Financial Freedom from A Simple Formula

By KCR standards, this post is somewhat wicked. For long-time readers, we hope the following creates a grin. For anyone new, we hope that you contemplate the merciless empirical facts we provide.

As this bull market has run riot, we see retail investors besieged by impossible[1] claims from celebrity CEOs, portfolio managers, and newsletters chasing fast growth stocks. This post is our official and only entrant into the fray. We provide a specific and simple formula to build wealth buying growth stocks to achieve financial freedom.

We believe KCR has THE most accurate formula out there and will share it in this missive. This formula uncovers the secret to finding the stocks to buy where their market caps could increase 10x or more.

First. The simple concept. All you need to do is buy companies that will grow their sales above the median for the next decade. Never mind the claims that some technology is allegedly going to change the world. See our piece Are Clean Tech Stocks a Short.

You don’t need to be able to figure out the next big thing. Just buy companies that are going to consistently grow sales just a little faster than the median. Don’t worry about profits, interest rates, or balance sheets. We have the formula for finding the firms that will grow sales slightly more than the average firm in the market.

Figure 1 below provides the most recent evidence. You could ignore all the pundits about spectacular gains in future profits to be expected in emerging businesses. Just get sales right, and you would already have achieved financial independence. This is a formula that will help your retirement plans, savings accounts and improve your personal finances.

In the chart below, the dark blue line shows that if you bought the stocks that had above-median sales growth over the last decade, you would have turned $10,000 into $120,000. $1 million into $12 million.

Compare that to the suckers in the broad market. Over the last 10 years, the broad market has turned $1 into $3.65. READ ON to learn the formula to find the stocks that make up that blue line.

Simply buying stocks that grow sales a bit more than the mediocre firm is the way to wild riches

Steps to Financial Freedom

We show that by focusing on firms that consistently beat the average[2] firm’s sales growth, the market eventually starts to recognize the brilliance of our method.

Figure 2 below shows how the firms that simply grow sales consistently above the median eventually get ever higher multiples than the market. In 2012, a firm that grew revenue faster than the market median traded at almost the same multiple as the broad market.

But by the 10th year, the firms that simply grew faster than the median each year received a massive multiple premium to the market.

By simply beating the median firm on sales consistently the market eventually rewards these firms with higher multiples

Think about what we are showing you. Just find the firms that can do one simple thing consistently well. NOTHING ELSE.

All the analysts with their discounted cash flow models talking about how to find the next “Amazon” stock and where the exponential growth is – that is theater in our view.

Think about how much easier it is to just focus on making sure your portfolio is only stocks that are going to be above the middle. No need for grand-slams. Just a little above average.

Focused on trying to find the next Amazon, people lose sight of a simple program for riches like ours!

In our view, the obsession with hitting grand-slams is misplaced. Just humbly focus on who will consistently beat the median firm on sales growth. Eventually, the market recognizes the importance of doing little things right.

Figure 3 below merely shows the data in the prior chart differently. The chart shows how the firms that achieve this modest goal of consistently beating the typical firm’s revenue growth see multiple expansion year after year. Over the last 10 years, these companies have gone from being valued at a market multiple (2012) to being valued at a 300% premium to the market.

Investing in firms that merely beat the median firm in sales growth is a way to benefit from huge multiple expansion

We don’t want you to think this is some recent phenomenon that doesn’t stand up to historical scrutiny. This formula for massive wealth creation has worked with shocking consistency over history.

Figure 4 below shows the data presented above over all of history. On average, companies that beat the market’s median level of sales growth soar to a ~120% premium by year 10.

Investing in Firms with Above Median Sales Growth has Led to Multiple Expansion





Figure 5 shows the actual numbers behind finding firms that consistently beat median sales for 10 years.

  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 for anyone seeking out more information related to the topics above.


[1] While anything is “possible” the data we present below shows such promissory forecasts so unlikely, they are borderline impossible

[2] By “average” we do indeed mean the median

[3] If you own a stock ALREADY trading at over 8x sales – ask yourself: what are the odds you know better than 99% of people?


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.

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

October 6, 2021 |

Categories: White Papers

October 6, 2021

Categories: White Papers

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