We would like to start with a pre-emptive apology for being terribly boring folks who tend to be grounded in probabilities. That predisposition has made the current environment somewhat challenging for us as we contemplate enigmas such as negative sovereign yields (couldn’t that mean that the more a country borrows the less it owes?), negative deposit rates at some international banks (so your savings are now acting like you took a loan?) and, most recently, CEOs that give 10 year guidance on their share prices (we had never seen this before).

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Predicting the future based on narratives alone is not our forte, but we would like to think we do a solid job of breaking stories down to their simple arithmetic truths and handicapping their outcomes. When we heard that a prominent CEO of a Large Cap firm recently came out and indicated he thought his company would be worth ~$700 billion in a decade, representing over a 25 fold increase1 in today’s value, it made our heads spin. We went back to 1962 and looked each month at all the constituents in our Large Cap Universe and then looked at those companies 10 years later and calculated how many managed to go up 25 fold in market cap2. This number peaked in 1990, which isn’t surprising since that decade ended with record valuations during the Tech Bubble. It turns out that of the 430 companies in our Large Cap Universe in October 1990, by 2000, the peak of the internet mania, only 3.75% of the companies’ market caps rose 25 fold. For most other months in the history books, the odds are quite literally zero (or at least round to zero) and the long run average is only 0.3% of all companies in any given month will go up 25x or more over the ensuing decade.

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  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 Research, LLC ’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.

  1. Click the following to read more about Investing in Lottery Stocks, Market Neutral

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 Research, LLC and its affiliates (collectively, “Kailash Capital Research, LLC ”) 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 Research, LLC . In preparing the information, data, analyses, and opinions presented herein, Kailash Capital Research, LLC has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital Research, LLC , however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital Research, LLC 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 Research, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital Research, 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 Research, 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 Research, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital Research, 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.

February 16, 2015 |

Categories: White Papers

| Authors: , ,  and 

February 16, 2015

Categories: White Papers

Authors: , ,  and 

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