The Case for Buying What You Know and Need – Staples and the Power of the Prosaic

Introduction:

This paper adds to our recent research making the case that today is one of the most compelling times in history to adopt a simple dividend and income investing strategy in Consumer Staples. Specifically:

• Mania: Kailash has documented the myriad analogs between today and past speculative markets that ended in disaster, embodied by this well-intentioned, if surreal, TikTok video about day-trading
• Defense & Offense: As a speculative frenzy drives markets, Kailash further documents Staples’ long-prized defensive and offensive characteristics that seem to have been forgotten while reducing risks from high equity duration
• Uncommon Opportunity: Based on history, today is one of the most opportune times to buy Staples

In the back pages of legendary investor, thinker, and writer, James P. O’Shaughnessy’s “What Works on Wall Street,” the author noted that in July of 2000, Money Magazine wrote a critical article about him. Titled “What Doesn’t Work on Wall Street,” the magazine asserted his systematic approach to investing “…doesn’t seem to work anymore.”¹ Reflecting on this and other public attacks levied at him in 2000, O’Shaughnessy wrote:

In feverishly speculative markets, believing in Occam’s razor – that the simplest theory is usually the best – is almost impossible. We love to make the simple complex, follow the crowd, get seduced by some hot ‘story’ stock, let our emotions dictate decisions, buy and sell on tips and hunches….

From December of 1997 through the date of Money Magazine’s July 2000 article, the Fund run by O’Shaughnessy today was up less than one percent vs. the S&P, which had risen 53%. From July 2000 – December 2003, the S&P would fall 18% while the Fund would soar 67%. Looking at the whole period, 1997 – 2003, the Fund compounded loyal investors’ money at 9.1% annually vs. only 3.8% for the Index. “What Works On Wall Street” was a formative part of this writer’s upbringing, and I would like to thank Jim for his fantastic work. Kailash would also suggest that recently minted day-traders might find buying (and reading!) a copy of his book the best investment they make in an environment like this.²

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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 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.

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