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Robert Kricheff Discusses Changing Valuation Models In New Book 'That Doesn't Work Anymore'

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Robert Kricheff Discusses Changing Valuation Models In New Book 'That Doesn't Work Anymore'
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Shenkman Capital portfolio manager and global strategist Robert Kricheff's book “That Doesn’t Work Anymore," released in December, focuses on how certain economic measures, money management concepts and equity valuation metrics have become dated thanks to societal and technological changes — and why investors who want to understand how today’s markets work need to adapt along with the times.

Modern Equity Value

In “That Doesn’t Work Anymore,” Kricheff discusses how the application of data points and the accuracy of traditional predictive tools and models has shifted over time. As a result, he argues today’s investors need to think differently about concepts like asset and stock values and techniques such as regression and correlation analysis.

For example, value stocks have lagged throughout the recent bull market, and Kricheff told Benzinga in a recent interview that part of the problem may be that the definition of value has changed thanks to technology.

“If you’re looking at the old values of what a factory was worth or what a brand name was worth, technology is allowing all these new companies to start up. Every time one of these new companies come out, the value of all that old technology and that old plant that you’re using to value the stock suddenly goes down,” he said.

As a result, a stock’s book value and the value of the assets a company lists on its balance sheet are no longer as reliable as they once were, Kricheff said.

Innovation Is Key

While market cycles have occurred throughout history, Kricheff said many of the changes he discusses in his book are structural shifts in the way the market and economy function.

“The way people categorize stocks as ‘growth’ or ‘value’ has to change, because it’s really become companies that are innovating and not innovating,” he said. “Even if it’s a traditional company, if it can innovate and stay ahead of newer companies that are challenging them, it’s a benefit.”

Kricheff said technology is one way to create value via innovation, but visionary leadership from a forward-looking management team is all it takes to create value in today’s market, in his view.

Erroneous Conclusions

Kricheff said historical analysis of equity indexes such as the S&P 500 are another area where today’s investors may be drawing erroneous conclusions.

Comparing the S&P 500’s current earnings multiple to its historical average may be misleading.

“People use a time series of data, meaning they’re just using historical data to analyze if something is rich or cheap, but every time a new technology comes out, the value of that whole data disappears," he said.

The most influential stocks in today’s S&P 500 index, such as Apple, Inc. (NASDAQ: AAPL) and Alphabet, Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL), have much higher margins than top stocks from 20 years ago such as General Motors, Inc. (NYSE: GM) and Exxon Mobil Corp. (NYSE: XOM), Kricheff said.

In his book, Kricheff discusses ways investors can apply common sense to avoid making these types of analysis mistakes, including methods of adjusting the weighting of models to increase the influence of the most recent data.

Investors who want to learn more can pick of a copy of Kricheff’s new book at this link.

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Posted-In: Robert KricheffFutures Psychology Top Stories Markets Trading Ideas Interview General Best of Benzinga

 

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