How This Investor Increased Returns Using Valuation Models

by Matt Hogan

  • One of the biggest challenges to investing: time
  • How finbox.io can help you become a smarter and more efficient investor
  • A case study on how valuation models help

The stock market is a beast! Unless you have a team of analysts working around the clock, you probably don't know what's going on with your entire investment portfolio or stock watchlist. Well… even if you do have a team of analysts you’re still probably not on top of everything.

One of our biggest challenges to investing is our lack of time. The amount of information now available across the web can get overwhelming. It’s simply no longer possible to research 50 or even 25 stocks every day. Particularly if you’re not a full-time investor.

In light of this time limitation, we’re releasing a use case on Alexander J. Poulos, a healthcare practitioner by day and Seeking Alpha contributor by night. The use case will show you how Alex used valuation models to become a more efficient investor and ultimately increased his returns.

The Facts...
When Alex came across Cognizant Technology (CTSH), it was trading at an all time high of $53.61 on March 7th 2014. Although he liked the business, after some diligence and a few inputs into a finbox Discounted Cash Flow (DCF) model, he didn’t like the upside potential at that trading price. CTSH was added to his watchlist and his work was saved.

About six months later, CTSH had fallen almost 20% to $44.98 and Alex's DCF now showed considerable upside. He re-visited CTSH to quickly discover the recent sell off was over blown. In fact, it provided an entry point opportunity with limited risk and Alex posted this Seeking Alpha article.

A year later CTSH jumped up to around $65 per share and the upside derived from Alex's DCF model had dropped substantially. He was able to exit his position in time to realize a gain of over 40%.

This case study is not meant to claim that using valuations models will always increase your returns. But there has to be a reason investment banks and hedge funds use these things right? It's because they work! You become a more efficient and intelligent investor when financial models are applied appropriately. Here are a few ways finbox.io's pre-built models helped Alex:

  1. Concluded the fair value of CTSH in a matter of minutes.

  2. Although CTSH wasn’t compelling at first, his time spent researching the company didn’t go to waste. All his work was saved.

  3. His model was updated daily for price changes as well as when the company reported earnings. No need to dig up old Excel files, manually update them and constantly monitor the company.

Time is one of our most precious resources. So why waste it doing tasks that can now be automated? Let finbox.io help you become a more efficient investor and start making smarter investment decisions today.