A Review of 90 Days of Noise & Nonsense Among Speculative Investments

At the start of the year, KCR penned ARKK vs. QQQ in the Dot.Com Bust and Specious vs. Spurious Correlation. The point of both papers was to warn readers that after speculative peaks, stock prices drop swiftly but then rally violently. Post-bubble price patterns were impossible to predict but precise in their message: speculative counter-rallies among the “fallen generals” of speculative cycles were the rule, not the exception.

Today we provide a brief review of the short-term spikes in some of the stock market’s most speculative stocks.

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As interest rates have risen and taken banks, insurers, real estate, and many other stocks essential to the real economy lower, talk of a major financial crisis or great depression has run riot. As the investing public grapples with the daunting fiscal math of US macro, the asset prices of many Covid darlings have gapped higher.

The Speculation Boom in Bytes, Baubles & other Discretionary Goods Returns

The chart below shows the 90-day performance of the following six groups of stocks, from left to right:

  1. The largest 100 stocks in the Nasdaq that outperformed the index rose 31.6% in the last 90 days
  2. The 100 largest stocks in the Nasdaq were up 16.5% over the last 90 days
  3. The Russell 1000 growth index rose 10.3% over the last 90 days
  4. The Nasdaq 100’s largest stocks that underperformed the index rose only 4.3% in the last 90 days
  5. The S&P 500 rose 3.7% over the last 90 days
  6. The Russell 1000 value index fell -2.8% over the last 90 days

Trailing 90 Day Absolute Return

We broke out the returns of the stocks within the largest 100 Nasdaq names that beat (first column, “Nasdaq winners”) and lost (fourth column, “Nasdaq losers”) vs. QQQs for a very specific reason.

The chart below shows the 3-month rolling batting average for the 100 largest firms in the Nasdaq. Said differently, the chart shows what percentage of the 100 largest stocks in the Nasdaq actually beat the value-weighted returns of largest 100 stocks in the Nasdaq. In such a concentrated index, with only 100 stocks, one could reasonably expect batting averages at the single-stock level to be fairly contained.

And that is precisely what we see. The dashed red line shows that over history, roughly 55% of the stocks in the Nasdaq 100 perform equal to or better than the 100 largest Nasdaq stocks (QQQs). Yet in the last 90 days, only 28% of the stocks in the index managed to outperform the broader benchmark’s 16.5% return.


This is an anomaly seen only once before in history.  To be precise, it last occurred in the period ending on August 31st of 2020 as the speculative fury of Covid stimulus sent a small slice of the market’s most speculative names soaring. We are, apparently, watching a near-perfect repeat of that behavior today.

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.


The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

March 27, 2023 |

Categories: Quick Takes

March 27, 2023

Categories: Quick Takes

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