The Low Cost of High Quality

The Low Cost of High Quality:

  • Our last two newsletters documented the generational opportunity to buy the highest quality Midcap firms at below average prices, read them here and here, or watch a video summary here
  • The chart below brings this concept to the Small Cap investing universe by contrasting the R2000’s High Quality and Low Quality firms
  • The blue line is the Return on Assets (ROA) of the top 40% of companies, the High Quality firms, in the Russell 2000 Index since 1978
  • The red line is the ROA of the bottom 40% of companies, the Low Quality firms, in the Russel 2000
  • CONCLUSION: The QUALITY spreads between High Quality firms and Low Quality firms have only been this wide during the peak of the internet bubble

Please see our paper early next week where Kailash drills into this issue with greater detail and provides the most actionable ideas.  Investors can buy the highest quality firms in the R2000 at record value spreads to the index.

Like our research on Income Investing and The Case for Buying What you Know and Need, our next paper documents that today, like the peak of 2000, the valuation spreads between high and low quality firms is at record wides.  If you are looking for actionable ideas on how manic markets characterized by the reckless gambling in GameStop is creating fantastic opportunities to buy high quality firms with healthy dividends and income at reasonable prices please contact info@kailashconcepts.com.

 

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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.