- Introduction: Revisiting the Collapse
- Using Kailash’s Models to Exploit Mispriced Capital Structures
- S&P500
- Russell 1000
- Small & Mid Cap
- Conclusion
- Exhibits
Introduction: Revisiting the Collapse
In our last paper, The Collapse of Common Sense, Kailash noted that the world seemed to have suffered some sort of Fed-induced intellectual decay where the relationship between fundamentals and perceived risk had inverted. Specifically, we quintiled the universe by EBITDA/net debt ratios1 and dubbed those with the highest coverage ratios “Durable” and those with the weakest financial structures “Fragile.” The partitioning using these characteristics proved practical as there was substantial autocorrelation between margins, leverage, free cash flow yields and returns profiles across the cohorts. For convenience, Kailash has reprinted the primary conclusion from that paper in Fig. 1 below with Fragile firms in red, Durable firms represented by the dark blue bars in the middle and the universe values represented by the light blue bars on the right of each group2.
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August 2, 2017 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
August 2, 2017
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin