Watching the mega-cap bubble reflate in 2024, the research in this newsletter peppered readers with warnings about the law of large numbers, soaring capital intensity, dubious accounting and vendor financing activities.
We look pretty foolish. Our affinity for the maths, the reading, and evidence-based investing was utterly bulldozed by the roaring resurgence of the “BTFD” crowd and the seemingly endless index-fund mania.
Get our insights direct to your inbox: SUBSCRIBE
For long-time readers, our decision to stick to the facts, not change our views, and to continue to follow the evidence will come as no surprise. What you pay matters.TM We are in the money-ball business, not the crystal ball business.TM
Economic historian John Kenneth Galbraith documented the endless historical cycles of human behavior creating bubbles that eventually end in ruin. Galbraith demonstrated that it is almost impossible for human beings to go 20 years without losing their minds and engaging in reckless speculation.
This cycle, investors looked at the 20-year bubble rule of thumb and said, “Hold my beer.”
Just three exhibits today. That is all it takes to capture the speculative zeitgeist underway.
First. Below we show the total market cap of stocks trading at over 10x price to sales. For the uninitiated, 10x price to sales has horrendous long-term implications for investors. If you, or your clients, don’t understand this, learn and spread the word. Nothing could be easier to understand.
One short paragraph is all it takes. We explain it here, here, and here, among other places.
We now have nearly $16 trillion dollars of stocks valued at 10x price to sales or higher. Much of the wealth that has been created by this enormous multiple expansion will be destroyed. Matter of “when not if” in our view.
So that prior chart is in absolute nominal dollars. How does that look when we scale it as a percentage of the total market cap in the popular S&P 500 Index? It looks worse. To us.
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, “KCR”) 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 KCR. In preparing the information, data, analyses, and opinions presented herein, KCR has obtained data, statistics, and information from sources it believes to be reliable. KCR, however, does not perform an audit or seek independent verification of any of the data, statistics, and information it receives. KCR 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 KCR to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of KCR from buying, selling, or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of KCR may at any time have, acquire, increase, decrease, or dispose of the securities or other investments referenced in this publication. KCR 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.
© 2025 Kailash Capital Research, LLC – All rights reserved.
June 20, 2025 |
| Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
June 20, 2025
Authors: Matthew Malgari, Nathan Przybylo, Dr. Sanjeev Bhojraj and John Durkin
