(Return figures come from the February 27, 2026, edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. Nothing in the newsletter should be taken as an offer to buy or sell individual securities. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives.)
“Frankly, my dear, I don’t give a damn.” In case you did not know, maybe the most famous line in the history of motion pictures is uttered by Rhett Butler in Gone With the Wind. Clark Gable plays the swashbuckling blockade runner who falls for the protagonist, Scarlett O’Hara. Scarlett spends the whole film chasing after a man whom she thinks she loves but does not love her, and after three marriages, the last one to Mr. Butler, she finally realizes it is Rhett whom she adores. Why does this apply to investors?
If you have not been paying attention, the capital markets are a bit, shall we say, flighty. Over the last few months, and especially in February, the largest software entities have seen their market values plummet. In many cases, the losses have been dramatic, in some instances over thirty, forty, or fifty percent. The term being bandied about is Sassalypse, or software-as-a-service apocalypse. Consider the mental state of a CEO who heads one of these enterprises (lucky you). For the last decade or more, your company has consistently grown profits and wealth for its investors. Conservatively speaking, let’s call it, say, twenty to one hundred billion dollars of value has been created. A few years ago, large language models came along, with the underlying technology being some form of artificial intelligence. You see it as an excellent opportunity to help your business grow stronger. Initially, the largest institutional investors agree, and things are fabulous. Suddenly, in the blink of an eye, these intelligent and loyal investors decided their initial belief about large language models was incorrect! The creators of these models are releasing new versions that are viewed as mortal threats to your business. The institutions that own large blocks of your securities begin selling and do not stop. Your stock is now down big, members of your board of directors are shocked and upset, and you face the task of proving the merit of your business once again.
This is what has transpired for the few winners over the last decade. What is more likely for most companies is that institutions and investors of all kinds are not interested in your stock. For CEOs who have the financial ability to do so, they adopt the Rhett Butler approach and decide, “Let’s end this nonsense.” They raise capital and take the company private or offer it up for sale through the public markets. This is atypical. A more practical and often successful approach is to use company profits to both grow earnings power and opportunistically buy back stock. It requires good business judgement and comparing uses of capital based on each business segment and the current price of the equity. When the stock is unwanted, many CEO’s face the predicament of not being able to use it as a currency. Some resort to alternatives, like issuing preferred stock (which is really a form of debt), conventional loans, convertible debt, or, in a highly creative approach, rights offerings, in the event they want to do a deal. Whatever tactic is chosen, growing earnings power is the primary objective. Buying back a cheap stock works over a lengthy time horizon when the strategy is consistently executed, and the number of shares retired is substantial. When a company retires 30% or more of the outstanding shares over a three- or five-year period, shareholders usually see a nice benefit, but not always.
For investors, learning from Rhett Butler is instructive. What you do not want to do is what the CEO of a large REIT has done. He was resigned to his stock being stuck in the basement, as it had been for a long, long time. Remember the basic premise: buy low and sell high. You are looking for leaders who recognize the stock is undervalued and are committed to making the situation temporary. You also need to look at the underlying assets and businesses to make sure they have strong and enduring competitive advantages. The reason the capital markets are freaking out about artificial intelligence is that investors believe the long-term earnings power of many companies is under serious attack. It is our job as investors to evaluate each company to consider the investment merit. In the case of many software entities, the multiples are still elevated and certainly not cheap. I continue to maintain that the biggest value resides among the unloved and ignored. Sometimes the investment world has periods where everything suddenly seems rotten. Rhett Butler is one of the great characters in movie history, but from an investment point of view, you do have to care.
Spanning the Globe: US, Iran, and Cuba, Investors See the End of US Exceptionalism, and Japan and Brazil Gain Favor!
Donald Trump did not care either, in this case, about whether the world agreed with him seeking regime change in Iran. If ever there was a leadership group that needed to go, the Ayatollah and his IRGC henchmen are it. If only based on having destroyed its currency, the citizenry of Iran has a legitimate argument for needing to replace this leadership. One can only hope the result is the end of the Mullahs in this critical country. Here in our own hemisphere, Cuba would appear to be a layup when compared to the challenges in the Middle East. It is quite apparent that Donald and Marco see the Western Hemisphere as one where the US will determine what, when, and how.
Meanwhile, the United States is the largest debtor nation in the history of the world, with a national debt exceeding $38 trillion. To consider the magnitude of profligacy, a trillion is a thousand billion, and a billion is a thousand million. With this astronomical number in mind, many investors see it as too high a hurdle for the United States equity markets to overcome for continued strong gains. Naturally, capital flows to areas where it is most optimally treated, so different regions and markets would sop up that change of direction. The first obvious candidate is Japan. With a newly elected President who is committed to improved economic growth, government spending will be supportive of defense industries and domestic policies designed to foster higher activity. In combination with a change in government policies for better corporate governance, many institutions have been warming to Japan over the last few years. The Nikkei performance year to date in 2026 reflects this enthusiasm, up 12% year to date.
Brazil has always been seen as a country that is the next great world power. The infamous quote attributed to French leader Charles De Gaulle reflects the sentiment, “Brazil is the country of the future… and always will be”. The economic circumstances in Brazil look quite interesting. Its economy has long been tied to commodities, with a large mining entity, Vale, and the sizeable oil producer Petrobras, and its cycle has favorable conditions. Additionally, interest rates in the country have long been elevated, but now are seen trending lower. In the first two months of the year, the Bovespa is ahead by 24%.
For investors, dollar weakness remains an issue to pay close attention to. The common attitude of institutional investors is concern about the deficit and political dysfunction, but they have been a problem for the last forty years, and capital markets haven’t suffered at all. Why would it be any different now? The price of gold and silver has reached all-time highs, and the simple hedge is to own both. Bitcoin? Not so much.
Y H & C Investments Firm Update- Market Shifts as Energy Gains, REIT Final Terms, Community Banks Help, and Microcap Deals!
February was an interesting month in the market, both in general and for the positions Y H & C owns. The market volatility in the most high-profile software names, especially companies that have created vast amounts of wealth for many investors, has been difficult for those unaccustomed to Mr. Market’s moods. Our portfolio was helped across the spectrum by exposure to both global energy firms and regional refiners. The proposed bid for a west coast-based REIT was revised slightly higher and accepted by its board. The deal is scheduled to close by the end of the second quarter.
In an area of the market that is ignored and unloved, our positions in community banks have performed nicely. The characteristics of these holdings are often similar in that they range from a billion to five billion in deposits and have efficiency ratings that are quite attractive. With any bank, lending proficiency and credit analysis are how they make their money. It also helps when they have multiple business lines for a more robust profit model. In the small and micro-cap area, another holding announced an acquisition. It is a specialty pharmaceutical company whose long-time CEO has never had an unprofitable year as a public entity. The deal was done with cash and some borrowing. It is the second deal of our micro-cap holdings this year. It follows a similar pattern where a 40–50-million-dollar revenue company will acquire an entity to take them to a 75–80-million-dollar top line figure. Of course, culture, integration, and margins are the important considerations for the outcome. In looking at deals, the specific terms and how they are structured are what investors have to pay close attention to. In the small and micro-cap world, capital allocation is often done in such a way that makes me scratch my head and say, “Why would you do it like that?” Issuing stock at the bottom of your five-year price range isn’t going to impress anyone, especially if a company can borrow at attractive rates. With the 10 yr Treasury bond at 4.20%, what do you want?
Interactive Advisors GARP Models-
In February, the Concentrated GARP model was flat. As mentioned earlier, the buyout price of the REIT deal was increased. Our payments holding took it on the chin and then announced expected results, closed their large acquisition, and the stock rebounded nicely. As we stated last month, the end of the June quarter is expected to see two deals finalized.
In Long Term GARP, the AI software drubbing continued to affect our biggest position for most of the month, but after its earnings release, it also rebounded well. The rest of the portfolio held up fine, but whenever your largest position faces headwinds, overall performance is going to face challenges.
For more information on the models-
Y H & C Investments: Concentrated GARP Investment Portfolio - Interactive Advisors
Y H & C Investments: Long Term GARP Investment Portfolio - Interactive Advisors
Thank you for reading the March update. I really appreciate it. if you have any investment questions, please reach out to me at information@y-hc.com.
