• Introduction The Unforgiving Grind of Geometric Returns
  • Indexes & Sector Performance: What Just Happened & What Can History Tell Us?
  • Closing: How Recent Price Action Has Impacted U.S. Equity Valuations

Introduction: The Unforgiving Grind of Geometric Returns

The flow of information that erupted during the recent market correction seems designed to leave investors grasping for any form of spatial reference.1 A version of a January piece authored by our affiliate L2 to its buy- side partners can be found here: Why Market Neutral Now. In it we observed that valuations were in the 99th percentile, recent years’ market returns well above historical norms, complacency high and that history indicated such a confluence of circumstances would generate negative outcomes for investors.

Our January work was not predicting a crash and by no means is this piece any different – Kailash is not making a macro call. As we readily conceded in the piece above, we doubted that we or anyone could predict the catalyst for the next disruption. As for today, the world watches as exploding unemployment, drastic demand destruction and a long-overdue2 reckoning in corporate debt markets collides with a wall of money from central banks and governments around the world. This paper uses sector performance to highlight what just happened, what history might teach us about sectors, and how the world looks today vs. our piece in January noted above.

Figure 1 below shows that in just over 20 trading sessions three full years of gains in equities evaporated. Kailash would note that the exact same effect can be observed in debt markets. Using HYG and LQD as proxies for High Yield and Investment Grade bonds, the total returns, as seen here, were even worse.


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.