Value strategies aren’t for everyone. The biggest reason is you have to do the opposite of what most investors do in order to outperform.

That’s hardly a bold statement, but after testing a number of value metrics one thing stood out. Obviously, there are benefits to buying undervalued stocks. The long-term outperformance is clear.

But what might surprise most people is that value’s outperformance, on average, overwhelmingly comes during down markets. Here’s an example.

Here’s another one. Continue Reading…

For the most part, markets in 2021 have shown continued improvement on last year. In fact, the worst place to have money so far this year is cash. The U.S. and the broader international and emerging market indexes are positive year to date.

Investing in a world where everything seems to be working out — except “safe” bonds and cash — it can be tempting to tweak your portfolio. Why not move that money earning nothing (high yield bonds — U.S. Agg index is -1.6% YTD) into something much better? After the last six months, and the six months prior to that, I bet a lot of people are thinking exactly that. When thoughts like that pop into your head it’s always worth asking yourself a few questions.

First, am I taking enough risk to meet my goals? Building a portfolio is not an exact science. Uncertainty around the future makes that impossible. But it’s certainly plausible that some investors are taking less risk than they can handle. If you have less money in stocks than you’re comfortable with, can handle more risk and volatility, then maybe a change is warranted.

However, the alternative should also be considered. If you have more money in stocks than you’re comfortable with, reducing your exposure might be warranted. Successful investing has never been about getting the highest return this year. It’s about getting the best long-term return at a risk you’re comfortable taking. Continue Reading…

Here’s what I’ve been reading the past three months: Continue Reading…

For decades, a company’s market cap was used in valuation ratios but it has a fatal flaw. It can be misleading for companies with piles of debt. So enterprise value emerged as an alternative.

The advantage of enterprise value is that it’s a closer approximation of what a business might cost if it was bought outright. When you buy a business, you get everything — the business, its assets, and its debts. So enterprise value includes the company’s market cap, plus its outstanding debts (including preferred stock), then subtracts out the cash.

Including debt can dramatically change the valuation of a company. A company might look cheap based on market cap alone. But if it’s sitting on piles of debt, it will look expensive based on enterprise value. It’s not perfect, but using enterprise value makes for a better comparison between different companies.

The value metrics below are built using enterprise value. All tests were run with the following setup: Continue Reading…