Deciphering Valuation

2021 was an outstanding year at Applied Finance and our investment partners. For our investment partners, each of our strategies outperformed their benchmarks and peers. In addition, we

• Launched a new ETF that we believe will deliver consistent alpha with a low beta, broad market based alpha strategy

• Dan Obrycki, Derek Bergen, John Holt and I Introduced Quantitative Valuation® concepts and data to the academic community, through one of the most downloaded research working papers on SSRN in ’21 – Valuation Beta

• Doubled our AUM/AUA

• Added two new fun, all-round nice guys as team members

-John McErlean, 25-year institutional trader to head up our trading operations

Francesco Franzoni, PhD MIT and Professor at University of Lugano, Switzerland as an external research consultant

“The hardest thing to explain is the glaringly evident which everybody has decided not to see” Ayn Rand, The Fountainhead

Since DCF valuation and Applied Finance’s Economic Margin® Valuation Framework are often misunderstood, I thought I would address common errors and misunderstandings regarding how the investment community thinks about valuation. Having worked with hundreds of investment managers, analysts and advisors over the past 25 years, I know valuation is an interesting topic. Virtually every investment manager and analyst acknowledges its significance, but almost instantaneously begins justifying why they don’t give it much importance in their process. I’ll note that rarely do investment professionals offer as the reason an admission that they have not really devoted the immense time and study required to deeply understand valuation. I’ll provide my perspective on what I will call common myths/misunderstandings, then I’ll turn to a few insights from our Intrinsic Value Database™ and provide our perspective to current market conditions. Topics covered include: