Profiting from the Reckoning with Reality - KCR readers know we have been long-term bulls on energy stocks and have relentlessly panned the high-priced promises of so-called clean-tech energy stocks. While others read the IEAs’ path to net-zero emissions and forecasted the end of oil, we read the work and wrote our piece, Net Zero Emissions: The Possible vs. the Plausible, which explained how their research read, to us, like a powerful bull case for energy.
US Large Cap Core Funds: Historical Weights at Various Levels of Valuations - To summarize, historically, investors in large cap core index funds had the bulk of their money invested in stocks with reasonable valuations with negligible exposure to stocks valued over 10x price to sales.
The phrase “I got Enroned” has entered the investing lexicon recently. KCR believes the term is slang to describe the losses being incurred by investors in stocks with indefensible valuations and low-quality accounting. This piece updates our January work identifying the stocks most like Enron today.
Beginning in March of 2021, KCR’s quantitative research has provided consistent evidence that Staples and Energy stocks present investors with the opportunity to buy companies of high quality for unusually low prices. Subsequent to our evidence-based models’ endorsement, we engaged in a fundamental review of both sectors and the specific stocks our models favored. Steeped in academic research done by the most respected names in behavioral finance, our models continue to advocate for select securities in both sectors. Our fundamental overlay continues to validate those findings.
First, an important note: We have no beneficial interest for or against Carvana. Carvana has been panned by us here, here, and here, by Grant’s Interest Rate Observer, Seeking Alpha, Medium and by numerous other skilled and historically informed investors. On January 7th of this year, Carvana was the lead out stock in our “Enron look-alikes” list based on a proprietary KCR screen designed to….identify Enrons.
A warning to long-time readers: we are about to agree with Elon Musk and Cathie Woods on something. They have come out against index funds due to the belief that they deprive investors of winners like Tesla (Ms. Woods) and that they have too much voting power (Mr. Musk).
Is EOG A Good Stock to Buy? The chart below shows the performance of natural gas and crude oil exploration and production firm EOG Resources over the last 3 years. Since the stock’s trough in October of 2020, it has risen over 250%, triggering behavioral errors that often give investors the feeling that they “missed” a stock after it rises that much.
To long-time friends of KCR we are “breaking cadence” this Friday. Instead of a chart about stocks we found this three-minute video moving and thought it might resonate with others. KCR and our research team wish everyone a wonderful weekend.
Before we show you how quality and reasonable valuations are the breeding grounds of greatness, let’s talk about a common analytical error.
When analyzing stocks and investment strategies, using bias-free data is a basic and critical first step. For a beautiful explanation, we guide you to Teddy Koker, a researcher at MIT’s Lincoln Labs, elegant walk-through, complete with programming instructions. For those interested in a less complex example, this post is for you.
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