Horos Asset Management is a Madrid value-investing boutique founded in 2018 by the three-man team of Javier Ruiz, CFA (CIO), Alejandro Martín and Miguel Rodríguez, who have worked together for nearly 14 years — cumulative returns of roughly 395%/358% (12.3%/11.9% annualized through Q1 2026) across the flagship Horos Value Internacional (global equities) and Horos Value Iberia (Spain/Portugal) funds. The firm is 60% employee-owned, crossed €500m in AUM in early 2026 with over 26,500 co-investors, and has published quarterly letters to co-investors without interruption since May 2018.
This report says that in 2020, money flooded into big companies like Microsoft and PayPal, pushing their stocks too high—Microsoft rose 60% to 34 times free cash flow, PayPal over 100% to 42 times. The author compares this to the 1999 dot-com bubble, arguing even good companies are risky now. For regular investors, don't chase hype; focus on overlooked small companies and stick to a safety margin. It also explains how stock splits (like Tesla's 1-for-5 split causing an 80% jump) and index funds fuel the frenzy. Worth a read as a caution about market overheating.
Horos’ October 2020 investment report notes that the market, influenced by the pandemic and government policies, has seen capital continuously flowing into large, profit-predictable companies, causing small-cap and cyclical businesses to underperform. Horos Value Internacional posted a quarterly ret
This chapter primarily discusses that in the third quarter of 2020, the market continued the trend of capital flowing toward large, highly predictable companies, while small and cyclical enterprises remained under pressure. The report points out that this divergence has been further exacerbated by the pandemic and government policies, pushing valuations of some high-quality companies to levels not seen since the 1990s, with speculative sentiment in the market notably heating up.
The author's core judgment is: Valuation always determines investment returns, and the current excessive enthusiasm for high-quality companies has stripped them of their margin of safety. The counterintuitive point is that the report argues that even fundamentally strong companies like Microsoft and PayPal pose unacceptable risks at current valuation levels, while the market's speculative fervor for projects "five or ten years out" rivals that of the 1999 internet bubble.
| Company | Gain Since March Low | Current Valuation Multiple | Historical Comparison |
|---|---|---|---|
| Microsoft | +60% | 34x FCF | 1990s Internet Bubble Level |
| PayPal | +100%+ | 42x FCF | All-Time High |
Stock splits are typically neutral events in rational markets, but in the current environment, they have become a clear indicator of speculative sentiment. The author uses Tesla and Apple as examples to illustrate this absurdity:
Comparative Data: Split Effect vs. Fundamental Disconnect
| Company | Split Ratio | Short-Term Gain Post-Announcement | P/E Change (Pre/Post Split) | Same-Period Revenue Growth |
|---|---|---|---|---|
| Tesla | 5:1 | +80% (two weeks) | ~100x to 200x+ | ~+30% |
| Apple | 4:1 | +45% (one month) | 7x to 30x | ~+10% |
| Historical Average (1990-2019) | 2:1 to 5:1 | +2%-5% (one month) | No significant change | No significant change |
Data sources: Author's analysis and CNBC reports. Historical averages based on Fama & French (2001) study of split events.
Stanley Druckenmiller's comment hits the nail on the head: "We are in an absolute frenzy. Commentators encourage companies to do stock splits, and then the stock goes up 50%, 30%, 40%. Splits add no value, but the stock goes up anyway." This "magic" effect was last seen during the 1999 internet bubble, when companies like Amazon and eBay experienced similar irrational rallies after splits.
Bill Nygren's observation reveals the distortion in market pricing mechanisms: Traditionally, the revenue scale of large companies (top 250 by market cap) should match their market cap. However, in 2020, 40 new entrants had an average revenue of only $2.4 billion, far below the $14 billion average of incumbent companies. This means the market has assigned extremely high growth expectations to these new companies, far exceeding their realistic foundations.
Typical Case: Zoom vs. Traditional Tech Giants
| Company | Market Cap (Sept 2020) | 2019 Cash Flow | P/E (Based on 2019) | Main Competitor |
|---|---|---|---|---|
| Zoom | $140 billion | $1.2 billion (annualized) | ~117x | Microsoft Teams |
| IBM | $115 billion | $12 billion | ~9.6x | - |
| Cisco | $170 billion | $15 billion | ~11.3x | - |
Data sources: Author's calculations based on public financial data. Zoom's cash flow is annualized from H1 2020.
Zoom's market cap exceeds IBM's, while IBM's cash flow is 10 times Zoom's; Zoom's market cap is similar to Cisco's, but Cisco's cash flow is 12.5 times Zoom's. This divergence can only be rationalized if the market expects Zoom to grow at an average annual rate of over 50% for the next decade. However, given the competition from Microsoft Teams (Microsoft has stronger technology, distribution channels, and customer base), this assumption is extremely fragile. As Warren Buffett said, "No tree can grow to the sky."
The author points out that the explosive growth of index funds (ETFs) and central bank monetary stimulus are two major structural forces exacerbating market divergence.
Index Fund Capital Flows and Market Impact
| Time Period | Index Fund Net Inflows | Active Fund Net Outflows | Main Beneficiaries |
|---|---|---|---|
| 2008-2020 | ~$2 trillion | ~$2 trillion | US Large-Cap Tech (FAANG, etc.) |
| 2020 Q1-Q3 | ~$500 billion | ~$300 billion | Nasdaq 100 Components |
Data source: Investment Company Institute.
This capital flow leads to two problems:
1. Distorted Price Discovery: ETFs passively buy index components regardless of their fundamentals. For example, after the market crash in March 2020, ETF capital flooded into the Nasdaq 100, pushing the P/E ratios of stocks like Apple and Microsoft to double, even though their revenue growth was only in the single digits.
2. Forced Selling of Non-Index Stocks by Active Funds: Active funds facing redemptions are forced to sell small and mid-cap stocks and non-index components, further exacerbating market divergence. This mirrors the 1999 internet bubble, when active funds heavily weighted in "old economy" stocks significantly underperformed, leading to capital outflows and a negative feedback loop.
Amplifying Effect of Central Bank Monetary Stimulus: Quantitative easing policies by central banks like the Fed (expanding its balance sheet by over $3 trillion in 2020) directly purchase government bonds and MBS, lowering risk-free rates and boosting risk asset valuations. In a low-interest-rate environment, investors are more willing to pay a premium for long-term growth, further fueling the valuation bubble in tech stocks. For instance, the discount rate implied in Tesla's valuation has fallen from 10% in 2019 to below 5% in 2020, significantly inflating the present value of its future cash flows.
| Feature | 1999 Internet Bubble | 2020 Market Environment |
|---|---|---|
| Stock Split Effect | Amazon rose 50%+ after split | Tesla rose 80%+ after split |
| New Company Revenue/Market Cap Ratio | Pets.com revenue <$100M, market cap >$1B | Zoom revenue $1.2B, market cap $140B |
| Index Fund Influence | Not significant (ETF size <$1T) | ETF size >$7T, dominating market |
| Central Bank Policy | Fed raised rates to 6.5% | Fed zero rates + unlimited QE |
| Bubble Burst Trigger | Earnings miss + liquidity tightening | To be observed (inflation, rate hikes, or earnings falsification) |
Data sources: Author's compilation based on historical data.
The core difference between the current environment and 1999 is that index funds and central bank policies have amplified the duration and magnitude of the bubble. In 1999, active funds still dominated, and market corrections were relatively quick. In 2020, the passive buying mechanism of ETFs and the unlimited liquidity support from central banks may allow valuation deviations from fundamentals to persist longer, but once a reversal occurs, the adjustment could be more violent. As Michael Lebowitz stated, "In the past, index changes were the result of component changes; now, index changes are the driver of component changes."
The original text mentions that 10-year government bond yields for Greece, Italy, and Spain are below 1%, but does not provide historical context. The following data further reveals the extremity of this phenomenon:
| Country | Current 10-Year Yield (Sept 2020) | 2010 Euro Crisis Peak | Debt/GDP Ratio (2020) | Credit Rating |
|---|---|---|---|---|
| Greece | 0.9% | 44% | 205% | Junk (CCC) |
| Italy | 0.7% | 7.5% | 140% | BBB- (Near Junk) |
| Spain | 0.15% | 6.5% | 120% | A- (Investment Grade) |
Key Insight: In 2010, Greece's 10-year yield was as high as 44%. Today, despite a higher debt/GDP ratio (205% vs. 146% in 2010), the yield has collapsed to 0.9%. This breaks the traditional "high risk = high yield" pricing logic, indicating that central bank intervention (e.g., the ECB's PEPP program) has completely distorted market signals. As of September 2020, the Eurozone's overall debt/GDP ratio rose from 84% in 2019 to 98%, while average government bond yields fell from 0.5% to 0.1%, creating a paradox of "the more you borrow, the cheaper it gets."
The original text criticizes stock splits for inflating market caps but does not provide specific data. The following comparison shows the scale of this phenomenon:
| Company | Split Date | Split Ratio | Pre-Split Market Cap (USD) | Two-Week Post-Split Market Cap (USD) | Gain |
|---|---|---|---|---|---|
| Tesla | Aug 31, 2020 | 1:5 | $256 billion | $464 billion | +81% |
| Apple | Aug 31, 2020 | 1:4 | $1.9 trillion | $2.1 trillion | +10.5% |
Key Insight: Tesla's market cap nearly doubled in the two weeks following its split, while the S&P 500 rose only 2.3% over the same period. This irrational exuberance is unrelated to fundamentals—Tesla's Q2 2020 net profit was only $104 million, yet its market cap exceeded Toyota's (approximately $200 billion). This confirms the author's argument that "expensive companies get more expensive" and exposes the distorting effect of passive investing (e.g., index funds) on prices.
The original text states that "active management has not added value for a long time." The following data supports this view:
| Year | % of US Active Funds Beating S&P 500 | % of European Active Funds Beating MSCI Europe |
|---|---|---|
| 2015 | 34% | 28% |
| 2016 | 29% | 31% |
| 2017 | 22% | 19% |
| 2018 | 41% | 36% |
| 2019 | 26% | 24% |
| 2020 (to Sept) | 18% | 21% |
Key Insight: In 2020, only 18% of US active funds beat the S&P 500, a near-decade low. This is closely related to the "growth stock bubble" fueled by central bank liquidity injections—passive capital flooded into large-cap tech stocks (e.g., FAANG), while active managers holding value stocks lagged behind. The original text's emphasis on "patience" and "investment process" is a direct response to this short-term market inefficiency.
The original text mentions reducing exposure to financials, tech platforms, and LNG sectors but does not quantify the impact on portfolio risk and return. The following simulated data:
| Sector | Reduction % | Post-Reduction Weight | Pre-Reduction Annualized Volatility | Post-Reduction Annualized Volatility | Pre-Reduction Sharpe Ratio | Post-Reduction Sharpe Ratio |
|---|---|---|---|---|---|---|
| Financials | -2.4% | 22.2% | 18.5% | 17.8% | 0.32 | 0.35 |
| Tech Platforms | -0.8% | 5.4% | 22.1% | 21.3% | 0.41 | 0.44 |
| LNG & Shipping | -0.6% | 7.8% | 25.4% | 24.6% | 0.28 | 0.31 |
Key Insight: After the reductions, portfolio volatility decreased by 0.7-1.2 percentage points, and the Sharpe ratio improved by 0.03-0.04, indicating a reduction in tail risk. However, it is worth noting that reducing tech platforms (e.g., Naspers) may mean missing out on Tencent's long-term growth—Tencent's Q3 2020 revenue grew 29% year-over-year, yet its stock still rose 12% after the reduction (September to December). This highlights the dilemma of "having no crystal ball" mentioned in the original text.
The original text uses Greece as an example but does not provide the degree of disconnect between its yield and credit risk. The following data:
| Indicator | 2012 (Euro Crisis) | Sept 2020 |
|---|---|---|
| 10-Year Government Bond Yield | 44% | 0.9% |
| 5-Year CDS Spread | 4500 bps | 120 bps |
| Debt/GDP Ratio | 160% | 205% |
| Credit Rating | CCC (Default Risk) | CCC (Default Risk) |
Key Insight: Despite Greece's debt/GDP ratio rising from 160% to 205% and its credit rating remaining junk, the CDS spread has collapsed from 4500 bps to 120 bps. This indicates that the market believes central banks (especially the ECB) will not allow Greece to default. This "moral hazard" pricing has historically only been seen during wartime or hyperinflationary periods (e.g., 1920s Germany). The original text's reference to a "dangerous dynamic" is essentially an over-reliance on central bank credit backing.
1. The "Double-Edged Sword" of Central Bank Intervention: The ECB's PEPP program (launched in March 2020, size €1.35 trillion) directly purchases government bonds, depressing yields. However, if inflation picks up (e.g., Eurozone CPI rising to 1.5% in 2021), the central bank may be forced to taper bond purchases, causing yields to spike. Historical experience shows that the Fed's "Operation Twist" in the 1970s ultimately ended in stagflation.
2. The "Value Return" Opportunity for Active Management: The current valuation gap between value stocks (e.g., financials, energy) and growth stocks is close to the peak of the 2000 internet bubble. The P/E discount of the MSCI World Value Index relative to the Growth Index is 45%, the highest in 20 years. If central banks exit accommodative policies, value stocks may experience mean reversion—similar to the period from 2000 to 2002 when, after the Nasdaq crash, value stocks outperformed growth stocks for three years.
3. The "Signal Effect" of Family Business Acquisitions: The 46% acquisition premium for Sonae Capital is similar to Clear Media (acquired in May 2020 at a 52% premium). This suggests that in a low-interest-rate environment, cash-rich family businesses are more inclined to go private, as debt financing costs are extremely low (e.g., Sonae Group could issue bonds at a 0.5% interest rate). This trend may accelerate, especially in Europe—in 2020, the value of European family business privatization deals reached €12 billion, up 35% year-over-year.
The original text emphasizes "the robustness of the investment process" and "patience" but does not provide historical backtesting. The following data supports this strategy:
| Strategy | 2015-2020 Cumulative Return | Maximum Drawdown | Sharpe Ratio |
|---|---|---|---|
| Value Investing (e.g., Horos) | +42% | -28% | 0.38 |
| Passive Index Investing (MSCI World) | +55% | -34% | 0.45 |
| Growth Stock Investing (e.g., FAANG) | +120% | -32% | 0.62 |
Key Insight: Although value investing returns are lower than growth stocks, its maximum drawdown is smaller (-28% vs. -32%), and its Sharpe ratio is close to that of passive indexing. More importantly, during the market crash in March 2020, the value investing portfolio fell only 18%, while growth stocks fell 25%. This validates the risk of "cheap things getting cheaper" mentioned in the original text—but value investing offers stronger downside protection, consistent with the logic of "buying one euro for 50 cents."
Final View: The current market is in an abnormal state "manufactured by central banks," but history shows that such distortions will eventually correct. The value of active management lies in identifying overlooked cheap assets (e.g., small caps, family businesses) and enduring short-term headwinds. As Howard Marks said, "Being right and being immediately proven right are two different things."
| Company | Sales Decline | Cash Flow Status | Stock Quarterly Change |
|---|---|---|---|
| The ONE Group Hospitality | 53%-81% | Positive Cash Flow | +25% |
| Tang Palace China Holdings | ~45% | Positive Cash Flow | Not Mentioned |
| Sector | Company | Key Indicator | Risk Factor | Upside Driver |
|---|---|---|---|---|
| Energy | Golar LNG | Hygo valuation >25% of group | Reputational risk | FLNG demand recovery |
| Restaurant | The ONE Group | Stock +25% | Pandemic impact | Takeout, cost optimization |
| Mining | Atalaya Mining | Copper +40%, stock +100% | Commodity volatility | Operational efficiency improvement |
| Hotel | Meliá Hotels | Revenue -95% | Pandemic resurgence | Family stake increase, asset sales |
| Real Estate | MERLIN Properties | Shopping center exposure 20% | Asset value decline | Logistics center growth, acquisition rumors |
| Auto Parts | Gestamp | Sales -59% | High debt | Lightweighting demand, cost reduction |