Frequently asked questions
How do you answer your first simple question, "Is the company making money?"
Question 1 inspects values such as net income and cash flow. If those values indicate the company is profitable, then question 1 is considered “passed,” otherwise it is considered “failed.”
How do you answer the second simple question, "Can the company pay its bills?"
Question 2 inspects values such as assets and liabilities. If those values indicate the company has sufficient liquidity, then question 2 is considered “passed,” otherwise it is considered “failed.”
How do you answer the third simple question, "Is the company structured to reward investors?"
Question 3 inspects values such as equity, debt, net income, cash flow and assets. If those values indicate healthy capital structure and sufficient return on equity, then question 3 is considered “passed,” otherwise it is considered “failed.”
People have been trying to beat the market forever. Are you telling me that you have done what no one else has been able to do?
Others active managers are able to beat the market. What is different with our strategy is that it is transparent, disciplined and completely automated and therefore not subject to emotional bias. Our automated portfolio manager does not get tired, worried, or stressed. Our automated portfolio manager does not take vacations and is not going to retire. You can explore more on Valspresso Insights.
Are you telling me that this strategy always beats the market?
No. This strategy is optimized for long-term performance which we define as 3 or more years. In 10 year simulations, the strategy beat the market in every 3 year rolling period. For periods shorter than 3 years the performance varied. You can explore more on Valspresso Insights.
Backtesting utilizes a hypothetical reconstruction of how a specific account might have performed if the adviser was managing the account using the firm’s strategy. Returns do not represent actual trading of a client’s assets but were achieved by applying a model retroactively with the benefit of hindsight. Backtested returns have inherent limitations, especially the fact that they do not represent actual trading and may not show the impact that material economic conditions might have had on the adviser’s decision-making. Simulated returns do not demonstrate the adviser’s skill and are not the performance returns achieved by any specific client. During this period, the adviser was not providing advice using this model. The model that gave rise to these backtested performance returns is one that the firm is now using to manage clients’ accounts.
Are you trying to time the market?
Our strategy is not trying to time the market. It simply looks for companies that are creating value and are expected to create value in the future. If the strategy cannot find enough companies meeting this criteria, it maintains a larger cash position. This makes sense if you think about it. During market downturns, fewer companies will be creating value. When investors believe that a market downturn is about to occur then it will be reflected in their expectation of the company’s ability to create value the future.
Your strategy does not have long enough history to tell if it really works.
Really no amount of history is any guarantee of future performance. We suggest that you invest in a sound strategy with disciplined execution. Since the strategy is completely automated it is very disciplined. Our strategy’s selection process is based on straight-forward fundamental analysis and momentum indicators.
Your strategy is too simple to really be effective. It’s just fundamental analysis.
Our strategy considers things other than fundamental analysis, such as momentum, but yes, fundamental analysis is a big part of our strategy and in principle, fundamental analysis is pretty simple. Our research shows that if you only invest in companies that pass our 3 simple questions you will get higher returns at lower risk. The real trick is the disciplined execution of these rules. Our automated system makes buy and sell decisions without human intervention. This eliminates cognitive/emotional bias, which we believe is a key reason why many fail to beat the market. See behavioral finance for more information on this subject.
Are you trying to pick winning companies?
We are not trying to pick winning companies. We just select companies that are creating value and are expected to create value in the future. Our research shows that a portfolio solely composed of these companies will tend to deliver better returns at lower risk.
Why do you only invest in small cap stocks?
That is not correct. Our strategy invests in companies regardless of market cap or sector. Our distribution of stocks across market cap classification roughly matches that of the broader market. If you look at the broad market, about 80% of the stocks are small cap. So the market is mid to small cap tilt. Our holdings reflect that same profile.
What sectors does your strategy invest in?
All of them. Our strategy invests in companies regardless of market cap or sector.
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