KCR’s systematic, evidence-based analytical and investment process is driven by the historical record.  Our financial faith resides in what the data shows.  Human beings have made the same mistakes in slightly different forms again and again for centuries.  Stick to a low-cost, tax efficient process and winning is inevitable.

In our piece Bull Markets and their Consequences, we summarized one of John Kenneth Galbraith’s many wonderful books. KCR finds Galbraith’s prose moving.  But this bit seems particularly apt for revisiting:

There can be few fields of human endeavor in which history counts for so little as in the world of finance.  Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have the insight to appreciate the incredible wonders of the present.

And so it was in January 2021.  KCR spilled a tremendous amount of ink pillorying the denizens of loss-making IT, novel and overpriced Consumer Discretionary stocks, and pounding the table for Consumer Staples.  In our back-to-back initiation pieces, we hammered home the following:

  • The importance of dividend-paying stocks during a dividend yield famine & speculative mania
  • Consumer Staples’ incredible track record of compounding vs. IT stocks
  • Staples had the largest yield advantage over 10-year Treasuries in history despite modest payout ratios

We further amplified the call by adding numerous pieces explaining the benefits of our top 10 ranked staples.  Here is what we learned: doing the right thing for readers and investors is horrible business. At best, there was silence.  At worst, there was derision, disdain, and redemptions.  And we will do it again when the data and evidence demand it of us. Count on it.

Here is how that painful and empirically informed view panned out.   We saved some people money and lost a slew of clients.  We say this to highlight just how hard and professionally difficult it is to do the obvious.

Absolute Return Since Staples Initiation

This chart also motivates the remainder of this work, as nothing good lasts forever. 

YOU ARE NOW READING BASIC MEMBER LEVEL CONTENT

The Safest Dividend Stocks are Far More Expensive Today than in January 2021

What made us so confident was our work, done nearly a decade earlier into low volatility investing, and our three-part series diving into the puts and takes of dividend investing. As our research into the historical record showed, over the long term, staples are a terrific asset class that tend to benefit from GDP growth with pricing and supple dividend income as well.

Yet our advocacy for Staples being some of the best stocks to buy at the time was tethered to their shocking cheapness. Here is the updated chart of our top 10 ranked staples vs. the market.

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 a simple, concentrated, low turnover, and hard-hitting GARP investing strategy, we would like to talk with you.  Similarly, if you are looking for a model portfolio of the most proven and durable dividend payers that is simple to implement, please let us know.  KCR also offers a wide range of easy-to-use but sophisticated tools like our Equity Duration product, which allows you to estimate a given portfolio’s interest rate and inflation risk. 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.

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.

  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.

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, 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 seek 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.

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 a result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

© 2022 Kailash Capital, LLC – All rights reserved.

September 16, 2022 |

Categories: White Papers

September 16, 2022

Categories: White Papers

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