Discipline Wins When Narratives Get Loud
Markets spent the past month doing what they always do during transitional periods. On the surface, conditions appear calm. Underneath, narratives shift constantly.
Inflation continues to ease across several major economies. Growth remains uneven but positive. Meanwhile, the latest source of volatility has been the market's attempt to understand how artificial intelligence will reshape margins, employment, and pricing power.
This has created pressure in parts of the software sector and ripple effects in credit markets. Outside those pockets, however, global equities have remained resilient—especially in areas where valuations started from more reasonable levels and earnings exposure leans toward tangible assets such as commodities, defense, and financials.
This divergence reinforces a familiar truth. Markets eventually return to fundamentals. Balance sheet strength, asset value, and disciplined capital allocation matter far more than narratives.
That is exactly the environment the Perfect Stock strategy was designed for.
Global Overview: Moderation, Not Crisis
Europe: Fiscal Support Offsets Cyclical Weakness
The Eurozone has entered a softer growth phase, with manufacturing surveys and hiring trends showing modest deterioration. At the same time, inflation pressures have eased, allowing policymakers to maintain stability rather than rushing into aggressive monetary easing.
Government spending has stepped in where monetary policy has paused. Defense spending, infrastructure investment, and targeted fiscal programs have supported industrial, aerospace, and energy sectors, helping stabilize equity markets.
European equities have remained resilient. Strength in banks, commodities, and defense-related industries has offset volatility tied to global technology concerns. Importantly, valuations in Europe remain more attractive than in the United States, drawing investor attention.
United Kingdom: Weak Growth, Strong Equity Composition
The UK economy continues to struggle with slow growth and subdued business investment. Policymakers remain cautious, balancing inflation risks against fragile economic momentum.
Despite this backdrop, UK equities have delivered steady performance. The market's heavy exposure to energy, mining, financials, and multinational businesses has helped offset domestic economic weakness.
Currency movements have also supported earnings, boosting the value of overseas revenues when translated back into sterling.
Japan: Policy Shifts and Structural Tailwinds
Japan remains one of the most politically influenced developed markets.
Fiscal expansion tied to election season promises has pushed bond yields higher and forced markets to reassess expectations around debt and spending. The Bank of Japan has maintained a tightening bias following its late-2025 rate hike.
This environment has created a powerful combination for equities.
Corporate governance reforms, rising shareholder return policies, and improving nominal economic growth have supported Japanese stocks. Financials and industrial exporters have benefited as investors position for a world where Japan is no longer anchored to ultra-low rates.
Asia: Stabilization and Structural Growth
Asia presents a mixed but constructive picture.
China continues to focus on stabilization rather than aggressive stimulus, preventing deeper economic deterioration without fueling excess speculation.
Vietnam remains one of the strongest growth stories globally, supported by supply chain diversification and foreign investment.
The Philippines faces more mixed conditions, but inflation remains contained and policymakers retain flexibility.
Across the region, governments are prioritizing currency stability, inflation control, and trade competitiveness—all critical factors for long-term investment stability.
North America: Rotation Back to Tangible Value
In the United States, inflation has moderated while the labor market remains resilient. The Federal Reserve continues to emphasize patience, avoiding premature policy shifts.
Equity markets have experienced rotation.
Technology and software stocks have faced volatility tied to AI disruption concerns. Meanwhile, energy, financials, and asset-heavy businesses have demonstrated relative strength.
Investors are becoming increasingly selective, favoring balance sheet strength, predictable cash flow, and tangible assets.
Canada remains closely tied to commodity prices and U.S. trade policy, with energy markets continuing to play a central role in equity performance.
Portfolio Discipline in Action: KYOCY Exit
Every so often, the Perfect Stock discipline delivers exactly what it is designed to do.
We purchase assets below tangible book value. We wait. And eventually, the market recognizes that value.
That is precisely what has happened with Kyocera Corporation (KYOCY).
KYOCY now trades at a premium to tangible book value. The margin of safety that justified the original investment has been fully realized. The position has generated a gain of approximately 123%, and we have held the shares long enough to qualify for favorable long-term capital gains treatment.
This is not a moment for sentiment. It is a moment for discipline.
We are exiting the KYOCY position and recycling capital into new opportunities.
This decision is not a judgment about the business itself. The company performed exactly as expected. The balance sheet remained strong. Execution improved. The market eventually priced in that reality.
Our edge was never about owning premium-priced assets. It was about buying undervalued balance sheets and exiting once that valuation gap closed.
The gap has closed. The discipline says sell.
Positions Approaching Exit Territory: DNPLY, FDP, and STNG
Several other portfolio positions are approaching similar valuation territory.
Dentsply Sirona (DNPLY), Fresh Del Monte Produce (FDP), and Scorpio Tankers (STNG) all now trade at premiums.
Under normal circumstances, these would move toward the trimming list.
However, selling today would generate short-term capital gains, reducing compounding efficiency. Fundamentals remain supportive across all three names, and allowing additional time converts gains into more favorable long-term tax treatment.
For now, we continue to hold.
The discipline remains unchanged. When valuation reaches premium levels and tax efficiency aligns, capital will be recycled.
Portfolio Philosophy: Numbers, Not Narratives
This process reflects the core philosophy of the Perfect Stock strategy.
We do not chase narratives.
We do not speculate on macro headlines.
We buy strong balance sheets at discounts to tangible book value. We wait. And when the market closes that gap, we redeploy capital.
This is capital allocation, not speculation.
Portfolio Overview: Asset-Heavy Value Remains the Focus
The current portfolio reflects a global collection of asset-heavy businesses trading at discounts to intrinsic value, including exposure to:
- Global shipping leaders such as Maersk (AMKBY) and Danaos (DAC)
- Real estate and property developers such as Sun Hung Kai Properties (SUHJY) and Megaworld (MGAWY)
- Industrial and manufacturing leaders including Subaru (FUJHY) and Central Glass (CGCLF)
- Energy and tanker operators including Scorpio Tankers (STNG) and Genco Shipping (GNK)
- Deep-value financial and insurance exposure through Assured Guaranty (AGO)
These businesses share key characteristics:
- Strong balance sheets
- Tangible asset backing
- Conservative capital allocation
- Discounted valuations relative to intrinsic value
Outlook: Opportunity Comes from Volatility
Markets remain noisy. Narratives shift constantly. Technology disruption, political uncertainty, and macro volatility dominate headlines.
None of that changes the fundamentals of disciplined value investing.
Markets are rediscovering the importance of tangible assets, financial strength, and predictable cash flow. Shipping, real estate, industrials, and asset-heavy cyclicals are beginning to regain investor attention.
Some portfolio holdings have already appreciated significantly. Others remain deeply discounted and represent the next wave of opportunity.
The objective is not to predict headlines.
The objective is to own strong balance sheets at discounted prices and allow time to close the gap between price and value.
As always, discipline—not prediction—is the edge.
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