November 2026 Update

As I write this, the markets are taking a beating, and in all honesty, that is part of the reason I wanted to make sure to send you something. The US midterms came and went with a huge showing for the democrats, and that will work to remove some of the political uncertainty from the past two years. For the markets, though, the main thing weighing on them is not policy or what could happen from the SU government, but questions and issues surrounding AI and the buildout.  Some of that could be the result of voters opposing data centres, but more of that is related to some disappointing earnings and significant spending commitments in the industry.

So, first things first, days like this and volatility like this are why I manage money in the way I do. As I write this, the NASDAQ is down approximately 4% today (in a volatile session, and it’s hard to know where that will end up). The fund was up significantly yesterday, and we haven’t given that all back this morning, which suggests that we are not down as deeply as the market. Historically, the fund declines about 70% as far as the markets, and on the way up we are capturing about 90% of the gain. In other words, if the market drops $100, we lose about $70, but when the market makes $100, we are up around $90. That doesn’t mean that this is the case every single up and down, but that is the long-term average for the fund.  The reason I want you to be aware of that is that this should give you some solace when you see the sea of red that is likely going to be in the media.

Getting to some broader themes, I think that the US markets are going to be somewhat more stable over the coming months. The Democrats winning the House and Senate means that the actions taken by the President are going to be scrutinized and will face much greater opposition, if not outright stopping them. It also means that the President would likely veto anything they bring forward as far as major policy changes or initiatives. So, what we have is a classic scenario of political gridlock, and although it might seem counterintuitive, the market likes that. It means that there is a much greater degree of political certainty, which gives investors a little bit of solace.

The AI scenario and issues we are seeing around this weigh heavily on the markets right now, because so much of the index has been dominated by names with significant exposure to AI. For the S&P 500, this has been right around the 40% mark, which means that big losses there are going to impact the index heavily. In Canada, we are certainly not immune to how things go in the US, but we are far less exposed to AI and have an entirely different index composition. Even looking at the US, about 40% of the stocks on the S&P 500 are positive today, but the index is down. This is specifically because of the massive weight that AI and “AI-enablers” have in the market these days.

That brings me to how we are managing the fund, and why I am comfortable with where we find ourselves today.

One of the things I have always emphasized is that we are not trying to replicate an index. We own businesses, not markets, and there is an important distinction between the two. The value of a business is ultimately determined by its ability to generate cash, reinvest that cash profitably, and grow over time. Its share price, on the other hand, is determined by what someone is willing to pay for it at any particular moment. Those two things can diverge considerably, particularly when markets become volatile.

Today is one of those days. There is no question that AI is going to change the way businesses operate, and I believe it will create tremendous opportunities. But that doesn't mean every company investing heavily in AI will earn an attractive return on that investment, or that every company benefiting from AI is worth buying at any price. There will be winners and losers, and in some cases the expectations built into share prices have left very little room for disappointment. My approach is to remain focused on the quality of the businesses we own, the prices we pay for them, and the long-term opportunities available to them. We don't need to own everything fashionable, and we certainly don't need to chase returns simply because a particular sector has been performing well.

I also want to emphasize that volatility is not necessarily a bad thing for us. It can be uncomfortable to watch your investments decline, even temporarily, but these periods also create opportunities. Businesses that we would love to own at one price can become much more attractive at another. Having the flexibility to take advantage of those opportunities is an important part of how I manage the fund. None of this means that I expect the fund to be immune to market declines. It won't be. Nor am I suggesting that I know exactly when the market will recover, or whether we have seen the worst of this episode. I don't know, and I would be suspicious of anyone who claims that they do.

What I do know is that we have a disciplined investment process, a portfolio of businesses in which I have considerable conviction, and the flexibility to respond when circumstances change. I am watching developments closely, assessing whether anything has changed in the underlying businesses, and making decisions based on their long-term prospects rather than today’s headlines. Ultimately, I don't want you to confuse activity with good management. Sometimes the best decision is to make a change, and sometimes it is to do absolutely nothing. The important thing is knowing the difference.

So, while I understand that times like these can be unsettling, I don't want you to feel that you need to react to them. That's my job. Your capital is being managed with these environments in mind, and the investment decisions we make are intended to serve you over years, not days.

Markets will continue to rise and fall, and there will undoubtedly be more uncomfortable days ahead. That is simply part of investing. What matters is how we navigate those periods and the decisions we make along the way.

Until next month,

Vic