What a year it has been. I remember January very well. When the Strait of Hormuz was still open, 10y yields were below 5% and Claude Cowork was not even released yet.
It feels like a lot has changed so far, and I also feel that the market this year has been different to the “easy years” from 2023–2025 (2025 with exceptions). Regardless, the S&P 500 is up almost 13% as I write this. However, I see fewer small-cap value funds and X profiles with stellar returns. Q3 especially seemed tougher on that front. Despite good earnings, many stocks suffered big drawdowns. EVC, which I don’t own, comes to mind. But my portfolio has mostly avoided bigger drawdowns. I am content to close the third quarter up 10%, bringing my YTD return to 67%.
The year thus far has been very good. Taking a deeper look at my performance leaves me with two conclusions.
First, there was some material luck involved. Of course, everything in life is determined somewhat by luck, such as being born in Germany in a period of peace instead of world wars etc., but in this case I am simply referring to a thesis that played out in the best possible way, in the quickest possible time. And that combination is luck. I simply would never have guessed that it would work out that well, in that time period. I am talking about AstroNova (ALOT), which agreed in June to be acquired for $29 per share. Since it was my biggest position, the portfolio contribution was 29%. So, “luck-adjusted”, the return would have been lower, but still good.
Which brings me to my second point. As I already referred to in the intro, I do feel that the opportunity set this year was less attractive than in the previous three years. It’s always hard to quantify that, but talking to friends who fish in the same pond, as well as watching stocks that I don’t own, there did not seem to be obvious winners that I missed. If anything, my current assessment is that I have played the “themes” very well this year. Much better than in 2025. Only 2024 was still superior. Likewise, and this could also just be me, I have found it harder over the past weeks and months to really find attractive opportunities. Every time I research a new stock, I come to the conclusion that it’s not more attractive than the stocks already in my portfolio.
Looking at US sector performance for the quarter, Software stocks had a great rebound, leading slightly ahead of E&Ps and Gold Miners. The S&P was only up ~2% QTD.
Where I am looking for value
As paid subscribers know, I am still invested in missiles and fuel. I do continue to see good value in the companies exposed to these two industries. Apart from that, I started looking at some more European names, as well as software companies, but haven’t found anything to pull the trigger on yet. Additionally, I think commodities in general still represent some interesting opportunities here.
One interesting theme that I’m indirectly exposed to is “Build Canada”. Canada is currently investing C$115B into infrastructure projects. Just recently, LNG Canada Phase 2 got its FID. It’s a C$33B expansion in Kitimat, northern BC, with up to 4,000 construction jobs at peak plus about 2,100 more for the pipeline compressor stations. These initiatives will certainly increase demand for some companies.
One smaller positive is that higher construction will lead to higher diesel demand in northern BC. Which is beneficial for my biggest position (thesis here).
What I sold, bought and how my current portfolio looks + some updates on current names, all below: