What Quant Value Models Can and Can’t Do for You

By Justin Carbonneau (@jjcarbonneau) – Two weeks ago I wrote an article, Differences in Value, where I outlined the various criteria (i.e. price-to-sales, price-to-book, and enterprise value-to-EBIT) used in the value models on Validea. As the piece got passed around Twitter, there was a very good comment by Tren Griffin, an investor and thoughtful writer. Griffin tweeted the following (see below – included in the tweet was a screenshot of a page from Berkshire’s Hathaway’s… Read More

Differences in Value

By Justin J. Carbonneau (@jjcarbonneau) —  A few weeks ago my partner, Jack Forehand (@practicalquant) wrote a piece titled “The Mechanics of Value Investing“. In it, he highlighted the various ways in which value investing can be defined. This topic was recently brought to light again in a recent tweet (see below) by Tom Psarofagis, ETF Analyst at Bloomberg. As Mr. Psarofagis points out, the underlying holdings in “value” ETFS can often be very different.… Read More

Long Term Compounding Using Low Volatility & Other Fundamental Factors

By Justin J. Carbonneau (@jjcarbonneau) —  There is an age-old concept in investing that the more risk you take the higher the return you should get. This makes a lot of sense; investors don’t invest in a risky companies to get low returns. Most hope to be compensated for that extra risk. But the tradeoff of risk and return is flipped upside down when talking about the most and least volatile stocks in the equity… Read More

Expanding the Opportunity Set with Shareholder Yield

By Justin J. Carbonneau (@jjcarbonneau) —  When most investors hear the word “yield” they immediately think about dividends. Things like stock buybacks and debt paydown typically don’t come to mind. But those are also yields, or ways companies can return cash to shareholders. When dividends, buybacks and debt paydown are combined, they give us something called shareholder yield. Calculating and sorting stocks by shareholder yield is a systematic way to identify companies that are returning… Read More

Replicating Buffett’s Wide Moat Investing Method

By Justin J. Carbonneau (@jjcarbonneau) —  Warren Buffett and others have long advocated buying companies with moats around their businesses. Strong brand loyalty (Disney), economies of scale (Walmart), innovation (Google), location (Starbucks) and other sources of competitive advantage play an important role in in the success of companies over time. The reason companies with moats appeal as attractive investments is that a moat, which is a function of a firm’s competitive advantage, protects the business… Read More

Twin Momentum: A Combination of Fundamental & Price Momentum

By Justin J. Carbonneau (@jjcarbonneau) —  An object at rest stays at rest and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force. -Isaac Newton Momentum investing, or buying stocks exhibiting strong price performance relative to other stocks nicely aligns with Newton’s principle. There are a numerous academic studies and white papers backing-up the robustness of the momentum factor. The knocks… Read More

Learning from Buffett’s Performance

In my last article, I looked at the stocks owned by Warren Buffett and Berkshire Hathaway and asked the question, “How Active is Buffett’s Portfolio?”. As we found out, the answer is very active in terms of how different the equity portfolio looks vs. the broader market index. The combination of Buffett’s portfolio and investing acumen has translated into one of the best investment track records in history. There are some interesting observations we can… Read More

How Active is Buffett’s Portfolio?

By Justin J. Carbonneau (@jjcarbonneau) —  With a $500 billion market capitalization, Berkshire Hathaway is the fifth largest company by market cap in the U.S. stock market and the majority of the company’s value comes from three sources. The first is the 60 or so operating companies Berkshire owns and the future earnings power of those companies. The second is the cash on the balance sheet and the optionality to invest that in in the… Read More

Learning from the Hierarchy of Investor Needs

By Justin J. Carbonneau (@jjcarbonneau) —  The original “hierarchy of needs” model was developed by Abraham Maslow in 1943. Maslow proposed the hierarchy as a way to understand human motivation and later extended it to human curiosity. The hierarchy can be viewed as a pyramid with layers, which included things like “physiological,” “safety,” “belonging and love,” “esteem,” and “self-actualization”. Each part builds off the one below, and before one could move up the pyramid the… Read More

The Underappreciated Role of Luck in Investing

By Justin J. Carbonneau (@jjcarbonneau) —  The $1.5 billion Mega Millions jackpot had a lot of people daydreaming about what they would do if they won such a windfall. With odds of about 1 in 250 million, you can almost guarantee with 100% certainty that you and everyone else you know that bought a ticket woke up on last Wednesday to be disappointed. Still, someone was lucky enough to become a multi-millionaire overnight. While luck… Read More