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We recently wrote a bullish piece on Cardinal Health (CAH). The work caught the attention of an investing legend who founded and ran one of the most successful money managers we know. His view? Cardinal Health was a low-quality company and deserved to be cheap. KCR takes the “other side” of investors like him with great caution.

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,

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,

In our last missive, A Penchant for Pain, we highlighted that our Microcap Model Portfolio was lagging the Russell 2000 – one of its two principal benchmarks. We went on to note that some of our most timely highlights have been when we draw our readers’ attention to our worst performing products. Evidence based and systematic, we have been fortunate to see every period of pain followed, eventually, by outsized prosperity.

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.

“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

History rhymes. Doesn’t repeat. Valuation doesn’t matter until it is all that matters. Stocks valued at 10x price to sales (P/S) are difficult to justify. The CEO of Sun Microsystems made the merciless math of 10x P/S easy to understand after the dot.com bubble imploded. We have reprinted his quote here again for the sake of convenience.

In a single Tweet on the demerits of a “fund of crypto hedge funds,” the legendary Cliff Asness managed to interweave the madness of meme-stocks and the...

In August of 2021, we published Junk Stocks Funded by Junk Bonds, which noted that high-yield spreads had hit record lows. Our view was that record low-spreads on record-low nominal yields were a recipe for ruin. Using the Fed’s definition of financial fragility, we highlighted a group of equities that scored poorly on the Fed’s durability test and ranked poorly in our models.

"The private credit market has grown to the size where there is no edge other than the fake attraction of not having to mark their assets accurately and showing artificially low volatility. The space is competing for the same deals as the public market. So, the original concept where it was smaller specialty deals and the lenders had to pay up and give special terms is simply gone.

“Disturbing research warns AI may be the ‘Great Filter’ that wipes out human civilization” -The Independent “…artificial general intelligence or AGI is AI’s ‘big brass ring’ and will become a trillion-dollar industry by the 2030s…it will also do good in the world.” -Business Insider “What is certain is that creating [artificial general intelligence] AGI is the explicit aim of the leading AI companies, and they are moving towards it far more swiftly than anyone expected...

The definition of external obsolescence principally applies to real estate. One real-estate firm explains that “...external obsolescence is something outside of a property, off-site, that negatively affects its value. Definitions of external obsolescence often include the chilling term “incurable,” and examples are trains, traffic, commercial properties, institutional properties, geologic conditions, and industrial installations.”