Aiming for Private Equity-Like Returns Using a Small Cap Value Quant Strategy

By Justin J. Carbonneau (@jjcarbonneau) —  “I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.” — Warren Buffett Of the twelve quantitative models we run publicly on Validea, nine of them look at a company’s level of debt in their assessment of a firm’s… Read More

U.S. Government Just Gave Investors Part of their “Super Stock” for Free (Sort Of)

By Justin J. Carbonneau (@jjcarbonneau) —  Sometimes someone says something that hits you like a ton of bricks. Well, in early January Warren Buffett was on CNBC and one of the topics he was discussing was tax reform and its impact on the value of stocks (see full video here, pick it up at the 17 min mark). In classic Buffett fashion, he makes a few very salient points that are worth digging into. Buffett… Read More

How an Investment Strategy Can Be at the Top and Bottom at the Same Time

By Justin J. Carbonneau (@jjcarbonneau) —  Imagine you’re presented with two investment models. Both hold a concentrated basket of 10 stocks, both are rebalanced monthly and both are built on factor-based investing methods. One of the strategies, let’s call is Model A, is up 58.1% for the year compared to a gain of 20% for the broader market. Ok, that 38% outperformance is pretty impressive. What about the other strategy, Model B, you ask? Well,… Read More

The Value of Cash and the Gurus

By Justin J. Carbonneau (@jjcarbonneau) — Cash may be one of the most boring things to talk about when discussing a company and its investment prospects. Things like a company’s business model, its stock price, its future growth forecast, its yield, and its valuation are far more exciting. But cash is an asset that gives companies many options both in terms of pursuing growth opportunities and other forms of capital allocation like buying back shares,… Read More

Investing in Both Big & Small Companies: Taking a Look at Market-Cap

By Justin J. Carbonneau (@jjcarbonneau) — Jeff Bezos is now the richest man in the world. He’s achieved this vaunted status is because of the price of the stock and the corresponding value investors are assigning to the company he founded, Amazon, in the public markets, not because of Amazon’s profitability, or the income being generated by the company, is flowing directly in Bezos’ pockets. A company’s market capitalization, also sometimes referred to as “market… Read More

Validea Gets Under the Hood: P/E Ratios

By Justin J. Carbonneau (@jjcarbonneau) —  In our book, “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies”, we called Benjamin Graham the “Granddaddy of the Gurus” given his track record and influence on other value investors, including Warren Buffett, Mario Gabelli and many others. If Graham was the Granddaddy of the Gurus then I think the Price-to-Earnings ratio (or P/E for short), a ratio utilized by Graham, is probably the… Read More

Factor Strategy Focus – Benjamin Graham

By Jack Forehand — When we started following guru-based models, the term factor investing didn’t exist. We just wanted to find a way to outperform the market, and we realized that only a very small group of investors had successfully done that – and we certainly weren’t in that group. So we decided to follow investors who had long-term records of beating the market and whose strategies could be quantified. We read their books and… Read More