Q1 2026

April 10, 2026

The year opened with a convergence of events that made the investing environment increasingly uncertain. Conflict in Iran, rising geopolitical tensions, shifting economic signals, sharp swings in oil prices, and continued disruption from AI all contributed to a backdrop that was difficult to interpret in real time. Nevertheless, volatile periods like this do not rewrite the principles of investing. They bring them back into focus.

For much of the past several years, markets rewarded possibility, favoring high-growth assets built on future expectations. As investor Howard Marks, co-founder of Oaktree Capital and a widely respected voice on market cycles, has written, “Good times teach only bad lessons: that investing is easy, that you know its secrets, and that you needn’t worry about risk.” This quarter marked a subtle but important turning point. As conditions became less certain, the market began to place a higher value on businesses with proof of consistency, and durability.

That reset in mindset showed up clearly in the numbers. The S&P 500 declined 4.6% during the quarter, while our strategy outperformed. The more important story, however, is not the difference in returns but why that difference occurred. Beneath the surface, investors were not simply reacting to headlines. They were repricing risk.

The chart below reflects that shift. Leadership moved away from the most speculative and expectation-driven areas of the market and toward sectors tied to the essential functioning of the real economy, including energy, defense, utilities, and commodities. These areas, often overlooked in more optimistic environments, began to outperform. Not because they are exciting, but because they are necessary.

When the landscape becomes less forgiving, dependable businesses with margins of safety matter more, and they are valued accordingly.

This has been the central thread of our investment philosophy and why the companies in our portfolios showed more resilience this quarter than the broader market. Not because we predicted where uncertainty would emerge, but because we emphasized businesses and sectors with more stable demand, stronger cash flows, and solid balance sheets.

Environments like this also tend to expose familiar patterns in investor behavior.

The elements of irrational investor behavior were in full view this quarter. There were extreme market swings based on scant and rapidly changing information that had little do with long term fundamentals. This reinforces the same point: in uncertain environments, the advantage does not go to those who act the most, but to those who remain disciplined.

As Charles Ellis, author of Winning the Loser’s Game, has observed, many investors approach markets in a way that turns investing into a “loser’s game.” In his framework, success comes not from making brilliant moves, but from avoiding unforced errors. Like amateur tennis, where points are often lost rather than won, investors can undermine their own outcomes by reacting to headlines, trading on emotion, or chasing short-term movements.

This perspective continues to guide how we position portfolios. The most valuable contribution we can provide is a disciplined investment process grounded in long-term thinking rather than short-term prediction.

It also means maintaining balance. High-quality bonds continue to play an important role, not as a drag on performance, but as a source of stability when conditions become less certain. In environments where the margin for error narrows, stability is not just defensive, it is strategic.

In the end, the first quarter is a reminder. We do not build portfolios for perfect conditions. We build them for moments like this, when uncertainty rises, expectations are tested, and discipline matters most.

We remain grateful for the trust you place in us and invite you to be in touch with any questions.

Janet Wills

Adam Mehrer