Stick to Your Principles

The first six months of 2026 have been a period when many investors forgot basic principles of valuation. In this letter we look at the outcomes and end results of this type of action over the decades. Exhibit 1 shows the investment returns of various market measurements for the six months ending June 30, 2026.

Second-guessing in the Investment World

Over my decades of investing, I’ve had a number of periods where I second-guessed my basic principles of valuation and thought maybe something had changed. In my early youth in the business, I actually did second-guess myself, but it was a mistake. Buying a stock that was worth a dollar for 80 cents still made sense. Buying a stock that was worth a dollar for 4 dollars did not make sense. If a person hasn’t seen tried-and-true principles of investing work, they may be tempted to join the crowd and chase the latest names. If something doesn’t make sense and you can’t understand it, then don’t buy it. You’re doing so because CNBC or a friend said it’s great. SpaceX is only one of many examples of this. Notice Exhibit 2 showing COVID runaways.

Zoom stock went up 700% from December 2019 until October 2020, only to give back the entire amount by December 2022. Docusign went from $44 in August 2019 to $306 in August 2021, only to give back the entire amount by 2022. The hottest thing going was Peloton, which at $24 in February 2020 went to $158 in January 2021. Every dog has its day.

Nothing Is Permanent …

In financial markets almost nothing is permanent. The popularity of an investing industry or style comes and goes. One thing that is permanent is the behavior of crowds in chasing the “latest and greatest.” In current markets it happens to be semiconductors. Notice Exhibit 3 showing the semiconductor percentage of the entire S&P index.

Last year it was the Magnificent 7 stocks. This year it’s semiconductor stocks. Will semiconductors end up like Zoom or like Peloton? We will see.

My Own Experience

In the spring of 1999 we sold Intel, which had gone up 400% in the four years prior. We then watched it go up another 100% in just 12 months, to March 2000. I’m quite sure investors thought we had really missed it. Those same people would have said the same thing about us not owning Japanese stocks in 1989. (That market took 35 years to make a new high.) Now take a look at Exhibit 4.

From the time Intel made its high in March 2000, it took another 26 years to equal that again. Did chasing the hot stock do you any good? I don’t think so. Will it make sense to chase it this time? Again, I don’t think so. In addition, there are Bitcoin chasers in the same situation. Notice Exhibit 5 showing the current price of Bitcoin down -50% from the high. Between the crypto coins and MicroStrategy (down -80% from the high) there have been big losses.

One Thing That Is Up

Interest rates have continued their rise, with the inflation rate moving higher. The 2-year U.S. Treasury note is back over 4%. At Oxbow we have said to keep those maturities short. The 10-year U.S. Treasury yield is 4.37% vs. 4.09% for the 2-year maturity (based on June 29 prices), which is about a quarter of 1% for eight more years.

Stick to Your Principles

The reason we’re using this title is to make sure investors know that at Oxbow we don’t get caught up in the hype. Experience has taught us that in the end the correct values will show up. We’re still finding some great values today without chasing the latest and greatest. For example, gold and gold miners are back in a range that offers good investment. The miners have corrected -35% and are still cheap in our opinion. Even though oil is down in price, the energy companies are attractive.

In our long-term growth strategy, a number of companies are attractive. Chance Finucane, our chief investment officer, has found numerous companies that are undervalued, including U.S. Bancorp and McKesson. Preoccupation with hot stocks reminds us of biotech in the 2000s, tech during the dot-com bubble, gold in the early 1980s, and real estate in 2006 – 2007. And there are others as well, but keep your head on when others are losing theirs! Having seen a lot of this before, rest assured we will do our best to keep you in what we consider solid investments.

Thank you for trusting us at Oxbow. We hope you have a great summer.

Ted Oakley

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

–Sir John Templeton

“There is scarcely an instance of a man who has made a fortune by speculation and kept it.”

–Andrew Carnegie

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of the firm and are only for general informational purposes as of the date indicated. The material contained herein has been prepared from sources and data we believe to be reliable but we make no guarantee as to its accuracy or completeness. This material is not intended to be relied upon as specific legal or tax advice or investment recommendations for any individual as the information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. Investments involve risk and are not guaranteed.