Money and Finance
- Competitive Forces And Competitive Advantages...
From The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns: If a company is earning far in excess of its cost of capital, it is likely to attract competition. Competitive forces chip away at economic margins in...
- John Mauldin: The Dark Side Of Deficits
Secular Bull and Bear Markets Market analysts (of which I am a minor variety) talk all the time about secular bull and bear cycles. I argued in this column in 2002 (and later in Bull's Eye Investing) that most market analysts use the wrong metric...
- Mark Sellers: Take Advantage When Good Companies Come To Market
As it turned out, Google’s stock was incredibly cheap at its IPO price of $85. Over the following year, the company’s actual (not estimated) earnings turned out to be $4.27 per share. This meant that it was priced at just 19.9 times its forward earnings...
- The Trend Is Your Friend
Hey Passive Income Pursuit readers! I’m Marvin from Brick By Brick Investing, a blog where I teach the average Joe about investing and how to secure financial freedom by building passive income through the stock market. Quick thanks and shout out to...
- 5 Signs Of A Good Annual Report
Annual report season is upon us, which presents an opportunity to better understand our current portfolio holdings and watchlist ideas, as well as management's strategy and outlook. Here are five signs of a good annual report -- that is, one that...
Money and Finance
Mauboussin - ROIC Patterns and Shareholder Returns: Sorting Fundamentals and Expectations
Our recent piece, “Death, Taxes, and Reversion to the Mean” 2, aimed to provide context for analysts building financial models by documenting return on invested capital (ROIC) patterns for a large sample of companies. But the report was silent on the question most relevant for investors: Does an understanding of ROIC patterns help with stock picking? This piece addresses that question.
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Three main points emerged from the analysis of ROIC patterns. First, analysts need to consider the lessons of history when modeling rather than approaching each model as unique. Analysts should view the experience of a large sample of companies as a rich reference class. Second, the empirical evidence shows ROICs tend to revert to the mean, a level similar to the cost of capital. Randomness plays an important role in the mean-reversion process. Finally, some companies do deliver persistently high or low results beyond what chance would dictate. Unfortunately, pinpointing the causes of persistence is a challenge.
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In an efficient market, stock prices are an unbiased estimate of value. Market efficiency does not say that stock prices are always right; it only asserts that prices are not wrong in a systematic way. For this analysis, we combined our data on ROIC patterns with total shareholder returns to see whether there is a consistent way to generate excess returns.
- Competitive Forces And Competitive Advantages...
From The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns: If a company is earning far in excess of its cost of capital, it is likely to attract competition. Competitive forces chip away at economic margins in...
- John Mauldin: The Dark Side Of Deficits
Secular Bull and Bear Markets Market analysts (of which I am a minor variety) talk all the time about secular bull and bear cycles. I argued in this column in 2002 (and later in Bull's Eye Investing) that most market analysts use the wrong metric...
- Mark Sellers: Take Advantage When Good Companies Come To Market
As it turned out, Google’s stock was incredibly cheap at its IPO price of $85. Over the following year, the company’s actual (not estimated) earnings turned out to be $4.27 per share. This meant that it was priced at just 19.9 times its forward earnings...
- The Trend Is Your Friend
Hey Passive Income Pursuit readers! I’m Marvin from Brick By Brick Investing, a blog where I teach the average Joe about investing and how to secure financial freedom by building passive income through the stock market. Quick thanks and shout out to...
- 5 Signs Of A Good Annual Report
Annual report season is upon us, which presents an opportunity to better understand our current portfolio holdings and watchlist ideas, as well as management's strategy and outlook. Here are five signs of a good annual report -- that is, one that...