Posts Categorized: Finance

How Much Capital is Needed To Produce Sales?

How much capital is required to produce sales? I think this is an interesting question across U.S. economic sectors. Some sectors require boatloads of capital, others very little. Below are two looks at capital intensity (using capex-to-sales and assets-to-sales). For both, higher numbers indicate more capital intensive businesses.  Utilities and Telecoms are traditionally the most…

How Concentrated Should You Make Your Value Portfolio?

To take advantage of value investing, you need a smaller portfolio than you may think. I was curious to see what different levels of portfolio concentration would have produced in a value-only portfolio over the past 50 years, and report the results here.   I set up portfolios which bought the absolute cheapest stocks trading…

The Contrarian (Sociopathic?) Mindset

Expensive stocks suck. Cheap stocks are great. If you had followed these basic concepts through history, your results would have been incredible. Look below at the disastrous returns you’d missed by avoiding expensive stocks! And the huge returns you would have earned buying cheap stocks! On paper these results are enticing. But achieving results like…

The Value Convergence

The valuation difference between the market’s cheapest stocks and its most expensive has always fascinated me. Here are the EBITDA yields (EBITDA/EV, higher=cheaper) at different break points since the early 1960s. At the market extremes (99th and 1st percentiles), things have converged a great deal. The cheapest percentile (25 or so stocks) are much more…

Get Poor Quickly!

One of the best ways to measure how much luck is involved in the outcome of any competitive event is to ask how easy it would be to lose that event on purpose[i]. It would be very easy, for example, to lose a round of golf or a tennis match on purpose—implying that skill determines…

The Worst Time To Start In Finance

Getting started in finance and investing is hard if you never took a class on either topic in your life. That’s where I sat in the summer of 2007—fresh off a degree in philosophy and starting as an intern at O’Shaughnessy Asset Management. Full disclosure here: my start in the business was as classic a…

The years teach much which the days never know

Here are the monthly returns for the S&P 500 since 1871. Chaotic. Sometimes terrifying. Sometimes very exciting. This is the market in which we live. These are the sometimes great and sometimes awful returns that make us greedy, euphoric, panicked, and fearful. These returns do not matter.  Here is what happens when you take these…

The Millennial Way Forward

If nothing changed about your current retirement plan, would you be able to easily support yourself and your loved ones come age 65? For many of my fellow millennials this is a sobering question. On the one hand, it is hard to think and plan four decades ahead. We are still young — scraping our way to…

Resources For Aspiring Writers

Let me get this out of the way: I am not some great expert on this topic. You aren’t supposed to say that before you try to give advice, but I’ve only been writing here for about 6 months so I felt a disclaimer was necessary. That said, I feel as though I’ve learned a…

Building The Perfect Investor

The idea for this post came from Nas and Charles Murray. That’s got to be the only time those two have been mentioned together in a sentence, so let me explain. Nas has a song (you can listen here, not safe for work at all and may offend) where he—how can I put this nicely—…