Nvidia: A Quick Example of Excessive Extrapolation
Last week we wrote a piece citing work done by some of the greats in behavioral finance – Benartzi, Tversky and Kahneman. Our work suggested that the recent wall of stock-based compensation could create unprecedented risk for employees. Millions of individuals often refuse to diversify their stock comp due to well-understood behavioral errors. Most recently,
Excessive Extrapolation & Stock Based Compensation
The researchers and portfolio managers who write KCR’s newsletter do their best to follow the data. We use sophisticated analytical tools to identify areas where we see significant market inefficiencies. Yet history does not repeat; it rhymes, which means we get things wrong. We write about that, too. Most recently,
ARIS Water Solutions, Inc. (ARIS)
ARIS is a uniquely positioned company: its water handling and recycling services seem likely to be in tremendous demand for the foreseeable future. In simple terms, the fracking process produces rapidly increasing quantities of water that must be disposed of or recycled.
OSG Ship Holding Group, Inc. (OSG)
Overseas Shipholding Group, Inc. (OSG) operates a fleet of vessels that transport crude oil, petroleum, and transportation fuels primarily in the U.S. Flag trade. OSG operates a fleet of 21 vessels (13 owned and eight chartered) with aggregate carrying capacity of ~1.5 million deadweight tons (dwt). One dwt is 2,240 pounds.
A Penchant for Pain: A Search for Big Returns in Small Packages
The research in this newsletter is not designed for those looking to feel comfortable in large crowds. Our ranking tools and model portfolios pay various levels of respect to the momentum anomaly. “Momentum anomaly” is merely an academically vetted term for performance chasing.
Apple, Coke, Tesla, WorldCom & Warren Buffett: What Can We Learn?
April. Busy month. Let’s use numbers and history to make a powerful point with simple pictures. The cranberry bars show Apple’s price to sales (P/S) ratio by year. You can see AAPL’s valuation ballooned from 3x sales in 2014 to 7x sales today. The navy-blue bars show Apple's market cap from 2014 through today.
“Number Go Up” & The Ouroboros-Like Asset Inflation of the Post GFC Era
“Number Go Up” [is] one of the many memes that sprang up during a previous crypto surge, representing a similar vibe as “to the moon” or “hodl” – the idea that the faithful would keep buying in the belief that prices would continue to climb. … For active managers, the pressure is getting more intense by the day to ride the upward momentum across tech-powered indexes like the S&P 500 and Nasdaq 100 …
KCR’s Dividend Portfolio: An Evidence Based Approach
Shortly after the trough of the Great Financial Crisis, this newsletter observed that Wall Street was selling “dividend investing” strategies to coax investors back into equities. In pieces ranging from The Dividend Deception to Rushing About: The Thirst for Yield, we pilloried what we felt were often deceptive marketing pitches that led investors into history’s biggest bubble in dividend stocks.
Diversifying with Dividends: Are Investors Ignoring a Free Lunch?
“One of our clients is a married couple with about $5 million in liquid assets. They are both 80 years old. 90% of their money is in equities. Most in US large cap index funds and then they own large single positions in Nvidia, Eli Lilly, and Tesla. The husband wants to be 100% in these things. The wife wants it all in CDs. Trying to walk them back from so much risk would seem easy but
The Great Growth Run & a Peek at Forsaken Dividend Stocks
Researchers in behavioral finance have documented the following three items: • Human beings have a nasty habit of extrapolating trends • Even worse, the longer a trend has been going on, the more likely we are to extrapolate it…. • …. which is terrible because the longer a trend has gone on, the more likely it is to revert!
KCR’s Top Charts of 2023 Updated
Every year since the launch of our website, we have posted a piece reviewing KCR’s work from the prior year. Today’s post continues that tradition. We would like to thank our rapidly growing list of readers for their support, engagement, and thoughtful kindness. KCR has updated all the charts below through December 31, 2023.
Monopoly Money: Big Business, Barbie & the Benefits of Diversification
“Small, independent, decentralized business of the kind that built up our country, of the kind that made our country great, first, is fast disappearing, and second, is being made dependent upon monster concentration.” “I think that we are approaching a point where