The Problem with Paying High Prices for the “Privilege” of Systematic Dilution

The Problem with Paying High Prices for the “Privilege” of Systematic Dilution:

  • Our recent paper on Small Caps, The Low Price of High Quality, identified the market’s highest quality firms trading at reasonable valuations and documented the dangers of cash burning firms trading at nosebleed valuations
  • The first graphic below shows the total issuance of firms that are in the bottom quintile of buyback yields has just hit $65 – a level last seen at the peak of the internet bubble
  • The second chart shows that the valuation of these firms is at 4x sales,  a 60% premium to the peak of the internet bubble!



Summarily, investors are now paying record prices to own firms that systematically dilute them to stay in business – the history books are full of the disasters that follow periods of such epic folly.  For investors seeking to own profitable firms with defensible moats that pay dividends and grow, please reach out to

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