Site Introduction

Innovestment Oct 08, 2019

This site launched in October 2019, so it will take some time to fill it with (what I hope will be) interesting and valuable content.

There are so many sites dedicated to value investing that it is reasonable to ask, “Do investors need another one?” After much deliberation, I decided the answer was, “Yes, but only if it adds something unique and valuable to the practice.”

I am very familiar with the current state of value investing practice, and many other aspects of investment management, so I think I am qualified to recognize whether something is unique (here is my story). It is up to you to determine whether it is interesting and valuable.

In my opinion, three primary and three secondary categories capture most of what is said and written about value investing:

  1. Security analysis and valuation
    This category represents the traditional approach to security analysis (presented first by Benjamin Graham and David Dodd in 1934), wherein analysts dig into company documents, financial statements/footnotes, and other information sources, to construct a detailed valuation model that produces a price per share, which can be compared to the current market price to see if an investment is warranted.

  2. Systematic quantitative approaches
    This category is comprised of methods that calculate ratios from financial data (predominantly), then buy (sell) the stocks of those companies whose ratios fall below (above) a predetermined threshold value (such as buying stocks with a PE ratio below 15) or comprise a fixed percentage of stocks ranked by such a ratio (such as buying the 30% of stocks with the lowest book-to-market ratio and selling the 30% of stocks with the higest book-to-market ratio). The Fama-French “Value” factor, which segments portfolios using a High-Minus-Low filter, is the most widely applied approach, but there are many others, including Joel Greenblatt’s “Magic Formula” and Tobias Carlisle’s “Acquirer’s Multiple.”

  3. What Would Warren Do?
    This category is comprised of books and articles that analyze anything Warrant Buffet writes or says, and then presents general principles to guide other investors. Just search the term “Warren Buffet” on amazon.com to find at least 100 examples.

  4. Applications/Analyses of the first three categories
    This category presents examples of the processes, principles, and techniques presented in the first three categories, both to inform the approach and to analyze its effectiveness. Books such as “Ben Graham was a Quant,” “Quantitative Value,” and “The Dhando Investor,” and articles such as "Buffet’s Alpha” and “Drawing systematic value from the public equity liquidity premium” are just a few examples.

  5. Opinions/Recommendations resulting from the application of the first three categories
    This category applies some combination of techniques from the first three categories, and then presents opinions/recommendations for specific stocks. A lot of content falls into this category. The Motley Fool and The Manual of Ideas are two examples.

  6. Following the “smart” value managers
    This category analyzes the 13F filings of value investing fund managers, such as Seth Klarman, and presents their holdings so that any investor can replicate their portfolios. GuruFocus.com and WhaleWisdom.com are two examples.

A seventh category has emerged recently, which applies the latest advances in artificial intelligence and machine learning to investment selection and investment management. There are quite a few articles on Medium.com that fit this category, as well as some new books, such as “Advances in Financial Machine Learning.”

So, how will the content of this site be unique, interesting, and valuable?

In my opinion, much of the content in each category is very similar in structure and tone (there are many exceptions). Each piece represents just another example of what has come many times before, so it does not provide much incremental value. Furthermore, the scope of most of the content is limited to the category into which it falls (with the current exception being the emerging, seventh category). Only a small fraction of it is influenced by, or applies concepts from, other disciplines.

As our company name suggests, our goal is to develop practical and valuable innovations to improve investment selection and investment management. By design, almost everything we publish will be original rather than derivative, and represent a blending of ideas from multiple disciplines (click here for a broad overview of our research agenda). We will not be publishing recommendations, following other people’s money, or “talking our book,” because we do not have a book (we only do R&D).

As I wrote, I am hopeful that you will find our content interesting and valuable. We do not have comments turned, so, if you have something to share, please email me at mark @ innovestment.com.

Mark Bills

M&A consulting partner and Finance professor turned investment management researcher/developer. Founder of Innovestment, llc.