This year has provided several reminders of why discipline and valuation‑driven positioning matter. Our early emphasis on international equities—at a time when global diversification felt out of sync with domestic sentiment—delivered meaningful relative benefit as earnings momentum abroad improved and non‑U.S. markets broadened. Later in the year, our late‑third‑quarter shift into healthcare proved equally well‑timed, as the sector rebounded from depressed relative valuations and innovation pipelines continued to strengthen. In fact, the healthcare sector was up 11.24% versus the S&P 500 return of 2.65% from our September 30th, 2025, call. These figures are presented solely to illustrate specific market conditions during that timeframe and the factors we considered in our investment process. They do not represent the performance of any portfolio, nor should they be interpreted as an indication of future results. Our intent in highlighting these examples is not to emphasize isolated outcomes, but to provide transparency into the framework that informs our research and positioning as we evaluate emerging themes—such as developments at the intersection of AI and energy.
While enthusiasm around AI remains widespread, we have become increasingly attentive to the tension between rising AI‑related capital expenditures and slowing revenue growth among the key beneficiaries. That mismatch gives us pause. If AI’s long‑term promise is going to materialize, it will require an enormous expansion of physical infrastructure—power generation, transmission capacity, cooling systems, and the natural resources that underpin them. Yet energy and natural‑resource equities still represent less than 3% of the S&P 500. The disconnect between the scale of projected AI compute needs and the current under-representation of the sectors that must power it creates an attractive setup, in our mind. For that reason, we remain constructive on natural resources and energy as durable, cash‑generative complements to portfolios otherwise dominated by software narratives.
Of course, our caution is not a prediction of immediate decline in AI‑related equities—we are not in the business of calling tops. But we are mindful of a growing resemblance to past periods when market concentration, valuation stretch, and narrative dominance moved in lockstep. Recent commentary—including the “Dotcom on Steroids” piece by GQG partners—highlights parallels to 1999 that, while imperfect, are difficult to ignore. As in prior cycles, the risk is not that innovation fails, but that expectations outrun the economics needed to support them.
Against that backdrop, our approach remains consistent: hedge where warranted, diversify deliberately, and ensure the portfolio includes areas where fundamentals and valuations still rhyme. International equities, the healthcare and natural resource sectors, and value stocks each offer different pathways of resilience should AI’s trajectory prove less linear than consensus hopes. Our focus continues to be on paying reasonable prices, avoiding narrative overreach, and positioning clients to navigate both the promise—and the potential pitfalls—of this next chapter.
Thank you, as always for your trust. Please call with any questions.
P.S. – Last quarter we had an incredibly positive response to a personal healthcare note we included about our colleague Bart Gadlage. This made us think about a wonderful book we read last year and included in our fourth quarter of 2024 book list, called “Outlive” by Peter Attia. We bring it up again because he was featured on a 60 Minutes episode on October 26th where he put forth concepts in his book such as the Centenarian Decathlon and “Medicine 3.0” that focuses on extending not just lifespan but healthspan by aggressively managing key risks with exercise, nutrition, sleep and emotional health. We couldn’t help but be reminded of a saying our good friend and client Billy Cannon used to say “As I get older, I don’t want to compete in the Olympics, but I do want to be able to watch them.” May we all enjoy good health in 2026 as well as good Winter Olympic viewing and if you get bored during any of the events peruse the book Outlive by Peter Attia for ideas to improve your healthspan while we focus on your financial longevity.
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