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

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

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.

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)

The 2010s were the best decade for the 60/40 portfolio in 60 years in terms of Sharpe Ratio. Stable growth and stable inflation rewarded stocks and bonds and punished efforts to hedge or diversify.
mailchi.mp/verdadcap/deat…? But growth has not always been so stable nor inflation so tame. And when those key economic drivers have behaved differently, results have been very different. Building on work by @RayDalio and @KeithMcCullough we can think of four quadrants of economic conditions.

1. Every year at this time, we share the links to our most popular research pieces from the last 12 months. This year, our most popular pieces were all on the topic of crisis. 2. Our most read piece of the year was “What to Buy First,” which we sent out on March 23 and in which we considered the potential rewards from buying high-yield and investment-grade corporate bonds as fast as possible.
verdadcap.com/archive/what-t…

Every year at this time, I go back and assemble a list of our five most popular weekly research pieces. Here they are in order! mailchi.mp/verdadcap/less…

I am a big fan of passive investing and a lifelong Vanguard investor. But I was intrigued by Michael Burry's argument about the negative impacts of passive investing. But I wanted to test his thesis quantitatively.
bloomberg.com/news/articles/… So I pulled down all of Vanguard's holdings, and I ran a regression on what predicted higher levels of passive ownership (as measured by Vanguard's % ownership of shares outstanding by firm). Here is the simplified output:

I just pulled down from CapitalIQ a data set of every private equity deal from 2017-2019 with EV>$1B. Average EBITDA multiple was 17.3x and of those with a credit rating 35% rated B-. Most expensive deal in the dataset:
bloomberg.com/news/articles/…

Just finished @sapinker's phenomenal new book, Enlightenment Now. The best thing about Pinker's writing is his heterodoxy and empiricism: no matter your perspectives, you'll hate at least some portion of his ideas. Here are a few of my favorite quotes: "Changes over time may be statistical, with unpredictable fluctuations, without being cyclical, namely oscillating like a pendulum between two extremes. That is, even if a reversal is possible at any time, that does not mean it becomes more likely as time passes." @sapinker

Academics have debated for decades why stock prices are so much more volatile than earnings. This is the excess volatility puzzle. There are a few different theories: 1.Yale prof @RobertJShiller believes that markets are subject to bouts of irrational exuberance driven by people’s animal spirits amazon.com/Irrational-Exu…

Three best academic finance papers to understand private equity: 1) ADIA & CPIB study shows that private equity = leveraged microcaps. Avg mktcap of ~ $250M. Avg net debt/EV ~65%. cfapubs.org/doi/abs/10.246…