Happy Friday!
In this week’s letters,
– Broadleaf Partners on Iran war, private credit, and AI fatigue
– Manole Capital Management on Payment Systems and its innovation
– St. James Investment Company on Efficient Market Hypothesis
– Elevator pitches for PGR; XPEL; VID SM
Quarter in progress: 188 fund letters of 2026 Q1 are live on our database!
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Q1 2026 INVESTOR LETTER SUMMARIES
- With respect to the war, we have always viewed geopolitics as a set of binary events that are difficult to time from an investment perspective. Trump could exit this conflict as quickly as he entered it, potentially reversing the recent market declines just as quickly as they occurred. We simply do not know. In such a fluid environment, it is difficult to put thoughts into writing because the news flow can change before the ink dries, which is why this update has been a bit slower to publish than most.
- With respect to the private credit markets, a few higher-profile blowups — loans funded outside the traditional banking system — have caused leaders like JPMorgan’s Jamie Dimon to wonder whether there are similar canaries in the coal mine. Since the credit cycle is one of the key factors we believe influences near-term value in the markets, we are not quick to dismiss such concerns. At the same time, many experts believe these are isolated events and typical credit-cycle dynamics rather than signs of systemic stress.
- The final contributor to recent weakness may be “AI fatigue,” a term economist Ed Yardeni coined in the fourth quarter of 2025 to describe growing investor exhaustion within the space, particularly across the Magnificent Seven cohort. That fatigue has since evolved into what we would call a “Disruption Virus,” with AI-driven disruption pressuring valuations across large parts of the software sector.
- We are big fans of the expression KISS, or “keep it simple, stupid.” In our view, simplicity still wins in payments. For all the innovation reshaping the payments industry, consumer behavior remains remarkably consistent. Most shoppers still gravitate toward what feels simple, familiar, and reliable. New technologies may grab headlines, but at the point of sale, convenience and control continue to outweigh novelty.
- Payment innovation has rarely been constrained by a lack of ideas. It has almost always been constrained by adoption. New technologies routinely promise faster, smarter, or more personalized experiences, yet consumers consistently gravitate toward what feels simple and reliable. That same dynamic applies today as artificial intelligence begins to reshape how people shop and pay.
- Paper checks are finally approaching their end, not because they stopped working overnight, but because the economics, risks, and infrastructure supporting them no longer make sense. The Federal Reserve’s recent decision to solicit public input on reducing its check-processing services is a clear signal that the long, gradual decline of checks is entering a more decisive phase.
- For decades, the Efficient Market Hypothesis, or EMH, has helped drive trillions of dollars into passive investments, based on the belief that beating a broad index is nearly impossible. The reasoning is straightforward: if thousands of analysts are monitoring the stock market, prices should already reflect all available information.However, the paradox is that the success of passive investing may undermine the very mechanism that originally made markets efficient.
- Nassim Taleb coined the term “antifragile” in his 2012 book Antifragile: Things That Gain from Disorder. He introduced the term because he could find no existing word that captured the exact opposite of “fragile”: something that does not merely survive or resist disorder, but actually improves because of it. Taleb organizes systems into three categories: fragile, robust, and antifragile.
- By January 2026, the energy sector had shrunk to less than 3% of U.S. equity market value, while technology and services had grown to 53%. Passive flows have continually devalued energy and concentrated wealth in energy-consuming sectors, ironically on the eve of another Middle East conflict. In the 1970s, energy stocks made up roughly 25% of the S&P 500 Index and offered investors a natural hedge.
ELEVATOR PITCHES BY FUNDS
The Progressive Corp. (by Middle Coast Investing)
- The stock is down 32% from its all-time high last June, for legitimate reasons. Its customer growth – policies in force (PIF) – grew much slower last year than it has for a few years.
- Progressive has reaccelerated PIF growth and is still improving profitability (if barely). The stock trades at 10x earnings, which is its lowest since 2020, when nobody driving or getting into accidents inflated the company’s earnings.
- Warren Buffett and his Berkshire Hathaway (BRK.B) colleagues have admitted Progressive beat GEICO in growth and building a modern insurance business.
XPEL Inc (by Alta Fox Capital Mngt.)
- PPF demand trends are poised to improve as affordability headwinds ease and consumer awareness rises.
- After an elevated investment period from 2022 to 2025, XPEL is positioned to deliver operating leverage while sustaining high-single-digit revenue growth.
- CEO Ryan Pape is a proven value creator, is well aligned with shareholders, and recently outlined a credible plan to drive EBIT margins from 13% in FY25 to 26% by FY28.
- Underwriting conservative assumptions below management’s targets, we forecast FY28 EPS to roughly double from FY25 levels, supporting roughly 100% upside in the equity.
Vidrala, S.A. (by Smallvalue )
- The recent share price decline could be primarily attributed to an approximately 80% increase in natural gas prices. However, Vidrala is fully hedged for 2026, with around 80% of its exposure secured through 2027, significantly limiting near-term risk.
- Management anticipates modest price moderation of approximately 2%, CapEx of €170–180 million, positive volume trends, and a continued focus on operational efficiency, selective M&A, and shareholder returns.
- Vidrala also returned capital to shareholders by repurchasing 57,070 shares under its Board-approved buyback program, spending approximately €4.22 million.
HIGHLIGHT OF THIS WEEK
MEDIA APPEARANCES BY BSDs
Wall Street Traders Score Big; Exclusive Ted Pick Interview
- I think there will be volatility going forward, but it may not be the high levels of ‘charged’ volatility we’ve seen so far this year.
- When you put this kind of dispersion and volatility together with solid balance sheets, it’s not hard to see why this could spark the next M&A boom.
- Private credit is having a learning, an adolescent moment; the asset class is coming of age, and that creates both opportunity and a need for more discipline.
Goldman Sachs – “Why Aren’t Investors More Worried?”
- Goldman Sachs Research’s Dominic Wilson discusses the impact of the Iran conflict—including the US blockade of the Strait of Hormuz—on global markets. In discussion with Exchanges Host Allison Nathan, he explores the market reactions, risks, and the outlook for equities, rates, currencies, and portfolio positioning amid the ongoing geopolitical uncertainty.
Hedge Fund MS Capital Says It Won $1 Billion Mandate for China
- Quantitative hedge fund Meridian & Saturn Capital said it won a $1 billion mandate to trade Chinese stocks, another sign investors are boosting allocations to the world’s second-largest economy.
- The Singapore-based firm will invest the money in a market-neutral strategy to trade onshore Chinese equities, Kate Zhang, founding partner and chief executive officer, said in an interview.
