What an exciting February it has been! Since our last update, we’ve endured one of the wintriest months in recent memory, complete with snow days and ice storms. Yet these winter months often prove to be among the most productive for our team.
In February, we realized both gains and losses across our portfolios, while performance remained strong amid expanding market breadth. We also increased our stake in an undervalued consumer staple, good old General Mills, which offers a dividend yield of 5.4%. This month, we were also proud to be recognized as Manager of the Decade for our Balanced portfolio by PSN Top Guns. However, there is no rest for the weary as we head into March with market volatility surging amid the outbreak of war in the Middle East.
It’s tempting to observe the initial market reactions to the news of the conflict outbreak and to extrapolate them to a definitive outcome, but we emphasize that we are still very early in this unfolding process. While a short conflict might be viewed positively by the markets, a prolonged engagement—along with sustained high energy prices—could have increasingly significant economic and market impacts.
During times of increased market volatility, such as those caused by global conflicts or quickly changing news headlines, it’s natural to want to make big changes to your portfolio. However, we strongly recommend resisting this urge, as reactive decisions often lead to poor results. Sticking to a disciplined, long-term view has consistently shown to be the best way to get through these storms and achieve steady growth.
We have long emphasized the importance of diversification, especially when navigating market reactions to global conflicts or in a concentrated environment dominated by a handful of AI-related companies. This approach helps mitigate risks from over-reliance on narrow outcomes, allowing portfolios to benefit from broader opportunities while reducing vulnerability to sudden shifts.
A clear example of this is the recent disruption in the software industry caused by AI, as the market sorts through winners and losers amid intensifying competition. While hardware sectors like semiconductors continue to thrive from AI infrastructure expansion, parts of the software ecosystem face increased competitive pressure from AI itself, which can automate or replace many traditional software functions and business models. This raises concerns about whether these companies can maintain margins in a more competitive, capital-intensive environment, leading stocks of those with weaker moats or business models to lag amid fears of AI-driven obsolescence and declining profitability. This shift signals a new phase of differentiation across AI-exposed industries.
The increasing return gaps within AI-exposed sectors create opportunities for skilled security selection and broader diversification. By building a more diversified portfolio that goes beyond just a few mega-cap AI technology leaders—adding high-quality companies at reasonable valuations across various industries and sectors—we can develop resilient strategies capable of delivering sustainable returns over the long term.
As always, our focus remains on prudent risk management and long-term value creation. For long-term investors, maintaining exposure to high-quality businesses with durable competitive advantages remains the most reliable way to grow wealth across cycles. As always, we welcome your engagement—please reach out to us for a portfolio review.
