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Dan Rasmussen

@verdadcap

Dec 16

Pod shops are defined by 3 things: 1) lots of siloed managers 2) a risk model to separate alpha and beta and 3) lots of leverage. We tried to see if we could use our risk model to build a "poor man's pod shop" out of the thousands of active mutual funds and etfs

Our first finding was that alpha in the active fund universe is persistent over the short-term (1-12M), even though it isn't over multiple years

Note that these are alphas, not returns. We are using a risk model to short out all the factor exposure and just get the pure alpha stream, as illustrated in the graph below

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Dan Rasmussen

@verdadcap

Apr 1

There is no empirical evidence that a company's market share predicts its profitability. But that hasn't stopped academics, business school curricula, and management consulting firms from promulgating the idea for decades. The below chart shows industry leaders vs. industry median margins:

market share is not a consistent indicator of firm performance. And this finding holds true across industries, with many illustrating a negative relationship between market share and profitability - like retail:

Lina Khan might find this to be an "antitrust paradox,” but it’s actually firm strategy operating exactly as her Chicago School opponents would envision. Consumers choose Amazon because of the low prices, driving Amazon’s market share, and allowing Amazon to invest more in lowering prices and improving service.

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Dan Rasmussen

@verdadcap

Jan 2

Biotech companies outside of California and the Acela Corridor have a horrible track record

So does the entire universe of "pre-revenue" public biotech and pharma companies

The last 10 years was no exception for "pre-revenue" biotech

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Dan Rasmussen

@verdadcap

Dec 18, 2023

High valuations are not persistent. Only ~50% of the most expensive stocks (those in the top quartile) remained in the top quartile one year later.

Low valuations are more persistent. About 75% of stocks in the cheapest quartile stay in the cheapest quartile

But the 25% of value stocks that migrate out of the cheapest quartile generate significant return...

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Dan Rasmussen

@verdadcap

Jul 10, 2023

Is the private equity model of running companies materially different from public companies? Can we see that difference in the financials? We built a database of 993 deals that had public debt and public financials to answer this question.

We first looked at revenue growth. The graph below shows the median difference between year-over-year growth in overall sales for the companies that were acquired by private equity firms and the benchmark.

We then looked at EBITDA margins. The graph below shows the median difference in EBITDA as a percentage of sales between the LBO companies and the benchmark.

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Dan Rasmussen

@verdadcap

May 17, 2021

If you're not already following the high-yield spread (fred.stlouisfed.org/series/BAMLH0A…) as a macro indicator, you should be. The level and trend of the spread have strong ability to predict the next month’s change in GDP and inflation - and thus business cycles

The level and direction of spread also predict returns across the full range of asset classes most investors trade. (Note the remarkable outperformance of small value equities (+39.3% annualized return!) in the recovery phase, when spreads are wide and falling (quadrant 1)

Investors could easily rely on the relative level and direction of high-yield spreads to support their asset allocation decisions. The chart below provides a visualization of the business cycle, the high-yield spread signals, and suggested assets to own in each cycle

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