<![CDATA[The Finbox Blog]]>https://finbox.com/blog/https://finbox.com/blog/favicon.pngThe Finbox Bloghttps://finbox.com/blog/Ghost 3.20Mon, 15 Jun 2026 11:46:02 GMT60<![CDATA[Value Investing: Everything You Need To Know]]>https://finbox.com/blog/value-investing/5ef2b3e656977d0001d9fd7bFri, 19 Jun 2020 16:15:00 GMT

What Is Value Investing?

Value investing is an investment philosophy that consists of buying stocks that are trading for less than their intrinsic value.

This simple yet effective investment approach became famous thanks to the incredible performance achieved by its proponents, like Warren Buffett, Charlie Munger, or Seth Klarman, to name a few.

For example, Seth Klarman's hedge fund generated a compounded annual return of 20% from its inception to 2008, beating the market to a large extent. ( Source)

Value Vs. Growth Stocks - Is Value Investing Dead?

Whenever you are dealing with portfolio construction or investment strategy, you have to face the ever-present dilemma: what's better between value and growth stocks?

Before we answer the million-dollar question, let's review what the difference between the two is.

Value stocks are stocks that are cheap relative to their fundamentals and have lower valuation ratios than the market. The most used valuation ratio for categorizing value stocks is the price-to-book ratio. Indeed, the Russel 1000 Value Index is composed of companies with lower price/book ratios.

Growth stocks are stocks with higher forecasted and historical growth rates. For this reason, they are much more expensive than the market.

In the past century, value stocks usually outperformed the market.

According to James O. Shaughnessy's research, in the 82-years backtest period between 1927 and 2009, stocks with the lower P/B ratio generated an 11.33% CAGR compared to 10.46% of the market. At the same time, stocks with the highest PB ratio generated an 8.10% CAGR, underperforming the market.

However, in the past 10 years, value stocks drastically underperform growth stocks. From April 14, 2010, to April 14, 2020, the Russel 1000 Growth Index returned 218%, while the Value Index generated just a 74% CAGR.

This long period of underperformance has led many investors to believe value investing is not effective anymore. However, there is nothing strange at all in that.

Indeed, despite beating the market in the long run, picking stocks with a low P/B ratio results in long periods of underperformance in the past too. In the backtest I mentioned above, value stocks beat the market 77% of the time on rolling 10-year periods.

BlackRock's research about the value premium confirms the result. The value premium represents high book to market stocks minus low book to market stocks performance (also referred to by many investors as value minus growth).

A positive value premium means that value stocks outperformed growth stocks over a given period. The research shows the percentage of positive value premium over various periods between 1926 and 2009:

The results tell us that value stocks tend to outperform growth stocks in the long run, but that it is completely normal for them to underperform over some periods.

What's more, when that happens it is most likely because growth stocks become more expensive than ever. Indeed, that's exactly what happened in the past 10 years. Growth stocks' strong performance was mainly driven by multiples expansion, rather than fundamentals, as it was with the dot-com bubble.

However, a Bloomberg research shows that every time that the valuation of the growth index is relatively high compared to its value peer, the first one subsequently underperforms. As you can see in the following graph, a wide gap in the pe ratio between value and growth stocks is generally followed by the growth index's underperformance:

Conclusion

While it is true that value stocks underperformed the market in the past decade, I would like to point out that value investing is not about picking low PB ratio stocks. Value investing is about finding value, and there are so many companies with a low PB ratio and zero value, as there are a lot of companies with a high PB ratio and tremendous value. We should always keep in mind that investing is much more than a simple ratio!

As Charlie Munger says:

All intelligent investments are value investments.

iframe]]><![CDATA[Founder-Led Companies: This Will Surprise You!]]>https://finbox.com/blog/founder-led-companies-this-will-surprise-you/5ef2b4f656977d0001d9fd8dWed, 17 Jun 2020 15:07:00 GMT

Do you know what the most successful companies in the world, such as Amazon, Facebook, Netflix, and Tesla have in common? They are founder-led companies (i.e., companies where the founder is also the CEO.)

Indeed, one of the often underrated factors in stocks analysis are the people who run the business. Behind any great business, there is a great management that can make the difference between a successful and a failing company.

In this article, we will show you some data, statistics, and research that demonstrate how founder-led companies tend to perform better than the others!

Founder-Led Companies: What Data Say

The first study of the subject is by professors at Purdue's Krannert School of Management, who analyze the correlation between founder CEOs and innovation for S&P 500 firms from 1993 to 2003.

They found that founder CEO-managed firms are more effective and innovators than professional CEO-managed ones since they generated 23% more patents (after controlling for R&D spending).

What's more, the founder CEOs' innovations also bring more financial value to the company.

Another insightful study comes from Bain & Company. They analyzed the stocks of S&P500 founder-led companies and found out that its performance was 3.1 times better than the others between 1990 and 2014.

Besides founder-led companies, they also considered those running the business according to principles and practices designed by the founder, or those where he was in the Board of Directors.

Why does that happen?

As you can see, there's a multitude of data confirming that founder-led companies tend to outperform the rest, so you might wonder why that happens.

One of the main reasons could be that it is really unlikely that a professional CEO can have the same vision as the founder. That isn't always true, but in most cases, the founder of these incredible companies that changed the world are visionary individuals with a strong vision of the future. Thus, they are more likely to make the best decisions for the long-term success of the company.

The second reason is more deep-felt and concerns the relationship between a founder and his company. As Fidelity points out in his article, a founder sees his company as his life's project and has a greater motivation to act for its long-term prosperity.

How can you spot founder-led companies?

If you want to invest in a diversified portfolio of founder-led companies, you can opt for the Global X Founder-Run Companies ETF.

It is an exchange-traded fund launched and managed by Global X Management Company LLC that invests in us founder-led companies across diversified market capitalization and operating across diversified sectors. It seeks to track the performance of the Solactive U.S. Founder-Run Companies Index, by using full replication technique.

If you just want to take a look at the list of founder-led companies, you can find it here.

]]><![CDATA[Zombie Companies: Everything You Need To Know]]>https://finbox.com/blog/zombie-companies/5ee9b342718bb10001e80354Sun, 14 Jun 2020 16:15:00 GMT

For investors (and indeed for everyone else) 2020 has been a year where a crisis seems to be followed by yet an even bigger crisis. It started with growing political tensions threatening global trade, then came a global pandemic and an oil price crash which in turn led to one of the worst economic crises in history. And once it looked like things were slowly recovering, mass civil unrest ensued and we have just made it only halfway through the year.

Yet, despite all of this, the market so far has managed to remain surprisingly resilient, edging into a downturn but not it to a complete catastrophe like the one seen during the Great Depression. However, another impending crisis could well make it so, if not far worse. The number of ‘zombie’ companies is growing rapidly and if the situation does not improve, we could likely head towards a financial apocalypse.

What is a zombie company?

A zombie describes a being that should be technically dead yet is alive somehow. A zombie company is similar – one that is heavily in debt but earns just enough to continue operating and service its debt (but not pay it off). As one would expect, such companies, just barely managing to scarp by, are highly vulnerable to market disruptions. A small rise in interest rates, a decline in consumer spending, or a single poor quarterly performance could risk it becoming insolvent.

In a completely efficient market, zombie businesses wouldn’t exist, instead, being quickly replaced by more productive competitors. In real life, however, they remain animated by cheap credit, the access to which reduces pressure for these companies to invest in innovation and efficiency as well as shift the need for hard decisions well into the hazy future.

Often of massive size and thus, politically too costly for the government to be allowed to go insolvent, these uncompetitive corporate giants continue to lumber onward from repeated bailouts or generous bank loans. While this avoids a negative economic outcome in the short-term, in the long term, this leads to the crowding out of productive investment and the entry of newer, more innovative companies. This, in turn, can potentially lead to a steady decline in growth and eventually chronic stagnation as happened in the case of Japan.

What You as an Investor Should Be Worried?

Since the 2008 financial crisis, the number of zombie companies had more than doubled by 2017 accounting for [roughly 16%]( https://www.marketwatch.com/story/stock-market-investors-should-beware-the-growing-number-of-zombie-companies-2017-11-29" target="_blank) of the components of the Russell 3000. The current economic crisis likely may have led to an even larger increase in the number of zombies. However, slower future expansion as a result of misallocation of capital into these companies isn’t the only aspect to worry on.

Because of their size, zombies can be contagious. If one fails, it can result in a panic and mass selloff of other zombie stocks, resulting in a chain reaction of more and more zombie companies going under, especially if banks, in response to the resulting chaos, starting raising their interest rates. As an increasing number of these companies default, banks and credit agencies who lent to them also suffer and risk illiquidity.

The resulting down spiral can significantly lower investor confidence and thus, even stocks of otherwise healthy companies decline as well.

Given the present uncertainties in the market today and the market rally following the first crash had since plummeted to levels seen in 2002 and 2008, it indicates another crash to be likely this summer. The longer the recession holds, the more likely it is for zombie companies to become insolvent and worsen the crisis further.

Moody’s analysts predict that the corporate default rate globally [could climb to 6.8%]( https://m.moodys.com/newsandevents/topics/Recession-Risks-007052?cid=J03R5OX7WFJ4527" target="_blank), more than double the default rate witnessed in February 2020. Without the right intervention, such a scenario can potentially spiral into a prolonged period of economic contraction.

The Upside

While still vulnerable, markets today are far less affected by emotions than earlier times. Investment decisions today are made with smarter insights and the majority of trades today are managed by advanced A.I algorithms, invulnerable to irrational biases.

While this on-going recession is likely to become worse before a real recovery starts, the contagious effect of zombie companies may potentially not be as severe as we may expect. If anything, the current crisis reflects an opportunity for market corrections and pruning of inefficiencies, leading to a healthier and more resilient future economic landscape.

]]><![CDATA[Renaissance Technologies LLC: Holdings, Returns, Strategies (+Bonus)]]>https://finbox.com/blog/renaissance-technologies-llc-holdings-returns-strategies-bonus/5ee6f0b43f7d91f744b844c0Wed, 03 Jun 2020 17:51:01 GMT

While increasing regulations on financials have made investment far safer and less volatile, it has also made seeking alpha far more difficult. To earn higher returns on their money, investors are increasingly looking towards hedge funds as the ideal option. However, while hedge funds do provide a viable opportunity to trounce the market, not all of them are equal. Have your money managed by the wrong agency and, rather than beat the market, see your returns falter.

One hedge fund agency, however, has built itself a strong reputation for providing among the best and most consistent returns on their managed portfolios – Renaissance Technologies LLC.

Table Of Contents

What is Renaissance Technologies LLC?

Regarded as one of the most secretive and successful hedge funds in the world, Renaissance Technologies LLC was co-founded back in 1982 by the famed Mathematician, former Cold War code-breaker and multi-billionaire James Simon along with investor Howard lee Morgan. The firm is based in East Setauket, Long Island, New York.

The company is currently headed by Peter Brown, a former IBM Research’s computer scientist who joined Renaissance back in 1993. Simon continues to remain engaged with the firm, serving as a non-executive chairman and remaining invested in its holdings.

The firm is also distinct for hiring many of its employees from completely non-financial backgrounds, including scientists, statisticians, and mathematicians. It is because of this coupled with its astounding success that the firm has been termed “the best physics and mathematics department of the world.”

Renaissance Technologies Returns And Strategies

In terms of returns, Renaissance Technologies LLC boasts one of the best, if not THE best, track records in all of Wall Street, with their flagship Medallion fund providing a staggering return of more than [66 percent annualized]( https://en.wikipedia.org/wiki/Renaissance_Technologies" target="_blank) before fees (39 percent after fees) over a 30-year time span from 1988 to 2018. In 2008, while the S&P 500 index fell from grace with a crash of 38.5 percent, the Medallion reaped in a record-breaking 98.2 percent gain. Since its inception, the closely guarded fund has managed to earn over $100 billion in profits.

Chief among the Renaissance Technologies LLC strategies is the use of highly complicated quantitative trading models such as an expanded version of the Baum–Welch formula to find market correlations through which opportunities for profit can be identified and invested in.

Using these equations, the firm crunches through petabytes (1015 bytes) of market data to assess market probabilities and price trends. The firm has been a trend-setter of this strategy, extracting market insights from vast quantities of data for almost two decades until the present. This is well before concepts such as big data and data analytics even became mainstream in the business world.

Renaissance Technologies Products

As already mentioned, its flagship Medallion fund is arguably one of the best performing managed funds on the market. However, it hasn’t been available to outsiders since 1993, instead of being run mostly for the firm’s employees or their families.

For outsider investors, the firm offers three managed portfolios. Combined they totaled approximately $55 billion in asset value.

•Renaissance Institutional Equities Fund (RIEF)

•Renaissance Institutional Diversified Alpha (RIDA)

•Renaissance Institutional Diversified Global Equity (RIDGE)

Historically, these funds have largely trailed the performance of the more famous Medallion fund.

Renaissance Technologies Holdings

As of current, Renaissance Technologies’ holdings have mainly been in the Healthcare, Consumer Staples, and IT Sectors. The firm’s largest holding is Bristol-Myers Squibb Co (NYSE: BMY), of which it owns around 2.9168% of the shares. Another company in which it owns a major share is Denmark based Novo-Nordisk A/S ADS (NYSE: NVO), of which it owns 1.188% of the shares. Among their largest new investment in for Q1 2020 in terms of the total volume of shares was in Sirius XM Holdings Inc (NASDAQ: SIRI) at 23,243,102 shares. The company it sold away the most shares of was General Electric Co (NYSE: GE) at a total volume of 33,092,729 shares.

If you want to learn more about how Jim Simons made Renaissance Technologies one of the best hedge funds in the world, we suggest reading a great book from Gregory Zuckerman: [The Man Who Solved The Market]( https://amzn.to/2BoQQte" target="_blank).

Bonus: 3 Quantitative Investment Strategies You Can Use Right Now

With rising uncertainties within the global economy, new investors may find it difficult to imagine that opportunities still exist to gain high returns with little risk. Access now for free to our guide that teaches you [3 quantitative investment strategies]( https://finbox.com/blog/3-investment-strategies-to-beat-the-market/" target="_blank) that will allow you to beat the market this year.