The Alchemy of 10x Returns: Why FCF Yield Beats Revenue Hype The Alchemy of 10x Returns: Why FCF Yield Beats Revenue Hype

The Alchemy of 10x Returns: Why FCF Yield Beats Revenue Hype

A new Feb 2025 study, The Alchemy of Multi-bagger Stocks, challenges conventional investing wisdom. Analyzing 464 companies with 10x-plus returns, the research found that factors like revenue and earnings growth were irrelevant. Instead, the strongest predictor was free cash flow yield, proving that a company's ability to generate cash is more important than its reported profits. The study also highlighted the importance of small size, cheap valuations, and contrarian timing—buying stocks near their lows rather than joining the crowd. This research offers a powerful new framework for finding truly exceptional investment opportunities

INVESTCON 5: Trimming Growth and the Calculus of Value INVESTCON 5: Trimming Growth and the Calculus of Value

INVESTCON 5: Trimming Growth and the Calculus of Value

Howard Marks reminds us, true success lies in understanding the critical difference between price and value. Price is what you pay for an asset—a number driven by market sentiment, optimism, and fear. Value, on the other hand, is what you get—an asset's inherent worth based on its ability to generate future cash flows. While markets may act as a voting machine in the short term, pushing prices to extremes, they behave like a weighing machine over the long run, eventually reflecting true value. By focusing on value over price, investors can avoid costly mistakes.

The Tariff Inflation Trap: Why Core CPI and Corporate Tax Cuts Conflict The Tariff Inflation Trap: Why Core CPI and Corporate Tax Cuts Conflict

The Tariff Inflation Trap: Why Core CPI and Corporate Tax Cuts Conflict

Market speculators held their breath for the latest inflation data, betting on a "soft" reading that would pave the way for a long-awaited rate cut. With stocks at record highs, their hopes were clearly pinned on a favorable outcome. While the headline CPI number was lower than expected, the Fed's preferred measure of core inflation, which excludes food and energy, continues to creep higher. This suggests that prices for most goods and services are still on the rise. Meanwhile, a chorus of voices, including political appointees, are urging the Fed to cut rates.

The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal

The Bull Steepener Warning: What 10-Year Yields and BBB Spreads Signal

It would not surprise me to see the market give back 10–15% over the coming weeks and months. Valuations are very full and the economic data is weakening. But something to watch is the bull-steepening of the 10-yr / 3-mth yield curve from inversions. Whilst not a great timing too - generally its 'vector' is correct. That's a warning - despite the Fed cutting rates.

The Freediver Test: How to Spot a False Market Breakout The Freediver Test: How to Spot a False Market Breakout

The Freediver Test: How to Spot a False Market Breakout

The labor market is clearly slowing. The "stag" in stagflation is here - what's less clear is the "flation" component. With respect to growth - we see slowing in housing, consumer spending and now job creation. The payrolls data was nothing shy of a disaster. And whilst the headlines will report on the dismal 73,000 jobs added (well below the ~140K job additions expected) - the massive 258,000 negative revisions over May and June is cause for concern.

The Real PCE Rule: Why the Fed is Trapped by Tariff-Induced Stagflation The Real PCE Rule: Why the Fed is Trapped by Tariff-Induced Stagflation

The Real PCE Rule: Why the Fed is Trapped by Tariff-Induced Stagflation

You have to feel for Jay Powell. He's in a tough spot - facing pressure from the market and the President to cut rates. However, to his credit - he can separate the noise from the signal. The Fed Chairman reiterated his narrative - signaling the need for a more cautious stance amid ongoing economic uncertainty. In addition, he emphasized the Fed needs to maintain credibility and independence. However, there was some dissent within the ranks...

Consumption Tax: Why the Market is Mispricing Trade Deals Consumption Tax: Why the Market is Mispricing Trade Deals

Consumption Tax: Why the Market is Mispricing Trade Deals

The market is cheering the "better than feared" trade deals with the likes of Europe and Japan. Yes, 15% is better than 30%. But 30% would be an embargo - not a tariff. 15% will not be good for global trade. Growth will slow; consumption will fall; resulting in fewer jobs. Trump's terrible tariffs will be at least ~12% more than what we had at the beginning of the year. This consumption tax will need to be paid by someone... just a question of who. The market is not pricing this in....

Pricing Power in an Inflationary Shock: The Helen of Troy vs. Conagra Test Pricing Power in an Inflationary Shock: The Helen of Troy vs. Conagra Test

Pricing Power in an Inflationary Shock: The Helen of Troy vs. Conagra Test

Recent developments in Trump's draconian trade policies — marked by steep tariffs, fluctuating commodity markets and geopolitical maneuvers — present a highly complex and uncertain landscape. Despite dramatic announcements and headline-grabbing tariff threats, markets have remained oddly resilient, while underlying forces quietly shift. For e.g., Trump's imposition of steep tariffs—such as 200% on pharmaceuticals and 50% on copper—has less to do with traditional economic rationale and more with political leverage

The 0.1% Risk Premium: Why the S&P 500 Hits Stall Speed at 6,000 The 0.1% Risk Premium: Why the S&P 500 Hits Stall Speed at 6,000

The 0.1% Risk Premium: Why the S&P 500 Hits Stall Speed at 6,000

Another week comes to close - as we draw near the end of the second quarter. For the past two weeks or so - investors are reluctant to push prices much higher. From mine, the index is not only expensive - trading near a forward price-to-earnings (PE) ratio of 22x - the downside risks don't handily offset the (possible) upside reward. For eg, it would not surprise me to see the S&P 500 trade up to a zone of 6,200 (adding another 5% or so). However, equally I see a possibility for a 10% to 20% move lower given the risks to earnings growth, inflation (from tariffs), employment and geopolitical tensions.

The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes

The Stagflation Signal: Why the Fed Dot Plot and Misery Index Defy Rate Cut Hopes

Not for the first time, the Fed is in a very difficult spot. Whilst always a dominant force in global markets, for now, Powell's team is not in the front seat. We learned this week the direction of U.S. monetary policy (over the coming months) depends heavily on developments well beyond the Fed's control. And unfortunately for investors - it could be a long (US) summer. In its latest decision, the Fed held rates steady, as expected, citing strong economic activity, low unemployment, and persistent—but slightly elevated—inflation.

The Patience Paradox: Why ‘Buy and Hold’ Fails at 23x Earnings The Patience Paradox: Why ‘Buy and Hold’ Fails at 23x Earnings

The Patience Paradox: Why ‘Buy and Hold’ Fails at 23x Earnings

Over the past ~40+ years - the S&P 500 Index has returned an average of ~9.3% annually exc. dividends (i.e., 171.6 Jan 1985 to 5,979.5 Jan 2025). If we limit that to the past decade (from 2015) - that avg annual return increases to 11.4% (excluding dividends). But what matters most is (a) the price you pay; and (b) when you get out. Sitting tight for 10 years does not guarantee a 10% return...

The 18% Tax Ceiling: Why the $4.7 Trillion TCJA Extension is a Binary Bet for the S&P 500 The 18% Tax Ceiling: Why the $4.7 Trillion TCJA Extension is a Binary Bet for the S&P 500

The 18% Tax Ceiling: Why the .7 Trillion TCJA Extension is a Binary Bet for the S&P 500

Breaking up is always hard to do. Your dog looks at you dazed and confused... your Netflix account is no longer shared. And who gets the air fryer? The whirlwind bromance between Elon Musk and Donald Trump appears to be over. It's not a clash of gigantic egos. And like most breakups - things seemed to have moved to the second of five (breakup) phases.. anger