“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” Arthur Schopenhauer
Our last column, Yes Virginia, Valuation Matters, caused a bit of controversy on Twitterregarding the nature of Applied Finance’s Quantitative Valuation™ research and investment approach versus that espoused by the quantitative value crowd. It is a recurring theme in the marketplace that our Quantitative Valuation™ way of investing is confused with quantitative value investing, something we work diligently to avoid. While Quantitative Valuation™ and quantitative “value” agree regarding the importance of objective repeatable factors and rigorous statistical testing, the approaches ultimately have very different worldviews to explain stock returns and construct portfolios. Quantitative Valuation™ is deeply steeped in traditional security analysis and valuation to develop detailed and actionable company-specific opinions about intrinsic value, wealth creation, and corporate stewardship. Applied Finance’s Quantitative Valuation™ identity is very clear – we systematically determine whether a company is undervalued through proprietary research we developed in 1995 and applied continuously through today to model each firm’s: economic profit, capital investment, risk, and competition.