Record Returns & Record Prices:

  • The chart shows the rolling annual returns of the S&P 500 since 1963 
  • We put the Price to Sales ratio above the years that returned over 40% (the 96th percentile) 
  • In the year ending March 1998 the market rose 48% and was valued at 1.8x sales – a level which was a precursor to the final run higher into the peak of the dot.com bubble 
  • The 12 months ending in March 2021, the S&P was up 56% – the third highest return in history 
  • Post this 56% run the market hit 3.0x sales, valuing the market higher than the peak of the speculative bubble in 2000  

The market has never run this far this quickly to a multiple this high.   Massive stimulus from the federal reserve, record low bond yields and investor enthusiasm have sent equities markets to peak returns and peak valuations.   

Bubble Stocks & Long Term Investing 

We have written extensively about the highly bifurcated nature of markets today.  The “stock market bubble 2021” is similar to 2000 and 2008.   Like those peaks, we believe there are enormous risks and terrific opportunities.  Reading our Nifty Fifty piece, our unflattering missive on a SPAC, and our printing of some bearish views on bitcoin one could be forgiven if you took us for bears hoping the bubble bursts. 

Yet nothing could be further from the truth.  In our recent Quick Take we put a spotlight on the few stocks around that are still trading at 10x earnings and paying owners.   We have written work about the massive value and quality spreads in small cap stocks and explained how we think those spreads can be exploited.   

We have also written about similar opportunities in mid-cap stocksstaples and took a simple bullish stance on energy within days of the market’s Covid trough.   Since publication, financial markets have rotated away from speculative growth stocks and we have seen our favored stocks’ prices rise.  

We are not speculators.  For those interested in high quality firms at reasonable prices that generate income for owners we offer a number of systematic methods that have been running for over a decade.  Reach out if you would like to explore how to bring simplicity, discipline and process to investing in a time of chaotic and volatile markets.   

With 10-year treasury bonds offering real yields of -3.5% and interest rates at all time lows, Wall Street is aggressively filling demand for speculative securities.  In our piece Innovation vs. Value” we noted that investing luminaries from GMO, Yale University, Stanley Druckenmiller and others had all highlighted market risks.  Recently unblocked from Twitter, Michael Burry has dubbed himself “Cassandra” on Twitter and is talking about the extreme risks of a stock market crash.  

We make no claims to any market-timing ability.  Our research team simply believes that “life’s bills do not always come at market tops.”  We hope readers will have the courage to invest based on fundamentals rather than the fads so prevalent in markets today.  

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Disclaimer

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. 

Kailash Capital, in preparing the information, data, analyses and opinions presented herein, 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 own tax, legal and accounting advisors before engaging in any transaction.