What Drives Growth: Analyzing Quantitative Factors and their Variation across Sectors

Value investing is often considered the antithesis of growth investing. However, core to any value investing strategy is an intrinsic valuation, typically calculated using a DCF analysis. One of the most sensitive DCF assumptions is the estimation of a company’s long-term cash flow growth rate. Thus, understanding a company’s growth potential is a vital component in any value thesis. This paper attempts to create a quantitative model to help predict a company’s long-term cash flow growth rate (using EBITDA growth as a proxy for cash flow growth) and to find the strongest indicators for a company’s growth potential by sector. To do so, this study analyzes variables pertaining to operating efficiency, risk metrics, market valuation, corporate investment levels, and the competitive landscape for S&P 500 constituent companies. While all categories contributed at least one statistically significant variable, the market valuation and corporate investment level categories had the highest volume of significant variables. The results show that widely used quantitative metrics can help predict a meaningful portion of a company’s five-year EBITDA growth rate when analyzed on a sector-by-sector basis. Furthermore, both the types of variables and predictive strength of the model varies widely across sectors. In practice, analysts should prioritize different ratios, metrics, and quantitative variables based on the target company’s sector when estimating the trajectory of a company’s long-term growth rate.

Performance Analysis of Investment Portfolio Strategy Using Warren Buffett, Benjamin Graham, and Peter Lynch Method in Indonesia Stock Exchange

Warren Buffett, Benjamin Graham, and Peter Lynch are three (3) famous investors’ gurus in the world that have already proved that they can outperform the market by value investing method. Method that they are using are based on fundamental analysis and they screen the company’s stock based on several key financial ratios and criteria that they found important in analyzing the company. In this project, Author conducted research and study to find out the applicability of the screening method made by the gurus in Indonesia Stock Exchange (IDX) using equally weighted method, back testing it in May 2012 until December 2020 periods, and evaluate the performance of each type of portfolios made using Sharpe ratio, Treynor ratio, and Jensen’s alpha. The result of this project is all type of these portfolios are having positive risk adjusted returns. Peter Lynch type of portfolio is having the highest annualized return 24.04 % or 613 % cumulative return, while Warren Buffett and Benjamin Graham are having annualized returns 9.42 % (or cumulative return 216.48%) and 8.3 % (or cumulative return 198.27%) respectively. Moreover, Author found that those three types of portfolios are having beta (β) nearly the same with one (1) means that the portfolios are having same risk with its systematic (market) risk.

Benjamin Graham on Buffer Stocks

Surprisingly, Benjamin Graham, the acknowledged “Father of Value Investing”, considered his most important work to be the invention of the Commodity Reserve Currency Plan during the 1930s and 1940s. Previous studies of the Plan have overlooked the fact that, of its three main components (buffer stocks, price stability and currency–backing), Graham regarded the first as the most important and the other two as “secondary” or “subsidiary”. By focusing on the buffer–stock aspect, we demonstrate, first, the breadth and depth of Graham’s overall conception in terms of both micro– and macro-economics and, second, the considerable overlap with Keynes’s ideas developed around the same time, which are manifested particularly in their common conclusion that the inefficiency of commodity markets could be rectified only by government intervention. We also comment on Mehrling’s assessment of Graham as “not any kind of economist at all” (JHET, 2011).

LA ESCUELA AUSTRIACA Y EL VALUE INVESTING: UNA APROXIMACIÓN

No es necesario conocer la Escuela Austriaca para hacer Value Investing, ni es necesario conocer el Value Investing para saber de Escuela Austriaca; pero es interesante detectar las ventajas cruzadas que aparecen al abordar ambos campos de estudio. Este primer artículo introductorio de la trilogía quedará dividido en tres partes: (1) definición de los dos conceptos y comparación con sus análogos mainstream, (2) resumen de las similitudes y compatibilidades entre ambos conceptos, (3) análisis de las discrepancias e incompatibilidades puestas de manifiesto en el debate académico actual sobre su nivel de coincidencia. Palabras clave: Escuela Austriaca, Value Investing. Clasificación JEL: B13, B25, B53, E14, G11, G32.

Fundamentals-weighting vs. Capitalization-weighting: An Empirical Comparison

Following the criticism surrounding capitalization-weighting, both academic and practitioner communities have developed alternative approaches to portfolio construction. We analyze one of these approaches, fundamentals-based weighting, which identifies the weights of portfolio constituents on the basis of their market multiples and accounting ratios. Our analysis is carried out on four fundamentals-weighted portfolios (FW) based on four different weighting variants, the capitalization-weighted portfolio (CW), and the equally-weighted (EW) portfolio, from January 2004 to December 2020, and in two subperiods (2004–2011 and 2011–2020). We find that in the first subperiod, the EW portfolio shows the highest risk-adjusted performance, followed by the FW portfolios. In contrast, in the second subperiod and in the period as a whole, the CW portfolio outperforms the other portfolios in terms of risk-adjusted performance. Overall, we conclude that both FW portfolios and the EW portfolio do not exhibit superior results when compared with the classic CW portfolio. Therefore, we have shown that FW and EW techniques provide superior risk-adjusted performance only during a period of exceptional financial turmoil. However, under normal conditions, they cannot be recommended as a rational investment strategy. JEL classification numbers: G11, G14. Keywords: Fundamental weighting, Capitalization weighting, Equal weighting, Value investing, Indexed investing.

Active management, value investing and pension fund performance

PurposeThis paper analyses whether the active management and the fundamentals of the pension fund allow products that beat their peers to be identified in terms of risk-adjusted performance.Design/methodology/approachThe sample is composed of all the pension funds active in the period 2000 to 2017 investing in the Eurozone. What this means is that a greater similarity is guaranteed in terms of benchmark, assets available for investment and currency. All the data have been retrieved from the Morningstar Direct database.FindingsThe paper reveals that the degree of concentration and value for money are important determinants of performance. In this sense, the strategies of investing in concentrated portfolios that differ from the benchmark and with undervalued assets in terms of price earnings ratio (PER)-return on assets (ROA) achieve better results.Originality/valueThis is one of the few papers that shows the effect of active management and value investing strategies’ on the performance of pension funds.研究目的本文旨在分析、我們能否根據退休基金的積極管理及其基本原理, 找到就風險調整表現而言之最優勝產品.研究設計/方法我們的樣本包括於2000年至2017年期間活躍於歐元區內投資活動的所有退休基金。這意味著、樣本確保了相關之退休基金就基準、可供投資的資產及貨幣而言、均擁有較大的相似性。所有數據均從晨星基金資料庫檢索得來的。.研究結果本文顯示、集中程度和價值比率是決定表現的重要因素。在這個意義上說，如投資在與基準不同的及附有就本益比 – 資產收益率 (PER - ROA) 而言被低估的資產的那些集中投資組合上, 這會是效果較佳的策略.研究的原創性探討積極管理和價值投資策略如何影響退休基金表現的學術研究為數不多, 本文乃屬這類研究。.