Rafael Resendes is the Co-Founder of The Applied Finance Group, a Founding Managing Director of Toreador Research and Trading, and a Founding Managing Member of AFGI. Founded in 1995, The Applied Finance Group — AFG — specializes in understanding the expectations embedded in market prices and constructing portfolios from that information to outperform stock market indices around the world. In this exclusive interview with the Wall Street Transcript, Mr. Resendes explores his process for portfolio development.
The portfolio is created through intense analytical capabilities: “…we break down data, convert as-reported accounting data to an economic framework to properly measure how are companies performing and then incorporate our valuation approach that we’ve been using for 23 years, which solves a lot of problems with traditional valuation approaches. So I think the analytic advantage is a huge plus for us…”
The details of the investing process are examined in this interview. “Our process is used to value 22,000 stocks on a systematic basis, that gives us access to a rich data set that very few firms in the industry have access to or could even dream of having access to. And the result of that is over time we’ve identified certain inflection points that, while we’re not macro-type allocators, we’ve been able to identify certain inflection points that tell us this market is extraordinarily cheap or this market is extraordinarily expensive.”
This proprietary analytic methodology led to to an investment in Micron (NASDAQ:MU) which revealed “an embedded call option on Micron with new technology they created jointly with Intel (NASDAQ:INTC) called 3D XPoint, which could be a revolutionary business, but at the time, the market was putting zero value to that, just valuing the existing business very cheaply given how the industry had changed. Today, Micron is probably poised to generate $8 a share in 2018, and the stock is trading in the low 40s. On a multiple basis, this is still an extraordinarily cheap stock compared to the marketplace.”
To see more examples of the investing method0l0gy of Rafael Resendes, Co-Founder of The Applied Finance Group, read the entire interview in the Wall Street Transcript.
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