The prospect of normalizing monetary policy has been the main catalyst for a major equity rotation that has favored value stocks. Could this be the long-awaited reawakening of value investing? We had the pleasure of speaking to Rafael “Rafa” Resendes, co-founder of Applied Finance and prominent value investor. Our conversation covered:

• Economic ValueTM as a core metric
• The power of the Investment Factor
• The importance of capitalizing R&D and other balance sheet adjustments
• Sensitivity analyses – recognizing how impactful assumptions on growth and cost of capital can be for valuations
• Risks that cannot be diversified away must offer higher returns
• Why CAPM doesn’t make sense, both empirically and logically
• A market implied approach to cost of capital
• Leverage and size matter (a lot), though the former even more than the latter
• Taking advantage of historic mis-pricings
• Multiples, profitability, risk and competition
• The relevance of a company’s cash flow duration, and how it relates to interest rates
• Balancing risk vs duration
• Intrinsic value and asset pricing models
• Valuation as measured by implied future growth

 

Thank you for watching and listening. See you next week.

 

This is “ReSolve’s Riffs” – live on YouTube every Friday afternoon to debate the most relevant investment topics of the day, hosted by Adam Butler, Mike Philbrick and Rodrigo Gordillo of ReSolve Global* and Richard Laterman of ReSolve Asset Management.

 

*ReSolve Global refers to ReSolve Asset Management SEZC (Cayman) which is registered with the Commodity Futures Trading Commission as a commodity trading advisor and commodity pool operator. This registration is administered through the National Futures Association (“NFA”). Further, ReSolve Global is a registered person with the Cayman Islands Monetary Authority.