Fundamental Valuation

…current S&P earnings data indicate a return to generational “normal” for 12-month trailing valuation ratios.

…evidence indicates that investors may be able to earn abnormal returns by exploiting systematic outperformance (underperformance) of stocks with very low (high) historical accrual volatilities.

In their June 2010 book Capital Rising: How Capital Flows Are change Business Systems All Over the World, authors Peter Cohan and Srinivasa Rangan mine lessons from 47 case studies to “describe the phenomenon of capital flows, present new ways to think about what causes them to rise and fall, and describe ways that our More…

…Scott Phillips’ Buying at the Point of Maximum Pessimism offers six long-term investing themes based on extrapolation of some major global sociopolitical and economic trends.

…simple U.S. stock market valuation metrics currently indicate (perhaps extreme) undervaluation, but these indications involve considerable uncertainty.

…evidence indicates that riding industry asset bubbles (guided only by information on returns and fundamentals from the past ten years) may be an attractive investing strategy. Evidence does not support shorting bubbles.

…evidence indicates that investors may be able to exploit gross profits-to-assets as a predictor of individual stock returns, especially within industry. The effect is comparable in magnitude and complimentary to book-to-market, such that combining them is especially powerful.

A reader asked: “How far back have you tested the REY and RTV models. How did they perform during key market turning points, such as January 2000, October 2002-March 2003, October 2007-August 2008 and March 2009. Specifically, do you have the 3-month, 6-month and 12-month S&P 500 Index forecasts from August 1, 2008 and March More…

…evidence indicates that many (but not all) well-known stock return anomalies derive their profitability from short positions in firms with low credit ratings during deteriorating credit conditions, with shorting constraints and illiquidity limiting exploitation.

…investors may be able to boost momentum returns for individual stocks substantially by incorporating information from past trading volume and detailed analysis of firm fundamentals.

…tailored fundamental analysis may be able to identify growth stock mispricing and earn substantial abnormal returns.

…The Little Book of Behavioral Investing is a broad survey of behavioral biases and countermeasures as related to financial markets, especially for value investors. The self-awareness espoused may be as important to successful investing as valuation methods.

…evidence indicates that that discretionary (but not non-discretionary) aggregate accruals scaled to total assets significantly predict next-year equity market returns and that firm-level accruals scaled to earnings have substantially stronger and more consistent predictive power for future individual stock returns than accruals scaled to total assets.

…evidence from simple tests on a modest sample indicates that the RYT Model has little or no power to predict short-term behavior of the broad U.S. stock market.

…evidence suggests that book-to-price ratio and earnings yield explain future stock returns better jointly than individually by more completely anticipating future earnings growth.