Quarterly Newsletter: 2nd Quarter, 2026

Financial Planning

If you’d like help organizing your financial life and putting together a financial plan, we can help. We help organize income, expenses, assets, liabilities, insurance coverages, and estate documents. We do this to make future financial decisions easier and to estimate your future cash flows. This can help improve the probability of successfully accomplishing your future financial goals and ensures you are protected against any risks you’d like to be protected against.

When you have any major life changes, we update your financial plan too.

Investment Commentary – An Artificial Intelligence Funding Frenzy

With the hype around AI growing to more extreme levels, we continue to focus on companies that are leaders in their respective industries with businesses that should perform well for many years. Preferably at a significant discount to what they are worth and always with a minimum annual target return of 15% versus the long-term average for stock markets of around 10%.

None of the companies we own are in the race to create the defining AI model of our time (if there is such a thing), but all are positioning themselves to benefit from AI. Helping to make them stronger, more efficient, and better able to sustain long-term profitability. This will benefit us as owners, their workers through higher quality wages/benefits and access to company ownership, and society through more conscious interactions and growing tax contributions.

Led by AI, we believe we’re now in the later stages of a technology bubble. If we’re correct, there’s no knowing when that bubble will pop or how severe it will be. But we’ve been planning for it for some time now. If prices continue to rise for AI companies, it’s likely our investments will underperform the stock market averages as we have minimal direct investments in these companies. Fortunately, we our investments have kept up, and in many cases, outperformed over the past year. This may be an indication that sentiment is starting to turn with investors starting to focus more on finding value instead of chasing the next big thing. Time will tell.

The following events are, at a high level, indicating to us that it’s likely we’re in the later stages of a bubble:

·      In June Elon Musk promised data centers in space, trips to the moon and Mars to justify the massive price of SpaceX during its IPO

·      OpenAI has been poaching Apple’s senior engineers and incentivizing them to steal proprietary information and hardware from their past employer so they can build a competing smartphone

·      Anthropic has been stealing from authors/artists to train their models to supercharge its growth and help it to become profitable. They are trying to grow quick enough to be able to pay off their legal fees for this massive theft before their legal costs bankrupt them

·      OpenAI and Anthropic are planning massive IPOs (like SpaceX) and making promises that it will be almost impossible for them to keep (which may explain the stealing)

·      A lot of companies/institutions have been incentivized to go along with this behavior/overpricing of AI companies as they continue to make large amounts of money from AI spending

·      The incestuous relationships among technology companies that buy massive amounts of AI related hardware/software/services from each other. This process pulls forward future earnings to today (at the expense of future earnings), while their expenses are depreciated over many years

We know that AI companies require massive funding from investors. To provide this funding, investors need to get money from somewhere. This has led to widespread selling of companies that aren’t directly connected to AI. This has created lots of fantastic opportunities to invest in great companies. While it may seem counterintuitive, this is a great time to be an investor. 

For those of us who can remain patient and overcome the ‘Fear of Missing Out’ (FOMO), there are an increasing amount of high quality, lower-risk companies going on sale. These companies are likely to provide high, market beating returns for years to come. Over the long-term, the largest beneficiaries of the AI buildout, like the internet, are likely to be the companies that embrace and take advantage of the efficiencies AI can bring. Many of the companies going on sale now will be those companies.

There will be a small number of the AI companies that turn out to be big winners, just as there was during the internet build-out. However, it’s likely those winners will go on sale at some point too. That’s what happened to companies like Amazon and Microsoft when the internet bubble burst in 2000.

Alternative Investments – An Important Portfolio Update

We add ‘Alternative Investments’ to investment portfolios for most of our clients. These are investments we don’t consider to be typical stocks or bonds. We add them to increase diversification. Our goal with Alternative Investments is to reduce our overall risk while increasing our future returns beyond what’s possible with typical stocks and bonds. Alternative Investments are heavily connected to infrastructure, real estate, and insurance. They are lower risk because they have appreciating assets backing their operations that retain (and often grow) value over the long-term. This is the same concept as owning a house versus owning a car. Most companies own a lot of assets that depreciate over time (factories, industrial equipment, inventory, etc.). The companies we consider to be ‘Alternative Investments’ own real estate, productive land, and investment assets.

Alternative investments have risk and return characteristics that are in-between stocks and bonds. Stocks provide an average annual return of around 10% over the long-term at a high level of risk. Bonds provide an average annual return around 4%-5% at a low level of risk. Alternative investments typically provide a return around 6%-7% at a moderate level of risk.

In the past, like most financial advisors, we have added alternative investments through diversified mutual funds. We will now provide most of this service in-house. We are confident we can produce higher returns at a similar level of risk to the mutual funds we have used, while reducing your fees substantially. We’re targeting returns of 10%-15% versus 6%-7%, while saving you mutual fund fees of around 1.0% per year.

We plan to implement this change over the next month. If you see any large cash balances in your accounts, this will happen as we switch to these new investments. We have included brief commentaries on these new additions (along with our other individual stock holdings) in the attached ‘Return Expectations’PDF. The alternative investments we are adding are Brookfield Corporation (see below), NextEra Energy, Berkshire Hathaway, and Fairfax Financial (see below).

Portfolio Highlights: Key Investments, New Additions, and Sales

Each quarter we highlight some of our current/most recent investments to help give a deeper understanding of some of the individual investments we own. We also discuss the catalysts that we look for to help drive each investment’s future outperformance. Information on any recent investment sales is included too, with an explanation of why it was the right time to sell these investments.

Brookfield Corporation (a recent new alternative investment)

Brookfield is a premium asset manager and investor with large-scale institutional backing, a massive amount of low-cost long-term funding, and a world-class portfolio of real (physical) assets (including real estate, infrastructure, and renewable energy). They have produced consistently high annual returns for over 30 years (between 15%-20%). We believe it’s likely they can continue doing this for the foreseeable future (10+ years). Despite these high returns, we consider this to be a lower-risk 'Alternative Investment' given their large-scale underlying investments in real assets/property worth over $300 Billion. They are also diversified across businesses, as they generate significant revenues in asset management, insurance, and private equity.

Fairfax Financial Holdings (a recent new alternative investment)

Fairfax (meaning ‘Fair and Friendly Acquisitions’) is a relatively low-risk insurance business that has consistently grown its book value (the value of its assets minus the value of its liabilities) and stock price at higher than 15% per year for over 30 years. Their name is what they are known for. Their 'fair and friendly' acquisitions have helped them to grow their insurance business at a high rate. They acquire successful businesses run by great management teams and allow them to continue doing what they do well - running successful businesses. They collaborate across businesses, but each unit is responsible for their own performance.

Like Brookfield, we consider Fairfax to be a lower-risk alternative investment. They have significant, valuable assets (significant bond holdings, high-quality stocks, and direct company ownership) that they use as backing for their insurance business. They also have consistent, stable, and growing revenues from their insurance businesses. We believe Fairfax is likely to generate returns above the general stock market at a lower level of risk for many years to come.

ServiceNow (a recent stock investment)

ServiceNow is a significant growth story with a long runway for growth. They are a capital-light, global enterprise service management system provider to large businesses (they serve 85% of Fortune 500 companies). They simplify their customers IT functions, which enables better management of internal operations. This helps to reduce staffing costs and significantly increases efficiency. They’re growing extremely quickly as they implement AI capabilities into their offerings to allow upsell opportunities with their clients. This is a similar playbook they’ve followed since their founding – entice customers with their core products and then connect them to their other high-quality offerings as they build value and trust. Their stock is cheap due to concerns about AI taking their business away, but the much higher probability outcome is that AI will be a significant tailwind for them. This is because of their market leadership, the depth of their relationships with clients, and the extensive, personalized data libraries they help their clients to create and manage. Each clients’ personalized data is critical to help make AI useful. AI is likely to help ServiceNow reduce their own operating costs, while also helping them to create more value-add services for their clients.

They currently have no net debt (they have debt that is fully covered by their cash on hand), which helps to minimize investment risk.

Investment Sales

Kennedy Wilson

Kennedy Wilson is a relatively low-risk, high quality real estate investment company. Unfortunately, we were forced to sell Kennedy Wilson as the company were taken private (bought out) by their management team and investors led Fairfax Financial Holdings. Our investment gained around 30% since we purchased it 12-18 months ago, which was a very good return. However, we expected to make 15% annually for many years to come. It was purchased at an almost 50% premium to where the stock was trading at the time, but that premium was still a significant discount to the long-term value we saw in Kennedy Wilson. This happens sometimes, and it doesn’t surprise us that Fairfax was one of the buyers. We are adding Fairfax Financial to our investment holdings now, so will still own a small portion of Kennedy Wilson, indirectly, through our investment in Fairfax.

Investment Strategy and Sustainability

We pay particular attention to the price we pay for investments because paying less means higher future returns. As a reminder, we intend to hold all investments for periods of at least five years and preferably much longer. This has the side effect of minimizing trading costs and capital gains taxes.

We seek to hold 20-30 individual stocks, some of we cover in our newsletters. All our current individual stock investments are listed in a separate PDF we send out along with our newsletter each quarter. These are all stocks we consider to be offering a high probability of future outperformance versus market averages at their current prices. We combine these individual stocks with other active investment managers (mutual funds) to help further diversify your investments across stocks, bonds, and alternative investments. Our investment managers have similar philosophies to ours seeking out and taking advantage of overlooked and/or underappreciated investments and buying at a discount to outperform market averages.

Given our focus on the long-term, we invest in companies we believe are sustainable. Companies that produce high returns (profits) for their investors but also give equal focus to their other stakeholders – particularly employees and the environment. This helps create stability and high performance for the long-term.

We believe we are well-positioned for future success. There will be periods when investment returns aren’t where we’d like them to be. This is most likely to happen during periods of excessive enthusiasm as the investments driving outperformance during those times tend to be ‘trendy’ and expensive. Our research process gives us the confidence to remain patient and allow our investments time to reach their full potential. This should translate to long-term outperformance.

We will continue to monitor your investment portfolios and keep you informed on major global events that may impact them. If you’d like to set up a meeting to talk in more detail, please reach out at any time.