A Faustian Bargain worth Revisiting

In this paper we update our work The Siren Song of Growth: Why Investors Willfully Set Sail for the Rocks and make the following points:

  • As Mark Twain noted, “The rumors of value investing’s death have been greatly exaggerated”[1]
  • Growth investing has a historical tendency to generate bigger winners and losers
  • Value investing generates more modest but consistent outcomes

Over the last few years the debate over growth vs. value has become intense. The bifurcation around the various approaches to different methods of investing money in the stock market has become almost personal. We believe some of this may be due to the pavement-scraping interest rates offered by everything from money market accounts, municipal bonds and corporate bonds. As the days of high yield savings accounts have vanished, anything that has generated high returns over the short term is being hailed as genius regardless of merit.

The press has been in a tizzy about how value has not worked for a decade. In November of 2020 The Economist published an article titled “Value Investing is Struggling to Remain Relevant.”[2] Like many, the article asserts there are new paradigms afoot and, after a decade of underperformance, investors will have to adopt new methods. For growth investors who don’t need convincing, please feel free to jump to our paper on growth at a reasonable price.

The Economist’s article was hemmed in around a single factor as the catch-all definition of value investing. For those of us living in the real world, this strikes us as much ado about nothing. As we have discussed in numerous white papers, from 2010 – 2017, Growth and value put in nearly identical performances.

Much Ado About Nothing Growth and Value Were Tied from 2010 to 2017


Growth’s Higher Rates of Return are a Recent Phenomenon:

Only in the period since 2017 has growth beaten value.  We’d like readers to note that this is not because value somehow went off the rails.  Value stocks have continued to chug along at about 10% a year.  The anomaly has been due to growth companies enjoying much higher returns in since 2017.

As we showed in this simple chart, much of growth’s “winning” vs. value came from multiple expansion.

  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 for anyone seeking out more information related to the topics above.


[1] So obviously Twain was not talking about value investing, but we hope you catch our meaning ☺

[2] https://www.economist.com/briefing/2020/11/14/value-investing-is-struggling-to-remain-relevant Note: We think the world of “The Economist”

[3] https://www.economist.com/briefing/2020/11/14/value-investing-is-struggling-to-remain-relevant Note: We think the world of “The Economist”

[4] https://www.investopedia.com/terms/s/shitcoin.asp

[5] Hat tip our long-time friend AR

[6] Value is defined as the bottom decile of Long-Term Earnings Growth


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.

August 10, 2021 |

Categories: White Papers

August 10, 2021

Categories: White Papers

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