Growth, Value & a Reminder of the Basics of Breaking Even

This piece is designed to add color to our Bear Traders post, which showed the five largest market declines since the 1960s. That piece explained the brutal path to getting back to break-even across the history of bear markets using the S&P 500. This brief paper will do the following:

  • Show how growth and value stocks fared in these market corrections
  • Display the valuation discrepancies between “value” and “growth” stocks today vs prior peaks
  • Show how these stock market crashes impacted valuation spreads & where the greatest risks are now

KCR has intentionally omitted reviewing the longest bear market in US history during the Great Depression. Galbraith and many others have written entire tomes about that market cycle. While certainly in the probability distribution, we felt trying to tackle that here would do the topic a disservice. KCR also omitted the Covid crash, which could, technically, be deemed the shortest bear market in history due to its recency and brevity.

Bear Market Graph: A Reminder of the Grinder

To our knowledge, nobody can predict the frequency of bear markets, but we do know that all bull markets do eventually end. Our research has demonstrated that valuation levels today are at record highs. This problem is exacerbated by a dearth of safety and protection in fixed income markets.

The chart below shows how value and growth stocks fared in the bear markets we referenced in Bear Traders. KCR believes the message is simple: even in the shortest bear market of 1987, the losses were severe.

Value Growth Both Take a Beating in Bear Markets…

As the following charts show, the time to breakeven was lengthy and brutal.


Value Investing in Bear Markets

KCR believes the brevity of the Covid crash has allowed investors to forget the fear that grips people in corrections. Remember how you felt in the depths of the last bear market in 2008?  Be honest.  That was brutal even for industry legends.

The chart below shows

  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 topics discussed in this article are aimed at seasoned professionals, as such, we have included some extra reading for anyone seeking out more information related to the topics above.


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 1, 2022 |

Categories: White Papers

March 1, 2022

Categories: White Papers

Share This Story, Choose Your Platform!