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The Valana Model: The Model

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After many years of research and validity assessments done, certain value assessment elements were identified in listed companies that most likely will influence the performance of those companies and its stock going into the future. This is mostly because these elements are deemed to be important by the big players on the securities market.

Comprehensive and extensive validity testing over the years enabled the Valana model to apply appropriate impact weightings to these fundamental elements in order to increase the prediction reliability outcome of the model.

Very little emphasis is placed in the model on technical indicators, such as charting and investors who favour technical indicators may wish to use some of the many charting facilities available on the internet and other software facilities to assist them with their selection, especially as it relates to timing for a buy or sell decision.

The Valana model uses a comprehensive tested analysis format in order to provide subscribers with a short and user-friendly report and final period rating for the following nine fundamental areas:

  1. Trade rating - several things, such as liquidity issues, Beta relative movement patterns and market favour are considered to assess the potential tradability rating of the company's stock. The higher it rates above the benchmark of 100, the less volatile it should be compared to other stocks and the easier it should be to sell it in a serious market downturn.
  2. Jewel rating - elements, such as the management team, service/product monopoly, global diversification, gem stock perception, past achievement track record, asset accumulation and investment return, the stock being a big player favourite are considered in this category.
  3. Cash rating - cash components, such as cash on hand, cash flow generated, free cash flow, cash as % of share price, debt servicing, dividend ratio, etc. are considered.
  4. Soundness - elements, such as size, experience, market share, product demand, volatility, debt and gearing trends are considered as well as whether the company is a "moated" enterprise and whether the company's stock can be seen as a defensive or hedge stock in market downturns.
  5. Trend rating - the period trend movement of 20 important enterprise components are assessed within weighted parameters in order to evaluate the anticipated future momentum of the company.
  6. Potential rating - several internal as well as external environment impact factors are assessed and evaluated. Accredited recommendations made and turn around potential is also considered.
  7. Dividend rating - several dividend elements, such as yield %, earnings cover, dividend profile, historic dividend patterns and traditional dividend discount factors are considered.
  8. Price rating - several price related elements are considered, such as PEG rate, RPE rate, ROE %, NAV %, Revenue rate and current Price Earnings ratio.
  9. Profile rating - an overall assessment of the enterprise fundamentals of the company is made considering most of the above outcomes in a weighted manner. This rating also indicates the investment performance and growth reliability anticipated for the company.

By applying validated weighting and research tested formulas to these nine areas an overall value rating for the stock is determined and an adjusted rating for three separate risk profiles are also provided as shown below:

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In the Valana model all the ratings are formulated to be compared with a standard benchmark rating of 100.

A rating above 100 indicates a good odds-value and conversely a rating below 100 reflects a poor odds-value.

The model was developed and designed in such a manner that during stable market conditions, ratings above 100 should almost always, during the two or so years to follow, lead to acceptable performance in a company.

However, it is also possible that the stock of a company with a rating well below 100 may actually turn out to perform quite well during the next year or so, as a great demand for that stock may have been created by other external events or circumstances, such as investor sentiment, not directly based on or linked to inherent or embedded value.

The objective of the model, therefore, is mainly to identify real substance and fundamental odds to win value from an investor's point of view, rather than to pick winning or losing stocks on the market.

The validity and reliability testing done to date clearly demonstrates that the stock of companies with low Valana value ratings generally actually performed poorly and very much in line with the original predictions made.

A company stock perspective

There is no system, model or strategy in the world that will guarantee ongoing growth in the price and performance of the stock of any listed company.

If the markets should move down significantly almost all the stocks listed will also show a downward trend, irrespective of the ratings they may have earned from any viable value assessment model.

However, research related to historic trends has shown that stocks which earned a good value rating in the Valana model showed a strong tendency to drop less than stocks with a low value rating and, even more importantly, those stocks showed a general trend to outperform lower rated stocks when the markets recovered again.

It is important to understand that if a company obtained an overall value rating of, say, 200 it does not suggest that the stock of such a company will perform twice as well as the stock of a company which obtained a value rating of only 100.

What the ratings achieved actually tell you is that the odds for the stock of a company with a high rating is several times more favourable than the stock of a company with a low value rating. Therefore, one could assume that a company with a final value rating of 150 may have three times better odds or potential to perform well than a stock with a final value rating of only 50.

The Valana model does not recommend buying or selling a particular stock. Its primary objective is to supply the subscriber with the deemed model ratings for all the value components measured by the model in respect of a listed company for different investor risk profiles.

The subscriber may also select his/her own rating compliance criteria before making any investment decision. In other words, the subscriber may decide to only consider companies with at least double the benchmark value rating achieved in the model (for example, using a rating of 200 as a personal requirement instead of the model benchmark rating of 100).

Alternatively, depending on the particular risk profile of the subscriber he/she may prefer to use the low, medium or high risk profile ratings calculated by the model as a decision criteria for selecting stocks to invest in.

The purpose of the Valana website is to allow other investors to benefit from the extensive research and development done by the Valana team and to share verifiable and relative investment value data with other serious equity investors, in order to enable them to improve their odds for winning over the long-term.

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