Browse Tim's articles View Tim's research services Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs.
New Constructs, LLC and company filings. This strength of this relationship is intuitive. If the purpose of capital markets is to promote the most efficient use of capital, it makes sense that the market would reward companies that earn the most profit per dollar of capital invested with the highest valuations.
InBrian Bushee at the Wharton School of Business looked at the behaviors of institutional investors. These are the investors that do a significant amount of research before taking large stakes and holding them for a long time. Nevertheless, looking at his numbers, it becomes clear how simplistic research proliferates.
Transients  pile into companies that beat on quarterly earnings or meet certain technical indicators, giving the appearance that these measures drive stock prices even though these movements tend to be short-lived and have no basis in the underlying cash flows of the company. Since the transients turn around and sell their stakes quickly, the positive impact they have on the stock is soon cancelled out.
Why do the hard work of really measuring value creation?
And it is hard work. Real shareholder value-based research is very difficult and time consuming, much more so than many people realize. Measuring shareholder value requires deep fundamental research that 1 translates reported accounting results into true cash flows and 2 quantifies the expectations for future cash flows that is embedded in stock valuations.
The second task requires additional expertise in valuation and the construction of large and complex models. Now, take into account that you have to do this work every single company you want to analyze or compare. We are talking an almost impossible task.
That is not to say that large firms have not tried. They failed for a variety of reason detailed herebut not because they had a bad idea. They had a great idea. They just lacked the technology to make that idea work. As a result, investors have settled on simplistic metrics for evaluating executives or given up on trying to measure the process of corporate value creation by focusing solely on metrics such as Total Shareholder Return TSRGAAP earnings, non-GAAP earnings, top line revenue growth, or even just subscriber growth.
The more investors see stocks react in this way, the more they think the simplistic metrics drive the market, and the cycle spirals downward. Unfortunately, accounting rules were originally designed for debt investors, not equity investors.
Investors that want to calculate ROIC accurately have to make dozens of adjustments for each company.
Hidden off-balance sheet assets and write-downs have to be added back in order to calculate Invested Capital. This pattern has only been reinforced by the large number of sell-side analysts who continually forecast EPS and publish seemingly arbitrary price targets based off of those forecasts.
These analysts have no incentive to look deeper than topline earnings. Most sell-side analysts will admit they do not get paid for much beyond setting up meetings with company management teams for their clients.
My point is that the challenge is not in the idea. It is in the implementation of the idea. Everyone wants to invest like Warren Buffet, but few want to do the work required to match his analytical advantage assuming that is even possible.
In many ways, the smarter you are, the harder it is to make yourself analyze the tortuously long annual reports. There are, especially over the last 20 years, too many other ways e. The key to implementing shareholder value-based research at scale is to match the analytical skills of human beings with the data processing capabilities of machines.
Analyzing an annual report and building a model is not something a machine can do on its own.
Anyone who has ever done so can validate this assertion. Companies disclose information in so many different ways, and the nuances of accounting and legal language in the filings are too subtle for machines to decipher without human aid. On the other hand, reading these exceptionally long reports and manually entering in the data for a large number of companies is too time-intensive.
How do you do that? We succeeded where others failed by leveraging technology to bring enough automation to the process of analyzing filings and building models to keep smart analysts around long enough to justify training them.
And we store everything they do in a database of human-validated parsing instructions, which we used to make the parsing machines smarter so they can do more and humans do less.
The fact of the matter is that machines are better than humans at parsing.Feb 01, · The dangerous side of ETFs. Investors who own ETFs have performed worse, on average, than those who have avoided them. ETFs, or exchange traded funds, may have a dark side.
Each is a dangerous metin2sell.com reason financial education is necessary is to understand the subtle shades of gray hiding behind all the investment half-truths you hear.
See the free webinar on ROIC by our CEO. The purpose of the capital markets is to allocate capital to its most efficient use. Research on economies around the world shows that functioning capital markets are positively correlated with economic growth. The more liquid and efficient the stock market.
Jan 23, · A leveraged ETF is designed to track a multiple of the return of a given index. For example, the Direxion Daily S&P Bull 3x Shares ETF (NYSE: SPXL) seeks to . Brief discussion of Q2 GDP estimate, US and OPEC oil production, Global oil production and demand.
Examination of latest IEA forecast and Goldman Sachs global s. Currently, the second-month WTI futures contract is trading at a whopping 10% premium to the front month, which is a cost that will cause severe underperformance in the ETF compared with movements.