Summary

Matt presented a rapid array of data showing that, in the US today, the market is suffering from two severe risk factors. The first being the resurgence of a new ‘Nifty Fifty’. While Kailash acknowledges that many of these growth firms are ‘high quality’, they frame the discussion by contrasting the experience of legendary investor Howard Marks with the academic take from the brilliant Jeremy Siegel. In 18 slides Kailash brings an unusual level of granularity to show the most popular growth firms, regardless of quality, are priced at very elevated levels. With the commotion around GameStop, the research puts timely and empirical proof to the idea that the market’s loss making and most richly valued firms have enjoyed performance seen only 8 times in the post 1963 period. With nearly all those observations being into the peak of the internet bubble the negative implications and fallout are obvious. The presentation concludes with a simple yet compelling set of action items for investors interested in buying firms with unusually high margins and economic moats at reasonable to outright cheap prices. Overall a review of the work should, at the very least, challenge investors in many of the US market’s largest firms in a thoughtful and data oriented manner. At best, it should leave a reviewer with the evidence necessary to allocate time to research a large pool of ‘forgotten’ firms that are some of the longest tenured and most profitable, whilst also trading at unusual discounts. Kailash’s product uses leading-edge research from behavioral finance in a way that is readily digestible for fundamental and quantitative investors. Their process is slow by design with average holding periods on the long side being ~3 years with the minimum being a full year. Their proprietary ranking methodologies exploit the many investment errors endogenous to peoples’ innate tendency to succumb to various biases.

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