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

Value Investing Performance Varies Depending on Measure

If you gauge value investing by evaluating “a portfolio that buys cheap stocks based on price-to-book ratios,” it hasn’t done too well over the past decade, according to a recent article in The Wall Street Journal written by Wes Gray, CEO and CIO of Alpha Architect, a quantitative asset manager based near Philadelphia.   The article offers the example in which a “generic portfolio of the cheapest stocks (labeled ‘Generic Value (P/B)’ based on price-book ratios… Read More

Stocks that Could Appeal to the Value Investor

In a recent article for The Globe and Mail, Validea CEO John Reese discusses the hefty divergence between growth and value stock performance so far this year and offers insights as to the various factors at play. He references the current market’s stretched valuations, noting that “it may be hard to see value” given that the market multiple is above its historical average. “But remember,” he argues, “a big driver of that is the overweighting… Read More

Value Investors Must Accept Stretches of Underperformance

Even though value investors have seen lackluster performance over the past ten years, panelists at a last month’s Morningstar Investment Conference argue this isn’t an indication that this approach is “dead.” This according to an article in Financial Advisor. AQR’s Ronen Israel commented that a value strategy is good over the long term, but an investor will have to accept periods of underperformance. “Ten years,” he said, “isn’t enough time to judge it.” Jared Watts,… Read More

It Might Be Time to Cool Off on Value Stocks

The value stock-trade is getting crowded, according to an article in this week’s WSJ, with some analysts saying they have been “picked over like never before.” The article cites a research report by strategists at Sanford Bernstein & Co. that says, “Sentiment towards value stocks has reached levels rarely seen before, with analysts upgrading value names faster than they have ever done in the past 30 years.” This, says the article, could lead to a… Read More

Value Stock Picks in an Elevated Market

Although today’s market is a bit pricey, it still offers some values if you shop around and properly evaluate a company’s operations and financials. This according to Validea CEO in a recent article for TheStreet. The article underscores the investment mantra of Warren Buffett–“It is far better to buy a wonderful business at a fair price than a fair business at a wonderful price” – as well as the strategy of the late, great Benjamin… Read More

Contrarian Picks Based on David Dreman’s Philosophy

The famous investor David Dreman, who Kiplinger once referred to as the “consummate contrarian”, follows a strategy which capitalizes on the emotional, knee-jerk reactions that make unpopular stocks underpriced, writes Validea CEO John Reese in TheStreet. This is no coincidence, given Dreman’s knowledge and experience in the area of behavioral finance. Dreman identifies such undervalued companies, Reese explains, by comparing their share prices to four different financial variables that gauge the strength of the underlying… Read More

On Becoming Warren Buffett and Some Fat-Pitch Picks

As explained by the legend himself in the recent HBO documentary “Becoming Warren Buffett”, the Oracle of Omaha stays within what he calls his “Circle of Competence” when investing. This according to a recent Forbes article by Validea CEO John Reese. This includes, writes Reese, “knowing what you know, and steering clear of what you don’t.” He quotes a comment Buffett offers in the film: “Having an edge is enormously important. With that, however, comes… Read More

Warren Buffett on “Free Money ” Plus Four Picks

In one of his many interviews, Warren Buffett explained how the insurance industry offers the opportunity to “invest in other people’s money and keep all the earnings on those investments,” writes Validea CEO John Reese in TheStreet. The article discusses the evolution of Buffett’s penchant for the insurance business as well as the industry outlook. Using his guru-based stock screening models, Reese identifies four high-scoring, small-cap financial picks: INTL FCStone (INTL), a financial services company… Read More

Three Picks that Benjamin Graham Would Approve

The difference between a company’s actual value (net working capital minus debt) and the value at which its shares sell in the market describes what Benjamin Graham called the “margin of safety.” In a recent article for The Globe and Mail, Validea CEO John Reese offers insights regarding the metric and findings of research concerning its credibility. The article cites Warren Buffett’s explanation of the margin of safety: “You don’t try to buy businesses worth… Read More