Financials vs. the Index:
- FACT: BAC earns 30x the profits of ZM, but BAC is only ~3x bigger
- Sometimes the greatest investment ideas can come from a simple chart
- The dashed line below highlights periods when financials are in the 95th percentile of cheapness relative to the index like today
THESE PERIODS HAVE HISTORICALLY BEEN FANTASTIC ENTRY POINTS VS. THE INDEX OVER THE ENSUING YEARS.
As always a rigorous fundamental review is a critical precursor to any investment. The chart below shows that, historically, if you just bought Financials when they were as cheap relative to the S&P500 as they are today your odds of outperforming were very high. Specifically:
- 68% of the time you beat the market with average excess returns of 11% over the next 12 months
- 60% of the time you beat the market with average excess returns of 14.9% over the next 24 months
- While there are no guarantees it is worth remembering that “all of Las Vegas was built on a ~2% advantage”
If you would like to see the Financials favored by Kailash’s Investment Tools, click here.
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