions that were used to derive them.
The advent of the computerized spreadsheet has exacerbated this problem, creating the illusion of extensive and thoughtful analysis, even for the most haphazard of efforts. Typically, investors place a great deal of importance on the output, even though they pay little attention to the assumptions. "Garbage in, garbage out" is an apt description of the process.
NPV and IRR are wonderful at summarizing, in absolute and percentage terms, respectively, the returns for a given series of cash flows. When cash flows are contractually determined, as in the case of a bond, and when all payments are received when due, IRR provides the precise rate of return to the investor while NPV describes the value of the investment at a given discount rate. In the case of a bond, these calculations allow investors to quantify their returns under one set of assumptions, that is, that contractual payments are received when due. These tools, however, are of no use in determining the likelihood that investors will actually receive all contractual payments and, in fact, achieve the projected returns.
A Range of Value
Businesses, unlike debt instruments, do ...
Mercer Capital's Portfolio Valuation: Private Equity and Venture Capital Mark...Mercer Capital
Mercer Capital's Portfolio Valuation: Private Equity Marks and Trends Newsletter provides a brief digest and commentary of some of the most relevant market trends influencing the fair value regarding private equity portfolio investments.
3 ways to know if the price is right identify the overpriced & under pri...Hello Policy
Investors hoping to maximize their gains try to identify stocks that are mispriced, creating long opportunities for under-priced companies and short opportunities for overpriced shares. Not everyone believes a stock can be mispriced, particularly those who are proponents of the efficient markets hypothesis. Efficient markets theory assumes that market prices reflect all available information regarding stock and this information is uniform. Such observers also contend that asset bubbles are driven by rapidly changing information and expectations rather than irrational or overly speculative behaviour.
Executives pay too much attention to something they can't directly control: their company's share price. But they do control the decisions -- the inputs to business performance -- that affect the intrinsic value of the company. Make the right decisions to increase intrinsic value and your share price will follow. You can do this by focusing your attention on three factors: investor expectations (embedded in your current share price), how value is created and consumed in your industry, and your own strategic agenda.
MintKit Growth Index: A Benchmark of the Stock Market for Sprightly Growth at...MintKit Institute
The ideal of investment lies in a robust strategy for high growth at low risk. Granted, a perfect solution could never emerge in an imperfect world such as ours. Even so, certain approaches toward the objective make more sense than others.
By received wisdom, the leading benchmarks of the stock market are cogent and meaningful portraits of the action on the bourse. Sadly, though, the reality differs greatly from the mirage.
For starters, the renowned indexes track the stocks in the prime of their lives rather than the entirety of their lifespans. In the process, the yardsticks gloss over the fact that death is the way of life for all companies along with their equities. The outcome is a grossly distorted picture of the payoff for the entire throng of shareholders over the long range.
Even in the near term, the traditional benchmarks have little or no bearing on the mass of participants. For instance, many an index monitors a group of stocks according to their market caps. While this approach may befit a profile of the bourse as a whole over the short run, the unbalanced scheme has scant relevance to the thoughtful investor who is most unlikely to load up their portfolios according to the market caps of the stocks at hand.
For these and other reasons, the traditional benchmarks are unsuitable as beacons for the investing public. Instead, a worthwhile index should address the true concerns of serious investors in areas ranging from pertinent metrics to workable strategies.
An example of a fruitful scheme involves the equal weighting of stocks within a benchmark. The benefits lie in conceptual elegance as well as practical relevance for the participants. Another drawcard is the tendency of uniform weighting to deliver higher returns compared to the labored scheme based on market caps.
In seeking a trusty path, a basic step is to canvass the timeworn benchmarks in multiplex areas ranging from conceptual soundness and logical rigor to common sense and pragmatic import. The wholesome assay then leads to guidelines for designing trenchant beacons suited to investors in tending their private portfolios. The enhanced framework is showcased by the MintKit Growth Index: a model benchmark geared toward promising stocks poised for zesty growth at modest risk.
Robert Kinnun • Madison Avenue Securities, Inc. (“MAS”)
- Growth of passive index investing increases the need for active management by Linda Ferentchak
- Technology sector tops Q3 earnings season
- Brokerage options: an "instrument-rated" approach to 401(k) plans (Mike Jones, ProEquities, Inc.)
Equity Risk Premium in an Emerging Market Economyiosrjce
The finance literature suggests that in almost any kind of investing, returns would at least have some
relationship with risk-free rate of return (Rf), with investors demanding higher returns for greater risk. Risk-free
asset is regarded as one where the investor knows the expected return with certainty. This leads to the notion of
Equity Risk Premium (ERP), the extra return that, as compensation for the additional borne risk, the investor
earns over the Rf
, typically taken as 91-day Treasury bills (TB) rate of return. While similar studies have been
performed in the past, the applicability of the ERP concept across financial markets and its economic
implications as a risk measure has remained a contentious issue in the field, particular in emerging markets.
The present study seeks to revisit the issue in the Nigerian context based on secondary data spanning 2000-
2011. The statistical analysis based on the capital asset pricing model shows that the country’s Rf proxied by
TBs, had over the years traded at significantly higher levels of return than obtainable from market portfolio,
thus creating a negative ERP phenomenon. The implications of this peculiarity for sustainable wealth creation,
business development and valuation practice, are highlighted. Recent changes in the country’s Administration
makes this study even more relevant, thus, the paper also renews the call for creating a more pro-industry fiscal
policy climate if the national aspiration for sustainable inclusive growth is to be attained.
The valuation is an essential part of any investment, we provided basics of thinking and calculations. It was presented in our meetup group, it can be used as referenced for future study.
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
Measure What Matters - New Perspectives on Portfolio SelectionUMT
Stock market investors articulate their goals explicitly or implicitly by following the philosophy and methodology of a market expert that fits their investment objectives and appetite for risk. For example, for value and income stocks they may rely on the research conducted by Wharton finance professor Jeremy Siegel¹ or read up on market pros like War-ren Buffet. Much like the stock market investor, companies investing in change face similar challenges when considering where to allocate budget and resources to meet financial and strategic objectives.
Mercer Capital's Value Focus: FinTech Industry | Third Quarter 2021 Mercer Capital
Mercer Capital’s quarterly newsletter, FinTech Watch, provides an overview of the FinTech industry, including public market performance, valuation multiples for public FinTech companies, and articles of interest from around the web. This newsletter focuses on FinTech segments, including payment processors, technology, and solutions companies, examining general economic and industry trends as well as a summary of M&A and venture capital activity.
3 ways to know if the price is right identify the overpriced & under pri...Hello Policy
Investors hoping to maximize their gains try to identify stocks that are mispriced, creating long opportunities for under-priced companies and short opportunities for overpriced shares. Not everyone believes a stock can be mispriced, particularly those who are proponents of the efficient markets hypothesis. Efficient markets theory assumes that market prices reflect all available information regarding stock and this information is uniform. Such observers also contend that asset bubbles are driven by rapidly changing information and expectations rather than irrational or overly speculative behaviour.
Executives pay too much attention to something they can't directly control: their company's share price. But they do control the decisions -- the inputs to business performance -- that affect the intrinsic value of the company. Make the right decisions to increase intrinsic value and your share price will follow. You can do this by focusing your attention on three factors: investor expectations (embedded in your current share price), how value is created and consumed in your industry, and your own strategic agenda.
MintKit Growth Index: A Benchmark of the Stock Market for Sprightly Growth at...MintKit Institute
The ideal of investment lies in a robust strategy for high growth at low risk. Granted, a perfect solution could never emerge in an imperfect world such as ours. Even so, certain approaches toward the objective make more sense than others.
By received wisdom, the leading benchmarks of the stock market are cogent and meaningful portraits of the action on the bourse. Sadly, though, the reality differs greatly from the mirage.
For starters, the renowned indexes track the stocks in the prime of their lives rather than the entirety of their lifespans. In the process, the yardsticks gloss over the fact that death is the way of life for all companies along with their equities. The outcome is a grossly distorted picture of the payoff for the entire throng of shareholders over the long range.
Even in the near term, the traditional benchmarks have little or no bearing on the mass of participants. For instance, many an index monitors a group of stocks according to their market caps. While this approach may befit a profile of the bourse as a whole over the short run, the unbalanced scheme has scant relevance to the thoughtful investor who is most unlikely to load up their portfolios according to the market caps of the stocks at hand.
For these and other reasons, the traditional benchmarks are unsuitable as beacons for the investing public. Instead, a worthwhile index should address the true concerns of serious investors in areas ranging from pertinent metrics to workable strategies.
An example of a fruitful scheme involves the equal weighting of stocks within a benchmark. The benefits lie in conceptual elegance as well as practical relevance for the participants. Another drawcard is the tendency of uniform weighting to deliver higher returns compared to the labored scheme based on market caps.
In seeking a trusty path, a basic step is to canvass the timeworn benchmarks in multiplex areas ranging from conceptual soundness and logical rigor to common sense and pragmatic import. The wholesome assay then leads to guidelines for designing trenchant beacons suited to investors in tending their private portfolios. The enhanced framework is showcased by the MintKit Growth Index: a model benchmark geared toward promising stocks poised for zesty growth at modest risk.
Robert Kinnun • Madison Avenue Securities, Inc. (“MAS”)
- Growth of passive index investing increases the need for active management by Linda Ferentchak
- Technology sector tops Q3 earnings season
- Brokerage options: an "instrument-rated" approach to 401(k) plans (Mike Jones, ProEquities, Inc.)
Equity Risk Premium in an Emerging Market Economyiosrjce
The finance literature suggests that in almost any kind of investing, returns would at least have some
relationship with risk-free rate of return (Rf), with investors demanding higher returns for greater risk. Risk-free
asset is regarded as one where the investor knows the expected return with certainty. This leads to the notion of
Equity Risk Premium (ERP), the extra return that, as compensation for the additional borne risk, the investor
earns over the Rf
, typically taken as 91-day Treasury bills (TB) rate of return. While similar studies have been
performed in the past, the applicability of the ERP concept across financial markets and its economic
implications as a risk measure has remained a contentious issue in the field, particular in emerging markets.
The present study seeks to revisit the issue in the Nigerian context based on secondary data spanning 2000-
2011. The statistical analysis based on the capital asset pricing model shows that the country’s Rf proxied by
TBs, had over the years traded at significantly higher levels of return than obtainable from market portfolio,
thus creating a negative ERP phenomenon. The implications of this peculiarity for sustainable wealth creation,
business development and valuation practice, are highlighted. Recent changes in the country’s Administration
makes this study even more relevant, thus, the paper also renews the call for creating a more pro-industry fiscal
policy climate if the national aspiration for sustainable inclusive growth is to be attained.
The valuation is an essential part of any investment, we provided basics of thinking and calculations. It was presented in our meetup group, it can be used as referenced for future study.
A superior new replacement to traditional discounted cash flow valuation models
In the aftermath of the financial meltdown, the models commonly used for discounted cash flow valuation have become outdated, practically overnight. To meet the demand for an authoritative guidebook to the new economy, internationally recognized expert Kenneth Hackel has written Security Valuation and Risk Analysis.
Measure What Matters - New Perspectives on Portfolio SelectionUMT
Stock market investors articulate their goals explicitly or implicitly by following the philosophy and methodology of a market expert that fits their investment objectives and appetite for risk. For example, for value and income stocks they may rely on the research conducted by Wharton finance professor Jeremy Siegel¹ or read up on market pros like War-ren Buffet. Much like the stock market investor, companies investing in change face similar challenges when considering where to allocate budget and resources to meet financial and strategic objectives.
Mercer Capital's Value Focus: FinTech Industry | Third Quarter 2021 Mercer Capital
Mercer Capital’s quarterly newsletter, FinTech Watch, provides an overview of the FinTech industry, including public market performance, valuation multiples for public FinTech companies, and articles of interest from around the web. This newsletter focuses on FinTech segments, including payment processors, technology, and solutions companies, examining general economic and industry trends as well as a summary of M&A and venture capital activity.