At the time, my thinking was grounded in the numbers:

After forex conversions, that works out to be ~10.5% earnings yield and ~10.7% FCF yield.

And the broader picture was one of a business in a trough, not a terminal decline:

Remember that the business is currently declining in revenue (24% YoY) and EPS (-64%). In the worst case, EPS could be as low as 0.0572 but as the business improves, analysts estimate that the EPS in 2023/24 will be closer to 0.0905 or closer to 7.5% earnings yield or 13.3X P/E. These same analysts expect the EPS to improve to USD 0.1575 by 2025-26, which if it happens, would put today’s purchases in the “win” category. Not blindingly cheap but not excessively expensive.

That measured optimism proved well-placed. Looking back, perhaps the most prescient thing I ever titled a post was “Buying in the Lull” written in April of last year. Three words from it aged particularly well:

But the cycle is turning.

And turn it did. By the time I was covering Lenovo again in Nov 2025, the evidence was unmistakable:

This is a post-cycle upswing year for Lenovo. The company has already reported more profit in the first three quarters of 2024-25 than in the full prior financial year. If it finishes at around HKD 1.05 EPS, and with the stock at HKD 7.95, we’re looking at a 7-8x P/E, well below its historical 9-15x range.

By then, I was not just writing about conviction, I was acting on it. Puts were getting exercised, and rather than exit, I held everything. The position swelled. By the time of my last portfolio update, Lenovo had grown to 5.6% of all positions, roughly a third of my China basket, and my third largest single stock position overall.

Then came the latest results and oh boy, weren’t they awesome!. Revenue up 27% year-on-year, profits up around 10%, and crucially, the growth was being driven by AI. Once a company delivers blockbuster numbers and hitches itself to the defining narrative of the moment, there is very little holding the stock back. It doubled, and then kept going. At its peak, Lenovo was trading at 20x earnings and around 15x free cash flow.

Here is where temperament matters as much as analysis. I am genuinely optimistic about quality businesses when they are sitting at the bottom of their cycle, battered by external forces and priced to reflect maximum pessimism.

But I am equally skeptical when those same businesses have frothy valuations. AI-related revenue had grown 84% year-on-year and now accounted for a third of total revenue, up from a sixth just a year earlier. That kind of growth attracts a very different kind of investor, at a very different kind of price.

I have seen this movie before. The sitting-through-the-cycle experience is a painful one for a concentrated investor. What you gain on the way up, the subsequent down-cycle has a way of quietly erasing. Stella Jones, BRK.B, Alibaba, Tencent, JD.com: all of them are sitting on significantly lower valuations today than they were at some point in the last 18 months. I was not going to let that happen again.

At the same time, I was not willing to walk away entirely. Stocks follow a power law. A handful of winners drive almost all the upside. For a portfolio carrying meaningful negative alpha and limited AI exposure, the current tailwind, a winner like this is not just welcome, it is necessary. Selling the whole thing felt like leaving too much on the table if the momentum had further to run.

So I split the difference. I placed stop-loss orders roughly 6 to 10% below the prevailing price, covering around 80% of the position, and let it ride. The momentum eventually ran out. The stock peaked just above HKD 27, rolled back to 25, and my stop-loss triggered.

Let’s be clear here though, I don’t think this stock is egregiously overpriced or anything. In fact I will likely continue to build on my position defensively, most likely through some combination of writing out of the money PUTs and some CALL Spreads. It is just that taking money off and keeping some dry powder ready made far more sense at the moment.

Having said that, this ranks among the cleanest wins I have had in some time. A large position in an undervalued company, followed by results that genuinely surprised, followed by the market paying attention: that is the entire thesis in action. In fact this is the same thesis that’s worked for me with Gold, Crocs and now Lenovo. Buy cheap and wait for it to pay off.

Yes, the recent cycle has produced fewer wins than I would have liked, and the positions that are not winning are largely just sitting still, making for a quieter ride than I prefer. But I would rather be patient and concentrated, waiting for moments like this one, than scattered across a portfolio of mediocrity.

And the key detail, the one that made all the difference: it was not just that the inflection happened. It was that the inflection happened after the position had grown large enough to matter. I will take those wins when they come. Onwards and upwards.

Happy Investing!

Disclaimer: I may hold positions in the tickers mentioned in this post. I am not your financial advisor and bear no fiduciary responsibility for your actions. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities.

“Yet even on these reduced expectations, the company should still deliver ~$150 million in quarterly earnings, or ~$600 million annually, translating to $10-11 EPS. That leaves the stock trading at 7.5x forward earnings, even under conservative assumptions.”

Sadly, the business did not deliver to that level. The last three quarterly results came in at $145M, $105M, and $137M, all well below my expected $150M run rate. Upcoming guidance remains soft, with revenue expected to come in 4% lower y-o-y next quarter.

The Capital Allocation Story

I also wrote at the time about the strength of the company’s capital allocation.

Meanwhile, capital allocation has been prudent (and for context, the market cap today is $4.3Bn) and last four years of free cash flows being $510M, $490M, $815M and $923M. In 2024, the company deployed $225M in repurchases at an average of $111.51/share. In the first half of 2025, $194 has been put into retiring shares at ~$102/share. At ~$80 a share, there will be more bang for the buck - lying around is ~$1.1 billion authorization for buybacks — at today’s market cap, that could retire a quarter of the company - though it might take 2+ years of FCF to generate the required cash. Yet, it is a meaningful backstop.

That thesis has very much held up. Free Cashflow (FCF) deserves some nuance here: Q1 is traditionally when the company builds and ships inventory, causing working capital to expand. The remaining three quarters are when inventory runs down and cash comes in. So the right lens is trailing twelve months (TTM), not any single quarter. On that basis, TTM FCF has been sturdy at $663M, with $520M deployed into buybacks. The share count has fallen from 56M to 50M shares since I last wrote, and repurchases over the past twelve months appear to have been made at prices below where the stock trades today, making them accretive for ongoing holders.

I was mildly disappointed by the lack of repurchases in Q1, despite the seasonally cash-light nature of the quarter. But activity has resumed in Q2: “Subsequent to March 31, 2026 and through April 23, 2026, we repurchased 0.8 million shares of our common stock for $73.6 million.”

So it is a mixed story. The income side has been underwhelming. The capital allocation side has been steady. The market, to its credit, seems to have registered both: the stock is up roughly 40% since I first wrote about it.

What Actually Happened

The business did not rerate by 40%. The stock did. This is precisely the kind of opportunity I look for: a position defensive enough that, given time, you should see either a business rerate, a valuation correction, or preferably both. Here, the business did not rerate at all. The valuation simply corrected from an oversold level, exactly in line with the thesis.

I held the position through a 2028 Jan 80/85 risk reversal, which moved from roughly $6 a contract to about $40. Without putting down much cash, I was able to extract the upside, making it the best IRR position in my portfolio!

What I’m Doing Now

I’ve been thinking for a while about how to manage this position. The options structure means every move up or down gets severely magnified, and I have enough volatility elsewhere in the portfolio, not of the good kind. So I’ve decided to take profits and move some of the proceeds into CROX stock directly. This lets me retain some exposure and potentially build on it, without the leveraged profile of the options position. It also frees up some cash to enter and build positions elsewhere.

I don’t generally encourage readers to follow me into trades; everyone should evaluate their own risk. But in this case, I genuinely wish you had. A 6x return in six months is not the kind of thing value investors like me see very often, certainly not in recent years. I’ll enjoy this one.

More such wins to come, and happy investing to all CROX shareholders.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

So when I do take the plunge, the bar is high. Ryanair clears it.

The Business: Ruthless Simplicity

Ryanair (RYA.IR/NASDAQ:RYAAY) is Europe’s dominant budget carrier, headquartered in Dublin, operating point-to-point routes across the continent. Its core proposition is disarmingly simple: the cheapest ticket on the route, almost every time.

The cost discipline behind that proposition is anything but simple. Ryanair flies a single aircraft type - the Boeing 737 family - keeping maintenance, training, and parts interchangeable across the fleet. Planes carry their own pull-out staircases to avoid airport fees. Turnaround times run 20–30 minutes, maximising hours in the air. All tickets are non-refundable, eliminating an entire layer of operational complexity. Check-in is digital-only. Heavy luggage is actively discouraged to manage fuel burn. Every decision, without exception, is filtered through the question: does this reduce cost?

The only thing that sits above cost discipline is safety. CEO Michael O’Leary has been emphatic on this - and the airline’s operational record backs it up.

O’Leary himself is worth a word. He’s cultivated a persona of outrageous provocateur - floating ideas like pay-per-use toilets and standing seats - and the airline has earned a reputation as one of Europe’s most derided carriers. O’Leary has essentially leaned into this: “The day we win awards for being popular, I will quit.” But strip away the theatre, and what you find is one of the sharpest operators in global aviation: a man with a forensic understanding of airline economics and a decades-long track record of turning that understanding into profit.

The base fare gets you on the plane. Everything else - seat selection, extra legroom, food, insurance, car hire, hotel bookings - is an upsell. Critically, most of that ancillary revenue is pure commission income, with no operational burden on Ryanair. It is a well-worn low-cost playbook, but nobody executes it more seriously.

The Growth Story

Despite the reputation, customers keep coming - because cheap fares and good connectivity are hard to argue with. (I’ll admit I’ve found myself on Ryanair more times than I’d planned, and never anywhere near the advertised headline fare.)

The numbers tell the story clearly:

• Ryanair is now the world’s largest international airline by passenger volume - a function of the fact that most intra-European routes cross a border.

• In 2024, it operated 3,044 daily flights2, leading all European aviation groups, and was the fastest-growing among the majors.

• Over the five years to 2024, it grew capacity by 31% - second fastest in its peer group, and fastest among the top five.

• In its top five markets in 2025, passenger volumes grew 4–8%3. In Italy alone, Ryanair now accounts for 48% of all domestic passengers - a level of market entrenchment that is difficult to dislodge.

• In FY2025–26, it added another 4% in passengers and 11% in revenue.

This is a business that keeps growing, almost regardless of how people feel about flying it.

The Bear Case: Three Risks Worth Taking Seriously

Being balanced requires acknowledging the headwinds. There are three that deserve genuine attention.

1. Oil prices and geopolitical risk. Fuel is Ryanair’s single largest cost, and the current Middle East situation has pushed prices higher. This is real. That said, Ryanair is approximately 80% hedged on fuel costs through March 2027, which provides meaningful near-term insulation. More importantly, fuel shocks hurt all airlines - and Ryanair’s structural cost advantage means it absorbs them better than most. A prolonged crisis could actually accelerate competitor distress and hand Ryanair further market share, as it has done in past downturns.

2. Boeing delivery delays. Ryanair has 154 aircraft on order from Boeing, against a current fleet of 359. Boeing’s well-documented production and quality control difficulties are a legitimate concern - delayed deliveries constrain growth capacity and create planning headaches. This is a risk I don’t dismiss. However, Ryanair has navigated Boeing delays before, and O’Leary has been publicly combative with Boeing in pushing for both timely delivery and compensation. It is an overhang, not an existential threat.

3. Competition from EasyJet and others. EasyJet is the closest comparable and follows a similar playbook. The European low-cost market is competitive. The honest counterpoint here is that Ryanair has consistently out-executed its peers on cost - its CASK (cost per available seat kilometre) remains the benchmark in European aviation, with only WizzAir in Europe coming close. That gap doesn’t close overnight, and Ryanair’s scale advantages compound over time.

None of these risks are reasons to avoid the position. They are reasons to size it with appropriate humility.

The Bull Case

Here is why I am buying now. Its clear that the RyanAir growth story is in progress and offers a reasonable runway ahead, and a well run company with growth prospects are not easy to find at reasonable prices these days.

In that context, its notable that Ryanair trades at roughly 14x trailing earnings and 17x trailing free cash flow - a valuation I haven’t seen on this business in some time. A combination of macro headwinds and broader market caution has brought the stock down approximately 15% year-to-date, creating an entry point that a structurally sound, growing business rarely offers.

Critically, the balance sheet has just been cleaned up. Ryanair recently paid off its last €1.2 billion of debt, leaving it debt-free. For an airline - a capital-intensive business where leverage is often the thing that kills you in a downturn - this is a meaningful distinction.

While the company has been repurchasing shares aggressively over the past decade, having retired 27% of stock, it has been increasing return to shareholders through a combination of buybacks and dividends, with the last 2 years showing a marked acceleration, returning $5.80 per share4.

The setup is straightforward: a dominant low-cost operator, with the strongest unit economics in its category, growing passengers and revenue, debt-free, and trading at a discount due to transient macro concerns. The 154 aircraft on order provide a clear runway for continued capacity growth as deliveries eventually normalise.

This isn’t the cheapest entry I’ve made recently - HOG, NVO, and CROX all came in at lower relative valuations with more questions hanging over them. Ryanair comes with fewer existential questions and a more predictable compounding path. At this price, with this balance sheet, and with this management team, the risk/reward is compelling.

Unlike my recent ventures, where I have deployed options a lot, this one is back to basics - I am acquiring the US listed ADR - RYAAY, a small number of shares at a time, and it will likely be many months before I get to my desired position size (and even that depends on exiting some options positions along the way.)

Position initiated. Happy Investing.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

Back in India, where I grew up, it’s mango season. And nothing beats mango season. Nothing beats Indian mangoes, either. Banganapalli any day for me, in case you’re wondering.

Part of the joy of a mango lies in its incredible taste and juiciness. But a large part of the charm is also its fleeting nature. Good mangoes - like the Banganapalli - have a short season. It begins around April and lasts perhaps two to two-and-a-half months at most. Outside that window, the alternatives are never quite the same.

That cyclicality is what makes mangoes special. And even a casual mango connoisseur will tell you that nothing mango-flavoured ever comes close to the real thing.

Why am I talking about mangoes?

Partly because it is mango season. But also because, like mangoes, truly good investing opportunities tend to arrive in cycles.

“Good,” of course, is subjective here.

It doesn’t take a lot of rocket science to see that many of the investments I hold - value-oriented businesses with steady, boring growth trajectories, defensible positions, and reasonable valuations - are not exactly in vogue right now.

And yet, most of these businesses continue to deliver solid underlying results. One would normally expect stock prices to eventually reflect that reality. But apart from a couple of exceptions - Sumitomo Corporation and Crocs, Inc. come to mind - many others continue to languish.

Meanwhile, the market is clearly chasing two things:

1. AI

2. Everything adjacent to AI winners

Having spent the last several months skilling up on AI myself, I can absolutely see the transformative potential. I also understand why so many people are excited - and in some cases fearful or anxious - about what AI could do to the business world.

And to be clear, I think many AI investments will work out extremely well over the medium to long term.

Anthropic, for instance, has emerged from relative obscurity over the past year to establish itself as one of the most credible players in the AI tooling ecosystem. It isn’t publicly traded, but its private valuation has risen dramatically - and probably for good reason.

That said, I also believe not everything currently being labelled an “AI winner” will ultimately deliver the business results implied by today’s valuations. And conversely, not everything currently treated as an AI loser will remain a loser forever.

If that’s the broad backdrop, then what’s the best way to manage a portfolio through it?

My answer is probably some combination of personal preference, temperament, and circumstance.

Firstly, I work at a tech company that is heavily leveraging AI across its business operations. We’ve also repositioned ourselves as an AI company. If the AI wave continues to compound from here, the equity I hold in my employer will likely appreciate meaningfully over time. That alone gives me meaningful exposure to the upside.

Secondly, I’ve always been fairly honest with myself about my own limitations as an investor. Because of that, I continue to keep a significant portion of my capital in ETFs and index funds - with the majority sitting in the Vanguard FTSE All-World tracker.

That means that as the broader equity market continues its bull run - whether powered by AI today or by something entirely different tomorrow - I still participate in that upside. At the same time, keeping things diversified at a global index level rather than concentrating heavily into AI or tech gives me a reasonable hedge if sentiment eventually reverses.

Thirdly, as an individual stock picker, I have always leaned defensive and somewhat contrarian. I spend far more time thinking about downside protection than upside maximisation.

That approach has done two things for me over the past decade-plus:

• It has allowed me to sleep well.

• It has made me enough money to comfortably beat inflation while preserving flexibility.

Keeping my portfolio relatively defensive has also meant that whenever life presented other opportunities - investing in a business venture, buying a house, or simply taking a different risk elsewhere - I was financially prepared to act.

And then there’s the ultra-defensive layer: a home I live in, where every mortgage payment slowly but steadily reduces leverage on the books, coupled with a conscious eye on lifestyle inflation. Both reduce the pressure to constantly chase outsized investment returns.

Loosely speaking:

• (1) is leveraged AI exposure,

• (2) is hedged momentum exposure,

• and (3) is defensive contrarian investing.

Will this be the best-performing asset allocation at every point in time? Almost certainly not.

Will it help me achieve my long-term financial goals while letting me sleep peacefully at night?

Most likely, yes.

A quick programming note before I wrap up: after a fairly quiet Q1 and an even quieter April, I’ve started becoming slightly more active again on the investing front. I’m also hoping to find the time to write a bit more regularly in the coming months.

So stay tuned for more.

And with that - happy investing.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is for educational and entertainment purposes only. Do your own due diligence before investing. I may hold or enter into positions in the securities mentioned above. This is not a solicitation to buy or sell any security.

Life (read: day job) has been busy, and I have been spending a lot of my spare time getting better at Chess — roughly 300 ELO points of improvement over the last year. All that has meant that I have spent less time on my investing life.

If I am spending less time thinking about investing, then naturally blog content will be lower.

Performance Recap

As a quick performance recap, Q1 was another bad quarter for the Coffee Can Portfolio.

The Coffee Can Portfolio declined -6.84% in Q1 2026, while the benchmark — the Vanguard Global All Cap Fund — lost a mere -1.21% over the same period.

Since inception, performance stands as follows:

Portfolio XIRR (GBP): 7.99%
Benchmark XIRR: 12.61%
Alpha: -4.62%

Continuing on the theme of my previous post on this topic, the underperformance has been fairly widespread. I seem to have found the rare skill to diversify just well enough to pick several underperformers at the same time. In any case, a poorly performing portfolio questions the credibility of my writings, on the portfolio and stock selection, specifically. 🤷

The Virtue of Switching Off

Spending less time with your portfolio is very much a desired attribute.

One must think very carefully before putting down a single penny into an investment. Once they do — and if they are truly long-term investors — then being able to switch off from having to think about it is an excellent virtue.

I have done this on and off during my investing lifetime, but I seem to have been more “in the connect” over the past five or six years. Switching off in Q1 (and continuing to do so presently) felt good and very cathartic.

Interestingly, the ability to ignore the portfolio for an entire quarter strengthened my conviction that this is a pretty good portfolio for me.

If I can sleep through a whole quarter without worrying about what the market did, and still feel broadly comfortable reviewing it at the end, that’s a useful signal. And strangely satisfactory.

What “Satisfactory” Really Means

In this context, comfort with a portfolio is not determined solely by short-term performance. What matters more is whether you understand and believe in what you own — and whether those investments are likely to deliver the outcomes you want within the time horizon you have set for yourself.

In my case, I do not have any financial demands on this portfolio for the next three to five years.

With that in mind, I remain comfortable with the companies I hold. On that, here stands the portfolio:

No changes were made during the quarter itself. However, on 1st of April, I added ever so slightly to my India ETF position. All the listings have been moved to Maintain purely because I am not doing anything to add to those positions. I expect very little to change in Q2 - though the hedge position will run out, and I have to decide if I want to renew it or move on.

The Strange Problem of Having No Capital to Deploy

Due to decisions we have made as a family, our overall cashflow has gone down, and therefore the money available to put into investments has also reduced. These are choices we are very happy to make. Having said that though, I have to confess — I am running out of capital to allocate. And with that, the motivation to constantly look at my portfolio or generate ideas.

Unless I am willing to sell something, or take on leverage — both of which I am generally biased against — there is little practical reason for me to spend time researching new ideas.

If capital cannot be deployed, then constant reading and analysis becomes a somewhat unnecessary expenditure of time and energy.

To be clear, I do derive intellectual pleasure from reading (and writing) about markets and money. But it is still a deliberate choice of time spent — and for now I have chosen to spend that time elsewhere.

A Useful Realisation About Returns

Stepping away from the day-to-day noise of markets has allowed me to think more clearly about what I actually want from my money.

One realisation that has become clearer over the past few months is that fretting over my portfolio, or my wealth building on a week to week basis, has at best a marginal, and at worst a negative, impact on my retirement planning.

Starting early, maintaining a disciplined lifestyle, and investing consistently are the real fundamentals and builds enough margin into one’s plans that one can afford to take the foot off the accelerator a little. I should still reach the destination regardless of short term portfolio decision making I go over.

An undoubtedly, fortune has certainly played its part too: good jobs, reasonably sensible decisions, and a fair amount of luck along the way. I suspect this may be true for more people than they realise. Counting one’s blessings is an underrated aspect of mental strength on the wealth building journey.

A Note for New Readers

Over the past year, this blog has quietly picked up a number of new readers.

If you are one of them — welcome.

While updates on the core portfolio may continue at a slower pace, I will likely write from time to time about broader topics around investing, wealth building, and financial decision-making.

The blog has always been free, and the goal has always been simple: to document my thinking as an investor, wealth builder, and retirement planner and share lessons along the way. Sometimes I get very nerdy with data, and sometimes I get very philosophical, like today, but all of it was to be sincere and with intellectual honesty.

If those reflections prove useful to others, like you, that is a welcome bonus.

Closing Thoughts

Updates on the Coffee Can Portfolio will likely remain occasional rather than frequent. But when something interesting happens — either in the portfolio or in my thinking about investing — I will continue to write about it here. What are your current investing thoughts, care to share?

Until then, Happy investing.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is for educational and entertainment purposes only. Do your own due diligence before investing. I may hold or enter into positions in the securities mentioned above. This is not a solicitation to buy or sell any security.

The Evolution of the Greats

Style is a byproduct of experience, market conditions, and who you’ve been listening to. Take Warren Buffett. He started his career hunting for “cigar butts” - statistically cheap businesses with one or two puffs left. It was Charlie Munger who convinced him to shift toward “quality at a reasonable price.”

That style switch allowed Buffett to move into much higher market-cap fishing grounds. Had he stayed a cigar-butt purist, he likely would have had to return capital to investors just to keep his focus on those companies. Instead, that drift paved the way for Berkshire to become the behemoth it is today.

On the other end of the spectrum sits Neil Woodford. Once celebrated in the UK for his success in large public equities - often with a quasi-activist tilt - he later pivoted into significant exposure to unlisted companies1. That stylistic shift proved fatal when liquidity mismatches forced fund suspensions and ultimately the collapse of his flagship funds. Though, given his track record with public entities, he may yet have a successful second coming.

The Double-Edged Sword

Sometimes style drift is healthy. As you accumulate experience, your mental models sharpen. You suffer losses. You refine. You discard tools that don’t serve you and learn to use others more precisely. I’ve experienced this personally: I went from having zero exposure to options, to being a regular trader, to losing money, and finally to using options as a pointed tool - something used infrequently and only in surgical situations.

On the other hand, style drift can be incredibly frustrating. When your old mental models no longer apply, the “frequency of the catalysts” changes. Quarterly reports start looking different than what you’re used to, and that gap between expectation and reality causes significant mental agony.

Why I’m Thinking About This (Because It’s Happening to Me)

Over the last year, I’ve realised I am currently navigating two distinct style drifts.

First, the shift from Diversification to Concentration. My portfolio moved from being over-diversified to being concentrated. Suddenly, I’m exposed to the vagaries of individual annual reports. In the old days, a scathing write-down in one stock might cost me 0.8% of my portfolio; now, as with Stellantis, it costs me 1.5%. When a large allocation falls out of favour - like Berkshire currently - it becomes a massive drag that nothing else can easily compensate for.

Second, the shift from Quality-at-Fair-Price to Value/Turnaround.

I used to own companies with proven track records and positive momentum, even if they were a bit costly. Now, look at my 2025 additions: Harley-Davidson, Stellantis, Facilities by ADF, Crocs, Novo Nordisk, and TheTradeDesk. Each of these was sizably down from its peak when I bought. While that made them attractive, there were ample market indications that they wouldn’t provide positive returns in the short term. The hard truth is now appearing in the quarterly reports: Harley is selling fewer motorcycles, even if the capital allocation story remains intact.

It is a novel, frustrating feeling. I am used to seeing earnings go up collectively at the portfolio level, even if one or two stocks lag. Right now, that collective growth isn’t there.

The Waiting Game

The more I think about it, the more I reach the same conclusion: To expect these companies to magically turn around within two or three quarters is lunacy. Once the market signals its pessimism (through a significant downrating of the stock), you have two choices: be a master of entry timing (which is a rare skill I distinctly don’t possess), or wait it through. The hope is that the entry price was low enough that the short-term downside is contained, and as the situation eventually inflects, the returns show up.

Or, they may not. It is entirely possible that this cohort of selections - or my analysis of them - is flawed. The only way to find out is to have the discipline to see it through.

Final Thoughts

Style drifts are real. Expanding your style can increase your “fungibility” as an investor, but it comes with intellectual and mental challenges. You have to have the stomach to follow the process to its conclusion, whether it rewards you or not.

I’m becoming more conscious of my own drifts - from diversified to concentrated, and from quality to “cigar-butt” turnarounds. I’m determined to learn from both.

What’s been your experience with style drift? Have you ever changed your “fishing grounds” only to realise the water was choppier than expected?

On that note, happy investing!

Sounds intuitive? Great, keep reading. Doesn’t sound intuitive? Even better - read twice.

The Contestants

Meet our four lab rats: Alice, Bob, Carol, and Daniel. They all start their careers at 23, earning a very respectable £40,000 (roughly the UK median). They are identical career clones: 3% annual raises and a 10% “I’m essential” promotion bump every five years.

The only thing that separates them is their “burn rate”—how much they spend on life, lattes, avocado toast and Netflix subscriptions:

• Alice: The Frugal Ninja (£20k spend)

• Bob: The Middle Ground (£25k spend)

• Carol: The Lifestyle Creeper (£30k spend)

• Daniel: The Big Spender (£35k spend)

They all invest their leftovers into a boring, reliable 7% return.

Scenario 1: The “No Shit, Sherlock” Graph

Unsurprisingly, Alice’s bank account starts looking like a hockey stick while Daniel’s looks like a gentle slope. Because Alice saves 50% of her income while Daniel saves barely 12%, she isn’t just “wealthier”—she’s playing a different game.

Remember, however, that Financial independence is whenever your corpus reaches roughly 30x your spending (I am buffering the normally used safe-withdrawal rate of 4% down to 3.33% to build a bit of buffer)

But here is the kicker: Alice hits Financial Independence (FI) at age 40, or in 17 years. Why? Not just because she has more money, but because her “Freedom Number” is half of Daniel’s. She’s climbing a shorter mountain with better gear.

Scenario 2: The “Late Bloomer” Epiphany

Let’s say our heroes spent their early years being “young and dumb.” Even though they don’t spend their money, they blew their savings on crypto scams, NFTs, SPACs, or other bad investment choices. Or they are extremely responsible and help out their families with their savings. Eventually, they “find religion” (and Vanguard) and start investing properly at 7%.

If the goal is to retire at 65 (current UK retirement age), how long can they afford to not be on the compounding train?

Alice, with her low overhead, doesn’t even need to start until she’s 40. Meanwhile, Carol needs to have her life together by age 27, not too long after her career starts. Daniel stands no chance in this scenario.

The lesson: A low cost of living is a time machine. It buys you the right to make mistakes.

Scenario 3: The Turtle vs. The Golden Hare

Now, let’s make it unfair.

• Alice is a “low-flyer”: 2% raises, promotions every 7 years.

• Daniel is a “high-flyer”: 5% raises, promotions every 4 years.

(and Bob and Carol along the continuum)

Even with a “worse” career, Alice still crosses the finish line first. Daniel is trying to fill a massive swimming pool with a firehose. It’s impressive to watch, but it takes forever to get deep enough to dive in. Alice is just trying to fill a bucket with a garden hose. She’s ready to go for a swim while Daniel is still watching the water level slowly creep up the deep end.

The Hard Truth

In the real world, being Alice is hard. It means saying no to the fancy car, the upgraded flat, and the third vacation. It takes willpower. But being Daniel is also hard - it’s the silent stress of knowing your lifestyle is a house of cards that requires a high-octane salary just to keep the lights on.

The takeaway is simple: A lower spending path is the ultimate cheat code. It allows you to:

1. Survive a slower career path without panic.

2. Absorb financial body blows (job losses, bad investments) without folding.

3. Exit the rat race while you still have the knees to enjoy it.

The choice isn’t just about how much you make - it’s about how much you need.

What does your glide path look like? Are you building a mountain, or just a very expensive treadmill?

On that note, Happy Investing!

And for good reason.

Over the past four decades, Microsoft has been a spectacular business. Its earnings per share grew from $0.14 in FY’95 to $13.64 in FY’25, representing a CAGR of 16.49%. Had you invested in Microsoft in 1996 and simply held on, that investment would have been a 60-bagger, compounding at 14.62% CAGR.

To put Microsoft into context, it belongs to a rare cohort of early technology giants that scaled to enormous size. Think Cisco, Intel, Oracle, and IBM. What stands out is that, decades later, Microsoft is the only company from that group that still occupies the very top tier of global market capitalisation. That survival is not accidental. It reflects durable moats, repeated reinvention, and an ability to endure shifts that wiped out many of its peers.

This history matters today because we once again find ourselves surrounded by companies touted as the inevitable future of the world and of stock market returns. NVIDIA, Tesla, SpaceX, OpenAI, and Meta. The stories are compelling. Yet history, from the Nifty Fifty to the dot-com era, reminds us that very few giants survive intact. At best, a handful do. Sometimes, only one.

The Business Story

Let us start with the business itself.

Split-adjusted, Microsoft earned roughly $0.24 per share in the mid-1990s. From there, earnings compounded impressively. Over the last forty years, EPS declined in only six years, often due to write-downs rather than underlying business weakness. More importantly, Microsoft reinvented itself multiple times.

It began as the dominant operating system and enterprise software company. It then struggled through the internet transition as Google emerged, followed by a difficult mobile chapter where Apple took the lead. Later, Microsoft found its footing again with cloud computing and now appears to be navigating the AI transition with far greater success.

One remarkable aspect of this journey is leadership continuity. Over its entire history, Microsoft has had only three CEOs: Bill Gates, Steve Ballmer, and Satya Nadella. Gates defined the founder-CEO archetype. Ballmer presided over scale and profitability. Nadella engineered cultural and strategic renewal. Very few companies of Microsoft’s size have enjoyed such stable stewardship.

The Investor Journey

For investors, however, the story is far less linear.

Microsoft was the unquestioned leader of the dot-com boom. By late 1999, its market capitalisation had reached nearly $600 billion, and it was a core holding in almost every institutional portfolio. The stock peaked on 1999-12-27 at $59.56 on a split-adjusted basis.

It would not surpass that price again until 2016-07-20!

That is over sixteen years just to break even. To recover opportunity cost, it likely took even longer. While the Japanese equity bubble is often cited as one of the worst investment experiences in history, prolonged drawdowns in marquee Western equities are far more common than many realise. And in choosing Microsoft, we are already looking at the survivor. Many of its contemporaries never recovered at all.

Valuation at the Peak

At the 1999 peak, Microsoft earned approximately $0.82 in trailing twelve-month EPS. Investors were willing to pay close to 70 times earnings. Given that the company earned EPS of $0.90 in the next 12 months, that’s 66x forward earnings!

These were extraordinary valuations.

At that price, it took the company roughly 22.5 years to earn back the $59.56 paid in December 1999. Business growth alone was not enough to deliver acceptable investor returns over long periods when starting valuations were extreme.

ps: As a methodological note, to smooth earnings volatility caused by occasional write-downs, I have used cyclically adjusted earnings. The adjustment window is two years, long enough to reduce noise while still capturing business dynamism.

When the Business Thrives but Investors Suffer

During the extended drawdown period, the business continued to perform well. Earnings roughly tripled, cash flows remained strong, and the franchise strengthened. Meanwhile, valuation multiples compressed dramatically. From roughly 66x earnings at the peak, valuations fell to nearly 10x at the bottom before stabilising around 14 to 15x when the stock finally broke even.

Viewed side by side, the contrast is striking. Earnings compounded steadily while investors experienced deep and persistent drawdowns. For over sixty consecutive quarters, shareholders were underwater even as the business itself grew.

One might argue that only investors unlucky enough to buy at the exact peak suffered. But shifting the entry point earlier does not materially change the picture.

Buying one or even two years earlier still resulted in extended periods of drawdown. Timing mattered far more than business quality alone.

What If You Used a Holding Period Strategy?

Perhaps, instead of buy and hold, you might argue for a disciplined strategy. Hold for a fixed number of years, reassess, and move on if returns disappoint.

Fair enough.

Here is what forward returns looked like for Microsoft investors, measured over rolling 3-year, 5-year, and 10-year periods. The shaded region highlights annualised returns below 10 percent.

For long stretches, even patient investors earned less than 10 percent annually. In some windows, returns were far worse. This was not due to a broken business. It was the consequence of starting valuations that left no margin for error.

Closing Thoughts

The broader lesson is not that one should avoid great companies. On the contrary, identifying businesses with durable moats, strong balance sheets, resilient cash flows, and stable leadership is essential.

But valuation still matters enormously.

AI will almost certainly change the world, just as personal computing, the internet, mobile, and cloud computing did before it. Yet most dominant players from those earlier revolutions faded away. Even one of the few survivors, Microsoft, delivered a decade and a half of pain for investors who entered at the wrong price.

This time may be different. Or it may not be.

Tread carefully.

On that note, happy investing.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is for educational and entertainment purposes only. Do your own due diligence before investing. I may hold or enter into positions in the securities mentioned above. This is not a solicitation to buy or sell any security.

Foreign investors sold aggressively, while gold, the Indian equity investor’s primarily competitor, had a stellar year. And yet, at the macro level, the picture looks different. The Indian economy, by most measures that actually matter, continued to hum along just fine.

This divergence - between a relatively dull equity market and a still-strong underlying economy - is precisely what makes 2025 interesting. And, perhaps counter-intuitively, what may make it one of the more attractive years to build long-term positions.

Domestic Capital: The Real Story of 2025

2025, as tepid a year as it was, marked the end of the post-COVID earnings upgrade cycle in Indian markets, which had a spectacular few years. Largely due to a perhaps unfair narrative that India was an “AI loser” - prompting capital rotation into China, Taiwan, and Korea - and India briefly became a funding market. Passive outflows amplified the move as India’s weight in global indices fell. Foreign portfolio investors sold roughly ₹1.5 trillion worth of equities over the year.

And yet, the indices didn’t collapse. If there was one dominant force holding Indian markets together in 2025, it was domestic capital. Domestic institutional investors, primarily mutual funds funded via SIPs, injected close to ₹3+ trillion. This wasn’t hot money chasing momentum. It was slow, systematic, and largely indifferent to short-term volatility.

This is the quiet revolution that doesn’t get enough airtime. Household savings are being steadily financialised, moving away from real estate and gold and into market-linked instruments. Estimates suggest roughly ₹5 trillion a year now flows into equities via this route (SIP + other investments). Even in a year when gold performed exceptionally well - traditionally a competitor for household savings - equity flows held up.

Now imagine what happens when foreign investors return - not with exuberance, but simply with neutrality.

Fiscal, Financial & Political Strength: An Underappreciated Advantage

One of India’s most underappreciated strengths remains its balance sheet.

Government debt-to-GDP at 81%, while not trivial, is far more manageable than many developed peers. Remember that due to natural growth and inflation, this is far less cumbersome than at countries with miniscule growth rates.

Household debt sits at roughly 41% of GDP — compared to ~75% in the UK and ~60% in China. When global shocks emerged in the past 12 months - tariffs, trade uncertainty, external volatility - India had room to respond fiscally, and react they did - cutting GST rates between 5% and 12% across many categories.

Contrast that with the UK, where fiscal headroom is so constrained that even modest relief measures feel like political brinkmanship. This matters because fiscal flexibility is not just about stimulus - it’s about optionality, and it seems India both has it and is willing to flex it as required.

As regulators, both the RBI and SEBI deserve credit here - few regulators globally have overseen such a rapid expansion of retail market participation without a corresponding deterioration in stability. The financial system has been nudged - firmly but patiently - towards transparency, discipline, and resilience.

“Mutual Fund Sahi Hai” is a classic example.

India’s political stability is often taken for granted. It shouldn’t be. Since I started my professional career, way back in 2004, India has had two prime ministers. Since the turn of the century, three! The UK saw as many in the calendar year of 2022 alone!

Markets don’t need perfection. They need predictability. India has quietly delivered that.

Valuations: Still High, But Context Matters

Yes, Indian equities remain expensive on absolute metrics. That hasn’t changed.

What has changed is the relative picture. India’s valuation premium to global markets - particularly the US - has shrunk to well below its long-term average and is at its lowest level since 2016. Multiple expansion from here may be limited, but the argument that India is egregiously overvalued is weaker than it has been in years.

Meanwhile, long-term fundamentals remain intact. Nominal GDP growth has historically run at 11-12%, combining 6-7% real growth with moderate inflation. Corporate profits tend to grow at least in line with nominal GDP when profit share remains stable.

Add to that a secular decline in the cost of capital - with 10-year bond yields hovering around 6.5% - and you have a market that doesn’t need heroics to deliver reasonable outcomes.

Supply, Demand, and the IPO Deluge

2025 also saw an extraordinary surge in equity supply. IPOs over 2024 and 2025 totalled roughly ₹3.4 trillion - nearly half of all capital raised in the previous 35 years combined. Another ₹3.5 trillion worth of draft papers are already filed.

And yet, the market absorbed it.

With estimated equity demand of ₹5 - ₹7 trillion next year - even without FPI inflows - the supply-demand balance remains supportive. That’s not something India could have said a decade ago.

So Why 2025 Might Matter More Than It Looked

2025 may end up being remembered not as a year of spectacular returns, but as a year of quiet positioning.

Foreign money left. Domestic money stayed. Fundamentals remained largely intact.

I’ve been steadily adding to my India exposure (via LON:IIND ETF) through 2025 - not because it felt obvious, but because it felt available. I will continue to do so given further opportunities in 2026. Markets rarely offer clean entry points when optimism is abundant. They do, however, offer them when boredom sets in.

And boredom, in investing, is often underrated. On that note, Happy Investing!

Performance Summary

The Coffee Can Portfolio declined -2.94% in Q4 2025, while the benchmark - the Vanguard Global All Cap Fund - gained +3.78% over the same period.

Since inception, performance stands as follows:

• Portfolio XIRR (GBP): 11.22%

• Benchmark XIRR: 14.01%

• Alpha: -2.79%

This marks the third negative quarter in the past five, and equally the third instance of benchmark underperformance in that period. While these drawdowns have been relatively mild, they have been frequent. The offsetting factor is that the remaining two quarters delivered outsized returns, limiting (though not eliminating) the cumulative lag versus the benchmark.

The relative underperformance is noticeable - but contained.

Measured against inflation, average British inflation since the inception of this blog has been ~4.71%1. Real returns stand at 6.51%.

Perspective

If this were an external fund with professional LPs, I would probably be rehearsing some uncomfortable conversations. Fortunately, the only two LPs2 are currently in Chennai, blissfully unaware, focused on local cuisine - with podi idli now firmly established as the preferred asset of the next-generation LP.

The other LP is experiencing the classic western-resident-returning-to-India gastrointestinal adjustment; mercifully, such joys & problems remains firmly outside the fund’s mandate! 😁

Consequently, the emotional impact of recent performance has been borne entirely by yours truly - who, thankfully, comes equipped with thick skin, patience, and a stubbornly long-term mindset.

Drivers of Underperformance

The underperformance over the past three quarters is broad-based. In short: almost everything I hold.

• Berkshire Hathaway (NYSE:BRK.B), the portfolio’s largest holding and anchor, has underperformed meaningfully from a stock-price perspective. This has occurred despite another very strong year operationally. The business continues to compound intrinsic value; the market has simply chosen not to notice.

• Indian equities (represented by LON:IIND) have had a weak and narrow year, with gains concentrated in a handful of large names. The broader market has gone nowhere. I added to my India exposure during the year; further thoughts on this will follow in a dedicated post.

• Among 2025 stock selections - Harley-Davidson, Crocs, Novo Nordisk, The Trade Desk, and LON:ADF - all have delivered disappointing price performance with little to show by way of momentum. The lone exception was Stellantis, though credit for that idea belongs to a friend rather than yours truly, and I’ve therefore refrained from excessive commentary, though the alpha is always welcome.

Judged purely on short-term stock selection, 2025 earns a solid “F”. Fortunately, the investment horizon remains rather longer than a calendar year - and ideally so does the attention span of readers. Long term, I am optimistic about the prospects, of all the baskets and I expect some of the 2025 bets to start showing green in the coming years.

Portfolio Actions During the Period

Three portfolio changes are worth highlighting:

1. Exit: Anhui Conch Cement (HKG:0914)
   This was a small position in a business I never knew particularly well. While it had a historically strong growth record, the company lost momentum a couple of years ago and has shown little sign of recovery. With declining revenues, limited visibility, and operating in an industry I neither understand deeply nor care about, the position no longer justified capital allocation.
   Proceeds were rotated into Lenovo (HKG:0992) and JD.com (HKG:9618).

2. Silver Hedge
   A small silver (NYSEARCA:SLV) position was added via an options call spread (2027 Jan 50/75), providing portfolio diversification and a modest hedge within commodities without excessive capital commitment.

3. Index Protection
   A small short exposure was initiated through put options on QQQ (2026 Jun 590/490), following through on the “Borrowed Time, Borrowed Returns” post. I don’t expect these options to pay off - they just sit there as insurance.

I added materially to my India ETF position while my Lenovo position has swelled up due to some options that I underwrote which got assigned - I am happy to extend that counter. Portfolio as it stands today:

Valuation & Outlook

Despite the uninspiring recent performance cycle, the portfolio’s valuation remains attractive.

The equities3 component generates approximately £8.704 of earnings per £100 invested, implying a P/E of ~11.4 - which positions it relatively well for future returns. These Earnings are well diversified across geographies and industries. All holdings have long operating histories, with only The Trade Desk and Crocs being 21st-century companies. Balance sheets are generally strong, cash flows consistent, and management teams proven.

More pertinent, however, is the fact that despite the tepid performance of the portfolio on a mark-to-market basis, the businesses are mostly on the right track growing revenues and profits through out the year. If the managements continue to execute in line with their historical track records, the portfolio should remain well positioned to compound value over the long term - even if short-term patience continues to be tested.

After two years of 0 churn, the Coffee Can Portfolio saw ~24% churn (by value) in 2025. Well structured portfolios shouldn’t see much churn each year. With that view, I am very much hoping that 2026 will bring back the calm from the previous years and hopefully, some alpha too, to boot!

On that note, thank you for reading, and happy investing.

A Quick Recap

In the first post, we explored a deliberately simple idea: build a trading strategy around consistent buying, and book profits whenever a predefined return threshold is reached. Then go back to cash and repeat. No forecasts, no leverage, just patience and repetition. We tested this using VWRL, a globally diversified equity ETF.

In the second post, we extended the analysis to SPY and QQQ, both higher volatility and higher return ETFs. The results were interesting. QQQ, in particular, required meaningfully more capital during drawdowns, but it also delivered substantially higher returns. At least on recent data, the trade-off looked attractive.

But there was an obvious blind spot.

The backtests only went back around thirteen years. That sounds like a long time, but it conveniently avoids two of the ugliest drawdowns in modern market history: the 2000 dot-com bust and the 2008 global financial crisis. Both hit QQQ and SPY hard. VWRL, launched only in 2012, simply did not exist during those periods.

Any trading strategy that claims robustness needs to be tested against the worst cases, not just the most recent bull run. Testing solely on the last thirteen years, most of which were strongly upward trending, would be disingenuous at best.

So let’s push QQQ further back.

QQQ Through the Ugly Bits

QQQ has had a chequered history. From its launch in 1999 through to 2005, following a spectacular ascent into the first quarter of 2000, it suffered one of the most brutal drawdowns experienced by a broad-based Western equity ETF in modern times. Japan did worse, but that is a different story altogether.

As you look at the chart below, pay attention not just to price, but also to volatility.

Rolling the clock forward another six years, from 2006 to 2012, the picture improves slightly. After wobbling violently during the 2008 financial crisis, QQQ eventually ended the period higher, but not by much. Roughly 50 percent over six years.

Then came the era QQQ is now famous for. From 2012 onwards, it went on a staggering bull run, rising roughly sixfold over thirteen years. Equally striking is what did not happen: volatility never returned anywhere near the peaks seen during the dot-com crash or the GFC.

Put together, QQQ has clearly been an outstanding long-term investment. But it has also gone through extended periods of deep drawdowns, stagnation, and extreme volatility. The natural question is whether the volatility harvesting strategy survives those regimes.

Running the Strategy Through the Full History

If you apply the same trading strategy described in the previous posts across the full QQQ history, the answer is: yes, it still works, at least on paper.

It works well enough to produce positive returns, but falls behind dollar cost averaging buy and hold, and barely ekes a win over Buy and Hold.

Returns alone are not the full story. Capital requirements matter. And this is where things start to get uncomfortable.

The maximum capital required peaks at around 160,000, off of a $1,000 investment each week! That represents more than three years of continuous weekly buying without ever hitting the profit threshold required to trigger a sale.

That number gave me pause.

It is one thing to say, in theory, “this strategy makes money.” It is another thing entirely to live through three years of adding capital every week without seeing a single realised profit. That requires a level of patience and conviction that most people, myself included, tend to overestimate.

My personal experience is that traders, unlike long-term investors, like to see progress. Even an occasional win helps maintain discipline. Going years without a realised gain is psychologically brutal, and in practice often leads to abandoning the strategy altogether, usually at the worst possible moment.

If trader behaviour is a key constraint, then time horizon becomes critical.

What If You Don’t Stick Around That Long?

Let’s look at what happens if the strategy is run over shorter windows, and explicitly account for drawdowns, both in absolute and percentage terms.

Two-Year Windows

Depending on when you start, a two-year window can produce outright losses or significant underperformance versus simpler strategies. More importantly, the drawdowns can be severe. This is where the emotional cost of the strategy becomes most apparent. Being materially down for extended periods is not for the faint-hearted.

Three-Year Windows

Extending the window to three years helps, but not by much. The number of losing periods drops, but they do not disappear. Drawdowns remain large, and patience is still very much tested.

Five-Year Windows

At five years, the picture finally stabilises. Losing periods disappear in this sample, and the strategy becomes more robust. However, the capital requirements and worst drawdowns remain substantial.

Catch the falling knife once, and you are committed for the duration, regardless of how long you intended to run the strategy.

So Where Does That Leave Us?

What initially looked like a clean, attractive strategy turns out to be far more demanding than recent history suggests. It requires more capital, more patience, and more emotional resilience than many traders are realistically prepared for.

To make this explicit, it helps to look at performance across a wide range of holding periods.

The chart is noisy, but the key question is simple: are the lines mostly above zero? If they are, the strategy might still make sense.

The answer is mixed. There is a positive skew, meaning the strategy often works. But there is also a non-trivial amount of time spent below zero. Add to this the fact that buy and hold returns are understated here due to dividends being excluded, and the more favourable tax treatment long-term holdings receive in many jurisdictions, and buy and hold starts to look very hard to beat.

Could QQQ Avoid Another 2000?

That is the real bet.

QQQ is quite concentrated, just 100 stocks, heavily skewed toward a single sector. If that sector comes under sustained pressure, the drawdowns can be brutal. If your belief is that such a scenario is unlikely during the period you plan to run this strategy, then volatility harvesting may still make sense.

If not, buy and hold remains a formidable default.

And perhaps that is the final lesson. Strategies do not fail only because of bad maths. They fail because humans struggle to stick with them through long, uncomfortable periods.

With that slightly sobering thought, happy investing.

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is for educational and entertainment purposes only. Do your own due diligence before investing. I may hold or enter into positions in the securities mentioned above. This is not a solicitation to buy or sell any security.

A few themes dominated the responses.

1. Does this extend for other ETFs with high volatility?

2. Does this volatility harvesting strategy still make sense once taxes are taken into account?

3. How does it really compare with the simplest alternative of all, buying and holding?

Both are fair questions. Both deserve a proper answer.

A Quick Recap

The original idea was deliberately simple.

1. Pick a highly liquid, highly diversified ETF.

2. Invest a fixed amount (say £1,000) once a week on a chosen day.

3. Accumulate units until the position hits a predefined profit threshold, then sell everything and go back to cash.

4. Rinse, Repeat, Patiently.

No leverage. No forecasts. Just methodical recycling of capital.

Using thirteen years of data1, the strategy worked across VWRL, a globally diversified tracker ETF, under a wide range of configurations. That in itself was mildly surprising. What was more surprising was that, on a pre-tax basis, it outperformed buy and hold more often than not.

Naturally, the next question was whether this was a quirk of one ETF, or something more general.

Extending the Test Set

To find out, I expanded the analysis to three ETFs.

• VWRL, a globally diversified, lower volatility equity ETF

• SPY, a broad US market proxy

• QQQ, a higher beta, growth-heavy Nasdaq tracker

All three exhibit persistent volatility, albeit in very different ways. And all three, when tested using the same rules, produce positive results.

At first glance, this seems to support an intuitive assumption. Higher volatility should mean higher opportunity, and therefore higher returns. The data does not fully cooperate.

QQQ, the most volatile ETF in the sample, does indeed produce the highest returns. That fits the narrative. But SPY, which is more volatile than VWRL, produces lower returns than the global tracker, even though SPY has performed better as a buy and hold investment.

There is no clean, linear relationship between volatility and outcome. Volatility is necessary, but not sufficient. Market structure, trend persistence, drawdown depth, and recovery speed all matter. Higher volatility means deeper and longer drawdowns before a profit target is reached. That, in turn, means more weeks of buying and more capital committed before a sale occurs. This shows up very clearly in the maximum capital required charts.

In fact, SPY and QQQ both require far higher capital than VWRL to churn through the returns, but SPY does not generate significantly higher CAGR than VWRL. However, the trade-off between QQQ and VWRL is clearer - QQQ is higher volatility, requires higher capital through downturns, but produces far higher CAGR returns on this strategy.

Buy and Hold Is Not One Thing

Before declaring victory for any trading strategy, we need to be precise about what we are comparing it against. Buy and hold itself comes in two common flavours.

The first is investing a lump sum at the beginning of the period and holding it throughout. The second is investing gradually, for example weekly, and only selling everything at the end - effective Dollar Cost Averaging (DCA).

Both approaches work extremely well over long periods. Both are brutally simple. Both benefit enormously from the long term upward drift of equity markets. Obviously DCA works very well for most people as they have savings each month and it can easily be converted into a DCA strategy. In my tests, both buy and hold variants produced excellent returns.

Somewhat counterintuitively though, they still fell short of the volatility harvesting strategy in most cases. That is not because buy and hold is bad. It is because the trading strategy is recycling capital more aggressively. It spends less time fully exposed, realises gains repeatedly, and compounds them sooner.

This is not magic. It is capital efficiency.

Taxes Complicate Everything

Of course, none of this matters if taxes erase the edge.

Tax treatment varies wildly by jurisdiction and account type. In the UK, you could run the trading strategy inside an ISA or a pension and pay no capital gains tax at all. In places like Singapore or Dubai, capital gains are generally not taxed. In a corporate structure, you might face corporate tax rates somewhere between 12 and 25 percent.

In the US and India, matters are considerably more complex. Holding period matters. Short term and long term gains are taxed differently. Even in the UK, outside tax-sheltered accounts, the thirty-day rule complicates frequent selling and buying of the same asset.

To avoid disappearing down a tax rabbit hole, I assumed something deliberately simple. A flat 24 percent capital gains tax, applied to all realised profits, with no allowances, no offsets, and no clever accounting. This is conservative. It almost certainly overstates the tax drag in many real world setups. Even under this blunt assumption, the volatility strategy still holds up surprisingly well.

Right Then, On to Taxes

First, the obvious point. Taxes hurt. A lot. The question is not whether they matter, but by how much.

For QQQ, the volatility harvesting strategy produced a pre-tax CAGR of 26.75%. After applying incremental taxation (24%), that dropped to 19.76%. For VWRL, the trading strategy delivered 16.97% pre-tax and 12.66% after tax. For SPY, respective numbers were 16.42% pre-tax and 12.17% post-tax.

Buy and hold came in at 18.41 percent pre-tax and 16.3 percent post-tax. Weekly investing with a final sale landed at 18.61 percent pre-tax and 16.07 percent after tax.

Buy and hold produced 10.53 percent and 8.94 percent respectively, with weekly investing just below that.

For SPY, the numbers were closer. The strategy delivered 16.42 percent pre-tax and 12.17 percent post-tax. Buy and hold came in at 12.86 percent and 11.08 percent.

Even after taxes, the trading strategy often still comes out ahead.

That deserves closer scrutiny.

A Fairer Comparison

One subtle but important point emerged while doing this work.

It is disingenuous to tax only the trading strategy and leave buy and hold untouched. If all strategies are run in the same type of account, then buy and hold also faces tax, just deferred to the end.

Once you apply the same tax logic consistently across all strategies, the comparison becomes fairer, and the relative attractiveness of the trading approach improves.

Buy and hold benefits from deferral, but it also concentrates the tax hit. The trading strategy pays taxes earlier and more often, but it also reinvests post-tax gains sooner. The net effect is not as lopsided as one might expect.

What About Dividends?

There is another omission worth acknowledging.

The buy and hold numbers do not include dividends. For ETFs like VWRL or SPY, dividends typically add around 1.2 to 1.5 percent per year. That would improve buy and hold returns modestly.

However, the trading strategy is not dividend blind either. It will sometimes hold positions over dividend dates and receive distributions. Those distributions would themselves be taxable in most accounts.

I have not modelled this precisely. My rough estimate is that dividends might add around one percentage point to returns for both approaches, once taxed appropriately. Enough to matter, but unlikely to overturn the broad conclusions. In case you are serious about any of this, I will leave it to you as homework.

So, Should You Do This?

It depends on what you are optimising for. If you want to keep capital requirements low, VWRL is the most forgiving candidate. Even after taxes, it produces respectable returns with relatively modest peak capital commitments. If you want to maximise returns and can tolerate higher capital swings, QQQ does what it says on the tin.

But stepping back, there is a bigger point.

Life is not just about optimising returns. It is also about optimising the ratio of returns to headache. Buy and hold remains astonishingly effective. It requires almost no decision making. It scales effortlessly. It is tax efficient by default. And it frees up time and mental energy for things that matter more than weekly rebalancing.

The volatility harvesting strategy sits in a narrow middle ground. It is not passive enough to be ignored, and not aggressive enough to dominate. It is interesting, intellectually satisfying, and potentially useful for a specific bucket of capital that you do not want to commit indefinitely, but also do not want sitting idle.

That is a narrower use case than many trading strategies claim. Which, frankly, is a feature rather than a bug.

Final Thoughts

The real lesson here is not that volatility trading beats buy and hold. It often does not, once taxes, dividends, and effort are properly accounted for.

The lesson is that volatility itself is not the enemy. It is a structural feature of markets. You can ignore it, fear it, or attempt to shape it into something mildly productive, provided you understand the trade-offs.

As ever, past returns are not indicative of future returns. And simplicity, boring as it sounds, remains a powerful edge. On that note, Happy investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is for educational and entertainment purposes only. Do your own due diligence before investing. I may hold or enter into positions in the securities mentioned above. This is not a solicitation to buy or sell any security.

For most retail investors, the accepted answer is dollar cost averaging (DCA). You invest a fixed amount at regular intervals, regardless of price. Over time, volatility works in your favour by lowering your average purchase price during drawdowns. It is a perfectly sensible approach for long term accumulation, especially for those still in the wealth building phase of life. But DCA is fundamentally passive and best suited for long term buy-and-hold - with both averaging and long-term mentality expounded frequently on this blog. DCA assumes volatility exists, but it does not actively monetise it. Which raises the next question. Is there a trading strategy that can do exactly that?

Trading volatility is not new. In fact, it is one of the oldest games in institutional finance. Proprietary trading desks at banks, and multi asset managers running internal capital, have been exploiting price oscillations for decades. They do not care deeply about long term valuation. What they care about is turnover, time in position, and return on capital employed. Make a small return, repeat it often, and keep capital working efficiently. When you have leverage, this approach scales beautifully.

And that last point is precisely why retail investors rarely do this. Volatility trading works best when you can amplify small price moves with leverage and do so in automated ways doing many hundreds, if not thousands of transactions in a fixed time period. Make half a percent a hundred times a year on borrowed money and suddenly the returns look impressive. But leverage brings its own risks, margin calls being the most obvious one, and it is neither cheap nor psychologically comfortable for most individuals, and automation of this extend is most certainly not the domain of the retail trader. Without leverage and automation, the sums appear underwhelming, at least at first glance. If you are deploying your own capital, tying it up for uncertain periods, and paying transaction costs along the way, the strategy needs to work rather hard to justify itself.

However, difficult does not mean impossible.

Consider a highly liquid, highly diversified, and heavily tracked index ETF. Something like VWRL.

It owns thousands of companies across regions and sectors. It is not going to zero. It is not going to triple overnight either. What it does do, relentlessly, is wobble. Even in broadly rising markets, it regularly moves up and down by a few percent. That volatility is often ignored because long term investors are told to look through it. But what if we do not?

Here is a simple thought experiment, turned into an actual backtest. Pick a single day of the week. Every week, on that day, you invest a fixed sum into the ETF. You only buy whole units, no fractions. When your accumulated position reaches a certain positive return, say 3 percent, 5 percent, or 7 percent, you sell the entire position and go back to cash. Then you repeat the process from scratch. You never buy and sell on the same day. If the chosen day is a market holiday, you do nothing. You pay a small brokerage fee (£2) on every transaction, and you assume a modest bid ask spread cost on selling (0.1%)2.

This is not momentum investing. It is not value investing. It is not market timing in the traditional sense. It is simply harvesting repeated excursions away from a local mean, using time and patience instead of leverage.

To make this more than armchair theory, I ran this strategy across thirteen years of daily price data. Different weekdays were tested. Different profit thresholds were tested, from 3 percent to 10 percent. Transaction costs were explicitly included. Whole units only. No flattering assumptions. Returns were measured not just in absolute pounds, but in CAGR terms using actual cash flows, so that faster capital recycling was rewarded appropriately.

The results were, if not spectacular, at least interesting. First, the strategy does make money - surprisingly in almost all configurations. Higher thresholds require more patience and more capital tied up at peak, but they reduce churn.

Lower profit thresholds tend to trigger exits more frequently. Somewhere in the middle, typically around the 4 to 6 percent range, there is often a sweet spot where capital does not sit idle for too long, but transaction costs do not overwhelm returns.

Second, cadence matters. The day of the week is not irrelevant. Some days consistently perform better than others for certain thresholds. This is not magic, and it is not guaranteed to persist, but it does suggest that even simple behavioural and liquidity patterns can leave fingerprints in price data. That said, as you can see above, while there is variation ins returns, almost all of the combinations result in at least 11% CAGR return - which is, to put it mildly, not bad.

Put together, profits relative to capital employed can be surprisingly attractive. At a 3 percent profit target, capital often completes a full buy and sell cycle within roughly twelve months. In other words, the money you put in is not necessarily locked away for years.

Over time, as profits accumulate, the psychological and financial burden of future cycles becomes less onerous. You are still deploying capital, but you are increasingly doing so with gains rather than fresh savings.

It is important to be clear eyed about what this is and is not. After adjusting for transaction costs and the opportunity cost (roughly 4-5% risk free rate) of having capital intermittently tied up, the long term CAGR ends up not wildly different from normal equity returns. This is not a magic money machine. It will not replace a well constructed long term portfolio. It is also sensitive to assumptions. Increase costs, reduce volatility, or impose longer holding periods, and the edge quickly shrinks.

So why bother?

Because as an intellectual exercise, it is valuable. It forces you to think about capital efficiency rather than just raw returns. It highlights the difference between time in the market and time of capital. And it demonstrates that volatility is not just a source of anxiety, but also a raw material that can be shaped into something mildly useful.

More practically, this kind of strategy may suit a very specific bucket of money. Capital that you do not want to lock away for decades, but that you are also not comfortable leaving entirely idle. Capital that you can tolerate being tied up for months, perhaps even a year, but not indefinitely. In that narrow space, a disciplined volatility harvesting approach can make sense.

(ps: I am well aware that this complicates matters compared to a simpler approach of just holding bonds for short term needs, and having everything else in equity, as advocated in my previous post - hence, this is more of a mental exercise than anything else. To be clear, I have not run this trading strategy, nor have commitments to do so - if you plan to try this, then do your own due diligence first.)

The real lesson, though, is not about this specific strategy. It is about mindset. Volatility is not an enemy. It is a feature of markets. Long term investors can ignore it. Short term traders can fear it. Or, with the right constraints and expectations, you can attempt to profit from it quietly, methodically, and without leverage.

Just do not expect miracles. On that note, happy investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the securities mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

To quote myself:

Pension providers have a fiduciary duty to keep your money “safe”. To achieve this, they often promote highly diversified, low-volatility funds to minimise risk. The default funds they recommend to HR are usually on the conservative end of the investment spectrum. There’s no malice here. HR approves providers who meet these criteria, and pension providers act responsibly to protect your funds.

But here’s the catch: Your pension might not be working as hard as it could.

If my previous example was not convincing enough, allow me to present Exhibit B. Earlier this year, I switched jobs for the first time since moving to the UK. My new employer provides pensions through Royal London. Their default configuration for me looked like this:

As you can see, about 30 percent of the portfolio was a cheerful assortment of Property, Bonds, Commodities and even a Cash bucket that goes by the dramatic name of “RLP Deposit”. For some people, this might be comforting. For me, it looks like dead weight. Unleveraged property and bonds simply do not deliver the long term returns that equities do, and the opportunity cost compounds over time.

But what about volatility? After all, bonds are supposed to soothe the nerves during market downturns. Fair point, and bonds have their place. However, if bonds are meant to protect me from selling equities during a slump, then they belong in the pot of money I might actually need within the next three to five years. My pension sits firmly outside that category. Between savings accounts and ISAs, I already hold a sensible cushion of cash and bonds covering several1 months of expenses.

Redirecting pension money into bonds when I am more than a decade away from even early access makes very little sense to me.

So yes, collectively the roughly 30 percent allocated to these non-equity assets does not inspire confidence. What about the equity portion then? Surely the RLP Global Managed fund is a hardworking equity engine. Sadly, no.

Over the past ten years, the RLP Global Managed fund delivered 9.29 percent a year. A simple world tracker delivered 10.69 percent before dividends and about 12.29 percent with dividends included. That is a yearly gap of about three percentage points. Over a decade, the difference compounds into something you would notice on your pension statement2.

Even if I assume the rest of the portfolio managed something around 4 percent, the combined weighted return sits near 7.7 percent. That is well below what a straightforward global equity tracker would have produced during the same period.

Now yes, equity markets have performed unusually well in the past thirteen years3 and long term averages are typically lower. Even so, 70 percent of this Royal London portfolio sits in an equity fund that has already underperformed. When equities eventually revert to the mean, the odds of this combination catching up through property, commodities and cash are slender. Bonds might rally, but given their single-digit representation, it hardly moves the needle.

At this point, I was unconvinced that this was a good trade-off. So I went looking. After a bit of rummaging through Royal London’s investor site, I discovered an interestingly named alternative: RLP Worldwide.

Their unassuming style and the promise of “Active” investing aside, it is simply their version of a global equity tracker.

Their five year performance chart4 practically sits on top of Vanguard’s world tracker (LON:VWRP, the accumulation version), which is exactly what one hopes from a tracker. Royal London’s investor portal is slightly clunky and feels as if it was last updated around the time floppy disks were still a thing. However, after a bit of persuasion, I managed to move my entire pension pot, old and new, into this fund.

To be clear, such equity concentration is not ideal for everyone. Risk appetites vary, time horizons differ and some investors sleep better knowing they hold bonds and property. But if you do prefer a clean, equity-heavy approach for long term pension accumulation, this option makes far more sense than the smorgasbord5 I started with.

On that note, Happy Investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

I have written before about my exposure to Gold and about Agnico Eagle Mines (TSE:AEM / NYSE:AEM). Back then, the combined position was about 7.5%. It was a meaningful bet and, as it turns out, a very rewarding one.

So why did gold surge the way it did? As usual, it is never one clean reason. Concerns around global currency reserves have resurfaced. Central banks have become visibly more cautious about holding USD after the affair of confiscation of Russian USD holdings. When demand spikes in a short window and supply cannot keep up, you get a price chart that looks like this year’s.

For me, the good days were very good. Gold doubled on my base position and AEM turned into a three bagger. Put together, the two positions delivered about 3% worth of alpha on the overall portfolio! I really could not have asked for more.

But a run like this creates its own problem. Once prices detach from fundamentals, the narrative shifts entirely. With AEM for instance, the stock stopped reflecting the quality of management or the strength of the operations. Those factors feel like distant objects in the rearview mirror now.

The stock is simply a levered expression of the gold price. Every ounce the mine produces sells at a higher price, profits climb, and the market reacts in a perfectly mechanical way. In fact I noted this down in my AEM post in May 2024, well before the recent run up:

The company’s fortunes therefore vary significantly with gold price - and the share price bobbles up and down in a levered manner with the change in gold price. These 1 year, 5 year and longer term charts tell you the story of this relationship.

AEM expects to earn USD 8 this year, almost equal to what it earned over the previous three years combined. Even with that surge in profitability, the stock now trades at a frothy ~22x times earnings. Earnings went up, the multiple went up a bit as well, and the combination produced a triple. I had written earlier that the share price tends to bobble in a levered fashion with every move in gold. The past few months proved that point again.

Alongside AEM (4.6% holdings at last portfolio update), I held a 3% position in Gold directly through NYSEARCA:GLD Gold ETF. In total, a sizeable 7.5% of my portfolio was tied to the fate of the gold price. That is the real dilemma with a strong run. Traditional wisdom says to let your winners run for as long as possible. If you fear the downside, you set stop losses so you keep most of the upside while limiting the damage if things turn.

I tried that approach, but gold is volatile enough that stop losses are almost destined to trigger at some point. Once they do, you face the uncomfortable question. Do you walk away from the entire position?

You can also choose to stay invested and buy options as protection. At-the-money options cost about 10 percent of notional value for a year. That is not cheap, but it gives you a cushion while keeping your upside open.

There is a third path that sits in between. You use a stop loss, let it trigger, take the cash, and then redeploy a smaller portion of it into call options so you still participate if the asset keeps rallying. The remaining cash can find a home elsewhere or simply sit in the brokerage account earning a modest yield while you think about your next move.

I describe this manoeuvre with confidence because it is exactly what happened. In October, both my AEM and GLD stop losses were triggered and the entire position was liquidated. I replaced it immediately with GLD Jan 27 call spreads (415 over 515, for anyone interested) for a premium of 22 dollars. That gives me upside if gold continues its ascent. If it does not, then so be it. Life moves on.

With that note, Happy Investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

Fast forward to today, and that transition is well underway. Lenovo has held onto its leadership in PCs while steadily building its Infrastructure Solutions Group (ISG) and Solutions & Services Group (SSG) into meaningful contributors to both revenue and profits. Despite periodic stock volatility, the fundamentals remain sound, the company continues to execute well, and the valuation still looks attractive even after the recent run up.

Let’s revisit the 5 themes I put out at my last post.

1. The health of the IDG business

The Intelligent Devices Group (IDG) remains Lenovo’s core, but its shape has changed meaningfully. PC shipments have come off the highs of 2021–2022, when pandemic-driven demand inflated volumes, but the company has managed this normalization with discipline. Lenovo has continued to maintain its global market share in PCs - in the vicinity of 24-25%.

In fact, Gartner’s most recent data shows Lenovo gaining ground through 2025, with share climbing back toward 27–28% in the most recent quarter, driven by strength in both consumer and commercial segments.

What’s more important is that Lenovo has used its scale to sustain margins through a difficult period for the broader PC market. While overall PC revenue now accounts for 53% of total sales, down from 60% two years ago, this reduction is by design. Lenovo is deliberately leaning into higher-margin and more stable business segments, allowing the IDG business to serve as a strong cash generator rather than the sole growth engine.

2. Growth in ISG and SSG

The Infrastructure Solutions Group (ISG) and Solutions & Services Group (SSG) have become the real growth story. Combined, these two divisions now contribute $22 billion in revenue and $1.7 billion in profit, compared to $15 billion in FY23. Together, they represent 32% of Lenovo’s total revenue base, reflecting a substantial shift in the company’s mix.

While margins in these segments remain below 10%, they are consistent with Lenovo’s early-stage push into enterprise and cloud infrastructure services. The company has been investing in building scale and credibility, which will take time to translate into sustained margin improvement. What’s encouraging is the pace of growth: Lenovo’s ISG revenue rose nearly 20% in FY24, and early FY26 results continue to show strong double-digit expansion.

3. A well-run company with solid financial discipline

Through all this transformation, Lenovo has managed to maintain its reputation for financial discipline. The company’s operating profit after tax (OPAT) now stands at $1.4 billion, slightly below the FY21–FY23 highs but on a steady recovery path. The cash conversion cycle has lengthened modestly to two days, a natural outcome of a business mix more weighted toward ISG. Inventory is running at 53 days, which remains within a healthy range and lower than FY23 levels.

Free cash flow remains robust, allowing Lenovo to sustain its dividend payout while continuing to invest in R&D and capacity expansion. The company’s strong cash generation, disciplined working capital management, and prudent capital allocation have allowed it to steadily reward shareholders without compromising long-term growth.

4. Volatility in the stock price

For long-term investors, Lenovo’s stock has been more volatile than its business fundamentals would suggest. The stock has traded in wide ranges over the past two years, often reacting to short-term swings in PC shipment forecasts or macro sentiment around China. Yet, through this noise, the returns have been quietly impressive.

My own holding has increased over this period, with my average cost now at HKD 8.79 (vs HKD 7.4 when I first wrote). Including HKD 0.77 in dividends and some incremental income from covered calls and put premiums, the total return has been roughly 33% over two years, translating to around a 15% annualized return. For a company with Lenovo’s stability and cash flow, that is a respectable outcome.

5. Valuation and the path forward

Even after a strong run in recent months, Lenovo’s valuation remains reasonable. Based on expected FY26 earnings of HKD 0.87 to HKD 0.90 per share, the stock trades around 12 times forward earnings. The dividend yield remains appealing, and cash generation continues to be solid.

More importantly, Lenovo’s long-term trajectory looks balanced. Revenue is tracking toward $72 billion on a trailing 12-month basis, modestly above its FY22 peak, with non-PC segments now accounting for nearly half of total revenue. That diversification has reduced cyclicality and positioned Lenovo for more stable growth.

Closing thoughts

In many ways, the Lenovo story today is one of quiet consistency. The company has navigated an industry downcycle without losing its footing, maintained leadership in its core segment, and built new growth engines in enterprise and services. It continues to execute with discipline, reward shareholders, and reinvest in the future.

The stock will likely continue to be volatile in the short term, but underneath that volatility is a business that keeps improving steadily. For patient investors, Lenovo still offers a compelling mix of quality, value, and growth. I have continued to build my position, and will carry on doing so.

Happy Investing!

Disclaimer: I may hold positions in the tickers mentioned in this post. I am not your financial advisor and bear no fiduciary responsibility for your actions. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities.

For a company trading at $27 before earnings, posting nearly one-ninth of that in quarterly EPS should have pushed the stock higher.

Instead, it dropped. Let’s unpack what’s really happening under the hood.

HDMC – The Core Business in Decline

At its heart, Harley-Davidson builds and sells motorcycles, along with apparel. This remains the company’s troubled core. Unit sales have been falling for at least 11 straight quarters, dragging revenue down each time. It’s been a slow-motion contraction that shows little sign of reversing.

The company’s attempt to enter the EV segment through its LiveWire brand has fared no better. Losses continue to mount, reaching $18 million in the latest quarter, with revenue flat.

With the seasonally strong quarters now behind us and Q4 likely to come in soft, HDMC will probably deliver no more than $150 million in operating income for the year. That’s an optimistic estimate.

HDFS – The Transformation Story

Harley-Davidson Financial Services (HDFS), the financing arm that helps customers buy its bikes, tells a more complex story. This segment has been a steady profit generator, but it is now in the midst of a structural shift.

Historically, HDFS both originated and held loans, funding its portfolio by borrowing heavily from the market. This model left the company carrying significant debt and credit risk. That changed earlier this year when Harley-Davidson transferred all loan originations - and the existing loan book - to a consortium led by KKR and PIMCO.

With that move, the company released $327 million in loan-loss provisions in Q3 alone, inflating the quarterly profits. These are paper gains, not cash. The real benefit comes next: as the deal closes fully between Q4 and Q1, Harley-Davidson will unlock about $1.2 to $1.5 billion in cash.

Future loans will be underwritten by the partners, removing the need for the company to issue debt or maintain loss provisions. The trade-off is lower margins per loan and the sale of a 10% stake in HDFS to its new partners.

Once the transition settles, HDFS should stabilize around $260 million in quarterly revenue and $25–30 million in operating income, of which Harley-Davidson will keep 90%. A smaller, cleaner, capital-light business.

Capital Allocation – The Bright Spot

This is where management has shown discipline. Over the past 11 quarters, Harley has retired about 30 million shares, roughly 20% of its outstanding stock. With the influx of cash from the HDFS transaction, buybacks are set to accelerate.

Of the $1 billion repurchase authorization, only $194 million has been used so far. Another $200 million will go toward an accelerated share repurchase from Goldman Sachs by early 2026, leaving roughly $600 million still available. If all of this is deployed, the share count could drop from 148 million at the end of 2022 to around 90–95 million - a dramatic reduction. Even after these buybacks, Harley should still hold about $2 billion in cash and roughly $3 billion in retained earnings.

Valuation – The Push and Pull

After several passes through the numbers and a few spreadsheet recalculations, here’s how the picture looks by mid-2026:

• HDMC generating around $150 million in annual operating income

• A capital-light HDFS contributing about $100 million

• Free cash flow in the range of $250 million

• Around 95 million shares outstanding

That suggests forward EPS of roughly $2.60. At $25 per share, the stock trades just under 10 times earnings.

Is it cheap? Not really. A shrinking core business with an uncertain turnaround doesn’t deserve a premium multiple. The risk is clear: continued decline in motorcycle sales could drag the stock lower.

But the bull case is equally clear. If sales stabilize or inflect upward, the market will rerate quickly. With $600 million still earmarked for buybacks against a post-deal market cap of about $2.9 billion, the share count reduction alone could move the stock.

It’s not an easy story to own. If I came across this business fresh, the core numbers would probably make me pass. Yet having followed it closely and seen the balance sheet improvements, I’ll stay on board for another quarter or two. If either side of the thesis plays out - let alone both - it could be a rewarding hold.

With that note, Happy Investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

Alibaba Group was founded in 1999 in Hangzhou by Jack Ma and a small group of entrepreneurs as a B2B online marketplace connecting Chinese manufacturers with global buyers. Over the next decade, it expanded into consumer e-commerce (Taobao, Tmall), digital payments (Alipay, later spun into Ant Group), and cloud computing. Alibaba first went public on the Hong Kong Stock Exchange in 2007, listing its B2B arm, but delisted in 20121 after buying back shares from Yahoo to consolidate ownership. In 2014, it completed what was then the world’s largest IPO on the New York Stock Exchange, raising $25 billion. In 2019, Alibaba relisted in Hong Kong through a secondary listing, partly as a hedge against US–China geopolitical tension.

It would be remiss not to talk about its founder, Jack Ma, once celebrated for his outspoken charisma and advocacy for private enterprise, but now largely withdrawn from public view after his critical 2020 speech about China’s financial regulators. That episode, followed by the suspension of Ant Group’s IPO and a broader regulatory crackdown on the Chinese tech sector, marked a turning point.

Ma’s retreat (Wu Yongming is current CEO) coincided with a period of subdued corporate ambition and internal restructuring, as Alibaba shifted from aggressive expansion toward operational efficiency and governance realignment. All that said, Alibaba today presents one of the more interesting valuation puzzles in global tech - a company that is simultaneously mature, cash-generative, and yet priced like a value stock.

Business Mix

Alibaba today operates as a diversified technology conglomerate spanning e-commerce, cloud computing, logistics, digital media, and innovation ventures. Its core remains China commerce - platforms like Taobao and Tmall - which together account for about 43% of total revenue and generate the vast majority of Alibaba’s operating profit through merchant advertising, commissions, and services.

The international commerce segment (including AliExpress, Lazada, Trendyol, and Daraz) contributes roughly 11% of revenue, though margins here are thinner as the company invests in global expansion. The Cloud Intelligence Group, encompassing Alibaba Cloud and AI services, now represents around 12% of revenue and is rapidly growing, with improving profitability as AI-related demand rises. Supporting these are Cainiao, its logistics arm, and Local Services & Digital Media (Amap, Youku, Alibaba Pictures), which provide additional revenue streams but contribute modestly to group EBITDA. Overall, Alibaba’s earnings mix remains anchored in its domestic e-commerce engine, with Cloud and AI emerging as the next meaningful profit drivers.

Financials

Earnings power has been quietly strengthening. In USD terms (for fiscal years ending March 31), Alibaba’s EPS has steadily grown from $3.63 in FY22 to $4.03 in FY23, $4.38 in FY24, and an impressive $7.60 in FY25. The most recent quarter (Q1 FY26, ending June 2025) printed $2.59 EPS, nearly double the year-ago period - suggesting the business could sustain $8 per share annually as the baseline it once had and built forth from there.

Cash generation tells a similar story. Free cash flow has ranged between $21–29 billion over the past four years, with FY25 at $22 billion. At first glance, retained earnings have been flat for several years, which seems puzzling given strong profitability. The explanation likely lies in capital returns: in FY25 alone, Alibaba repurchased $11.9 billion worth of shares (about 5% of outstanding shares) and initiated dividends, paying roughly $4.66 per ADR across 2024–2025 (~1% yield). Combined, buybacks and dividends equate to a 6% shareholder yield—a meaningful return for long-term holders even before accounting for price appreciation.

Investments

For years, Alibaba made few large capital investments in its core retail business. That appears to be changing. FY25 saw investments going more and more towards AI - a $52 billion AI investment plan over the next three years. Relative to U.S. tech giants—who are collectively spending $400 billion this year and nearly $1 trillion by 2026—Alibaba’s figure seems small. Yet, that may be precisely the point. Where U.S. peers risk over-investing and eroding returns on capital, Alibaba’s approach is conservative and cashflow-backed, unlikely to strain its balance sheet.

AI revenue base - teased out to be ~USD 3.4Bn / 2.4% per year - continues growing at ~100% YoY, the investments could effectively self-fund through expansion. In many ways, this represents a more prudent path: a measured AI buildout supported by domestic demand and policy alignment. Chinese enterprises are likely to prefer (or be encouraged to adopt) local AI technologies, reducing the need for capital-intensive global scale. In such an environment, Alibaba’s model—profitable, domestically focused, and sustainably financed—may prove superior to the “bet-the-ranch” strategies of its Western counterparts.

Valuation & Thesis

If your investment thesis centers on Alibaba as a stable, cash-generative e-commerce leader with optional upside from its Cloud and AI businesses, the stock presents a compelling long-term opportunity. The company’s core commerce platforms—Taobao, Tmall, and related retail ecosystems—continue to generate over $20 billion in free cash flow annually, even amid China’s uneven macro backdrop.

This steady engine funds a disciplined capital return program, combining meaningful buybacks (5% of shares in FY25) with a growing dividend—together providing a 6% yield that’s rare among large-cap tech firms. Its balance sheet remains robust, leaving ample room for AI and cloud reinvestment without compromising shareholder returns.

The real optionality lies in Alibaba’s Cloud Intelligence and AI divisions, which are scaling rapidly and showing early signs of operating leverage. Cloud revenue now makes up roughly 12% of total sales, with AI-driven products contributing over 20% of external cloud revenue and growing at triple-digit rates. As Chinese enterprises and institutions accelerate digital and AI adoption, Alibaba stands well-positioned to capture a significant share of that spend. If Cloud and AI continue compounding at current rates while margins improve, these segments could meaningfully lift group profitability and valuation multiples over the coming years. In essence, investors today are buying a proven e-commerce cash machine—with a free option on China’s AI and cloud transformation.

On a market cap of roughly $420 billion, Alibaba trades at about 20x PE or 21x FCF - hardly expensive for a business of this scale and profitability. For comparison, the US tech sector represented by QQQ trades at about 35x earnings. I know it is not an apples-to-apples2 comparison, with Alibaba’s TAM restricted by Chinese geography, but still, the valuation gap is noteworthy, relative to its cashflow strength, capital discipline, and reinvestment potential.

The flipside, of course, is regulatory and geopolitical risk. The Chinese government retains significant influence over strategic sectors and could choose to favor alternative platforms or policies that constrain growth. This ever-present uncertainty is why I’ve always taken a basket approach to China exposure—diversified across companies and themes rather than concentrated in a single name.

In essence, Alibaba is no longer the hyper-growth story it once was, but it’s evolving into a steady compounder—anchored by resilient cashflows, disciplined capital returns, and credible optionality in AI and Cloud. For investors comfortable with China risk, it still deserves consideration as a core long-term holding.

With that thought, happy investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

🏛️ A Century of Leadership

Novo Nordisk traces its roots back to 1923, when it began producing insulin in Denmark, just two years after insulin’s discovery. Over the decades, it established itself as a cornerstone of global diabetes care, helping millions of patients and creating a moat built on research, patient trust, and medical outcomes. In 1989, two Danish firms - Novo Industri and Nordisk Gentofte - merged to form the modern-day Novo Nordisk A/S. Listed in Copenhagen and New York, it has since delivered one of the most consistent long-term performance records in the healthcare sector.

💊 The Core Engine: Diabetes and GLP-1s

For decades, Novo Nordisk’s business revolved around insulin and general diabetes management. That dominance has given way to a new era defined by GLP-1 agonists - a class of drugs that regulate appetite and blood sugar. The company’s flagship products Ozempic (for Type 2 diabetes) and Wegovy (for obesity management) have become cultural and economic phenomena, driving staggering demand.

(ps: Till I started researching this company 2 months back, I didn’t even know both drugs were from the same company - I thought they were competitors!)

Both drugs are based on semaglutide, the same active molecule - Ozempic is prescribed for diabetes; Wegovy, a higher-dose formulation, for chronic weight management. Together, they account for a rapidly rising share of Novo Nordisk’s revenue base, estimated to exceed half of total revenues by 2025, up from about a third just a few years ago.

📈 The Financial Engine: 15 Years of 16.8% EPS CAGR

From 2009 to 2024, Novo Nordisk’s earnings per share (EPS) rose from DKK 0.33 to DKK 3.29 - a remarkable 16.8% compound annual growth rate over 15 years1. Such sustained compounding is rare even in high-growth tech firms, let alone in a mature pharmaceutical company. This track record reflects not just product success but operational discipline, prudent reinvestment, and the strength of its Scandinavian governance culture.

Valuations, interestingly, don’t fully reflect this pedigree. The stock currently trades around 14–15x earnings, and about 30x free cash flow, both modest for a firm with its growth record and profitability profile. Even after a recent pullback - driven by supply constraints, tariff concerns, and a slowing U.S. market share - the numbers suggest a company that may be priced for stagnation, not growth.

💰 Capital Allocation: Dividends, Buybacks, and Long-Termism

Novo’s capital allocation approach reflects its maturity and balance. The firm maintains a ~50% payout ratio, translating to a dividend yield of ~3% on Copenhagen-listed shares (slightly lower for NYSE ADRs). Dividends have grown steadily, rising 21% from 2023 to 2024, and buybacks typically add another ~1% shareholder return per year.

While free cash flow took a temporary hit in 2024 - primarily due to the USD 11 billion acquisition of three Catalent manufacturing sites - this was a strategic move aimed at securing long-term capacity for Ozempic and Wegovy. The acquisition, roughly equivalent to a full year’s pre-deal FCF, demonstrates the company’s willingness to invest aggressively in its supply chain to sustain growth.

🐂 The Bull Case: Growth, Quality, and Value

🐂 The Bull Case: Growth, Quality, and Value

The bull case for Novo Nordisk is relatively simple but compelling. A company with a century-long franchise built on medical trust, a moat reinforced by decades of data, patient loyalty, and clinical success with a successful transition from insulin to GLP-1 therapies has unlocked an entirely new growth frontier, supported by a global obesity market that’s still in its infancy.

Beneath the headlines lies financial excellence that looks legendary: 16.8% annualized EPS growth over 15 years and returns on capital consistently north of 60%. Despite this, the stock trades at around 14.5 times earnings, with a PEG ratio below one - metrics that suggest the market is underappreciating its long-term trajectory. Add to that a disciplined capital allocation strategy - rising dividends, steady buybacks, and a prudent payout ratio - all anchored by the steady hand of Scandinavian governance and sustainability ethos.

In essence, Novo Nordisk represents that rare trifecta of growth, profitability, and discipline. Should supply bottlenecks ease and GLP-1 adoption deepen globally, investors may find that the company’s next chapter of compounding is just beginning.

🐻 The Bear Case: Competition, Margins, and Patent Clocks

Of course, even the strongest moats can be defeated. The bear case for Novo Nordisk centers on the gathering storm clouds of competition, regulation, and scale. Eli Lilly’s twin assault with Mounjaro and Zepbound has already begun chipping away at Novo’s dominant U.S. market share, signaling that the GLP-1 category may become a duopoly rather than a monopoly.

Beyond that, the external environment looks less forgiving: tariff frictions, currency pressures, and tightening healthcare pricing policies could collectively squeeze margins, especially in emerging markets. Then comes the ticking of the patent clock - key semaglutide protections start expiring toward the end of this decade, and though biologic generics are slow to ramp, their shadow inevitably limits pricing power.

Meanwhile, Novo’s ambitious manufacturing expansion brings its own risks; the Catalent acquisition, while strategically sound, introduces integration complexity and capital strain. In short, even giants can stumble when balancing rapid growth with operational precision - and for Novo Nordisk, the next few years will test whether its vaunted discipline can match the scale of its ambition.

⚖️ A Nuanced Outlook: Valuation Reflects the Bad News

Let’s stress-test the valuation. Assume a pessimistic scenario where:

• Core non-diabetes products grow 7–9%,

• GLP-1 / diabetes drugs slow to 5–7%,

• Blended gross margins fall to 59% (vs. >65% today).

Under those assumptions, Novo Nordisk could still deliver EBIT ≈ DKK 80 billion and PAT ≈ DKK 60 billion, implying a P/E around 20x - effectively pricing in a full slowdown. That’s the worst-case base, with much of the negativity arguably already reflected in current levels.

Conversely, if the company merely continues its pattern of modest EPS outperformance - growing earnings a few percentage points above inflation - the combination of compounding and multiple expansion could deliver meaningful upside over a 3–5-year horizon.

🧭 Final Take

Novo Nordisk is not a speculative biotech; it’s a large cap compounder navigating its middle age. While the market fixates on GLP-1 hype and capacity bottlenecks, the long-term story is simpler: a company with unmatched leadership in a growing chronic disease segment, reinvesting prudently to secure its moat.

At ~14–15x earnings and a PEG below 1, Novo looks attractively valued for a business with this quality of governance, product pipeline, and capital efficiency. Risks remain - competition, tariffs, and patent cliffs - but the balance of probabilities favors long-term holders.

For patient investors, the recent pullback may represent not a warning, but an opportunity. I have entered into a long position through at-the-money risk reversal options on their US listed ticker.

With that note, Happy Investing!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.

Let’s start with the obvious question: is a 14% nominal / 9% real return a reasonable outcome for a global stock index over three years?
Historically, the best-performing markets (think India and the US) have delivered around 8.5–10% annualized USD returns over long horizons - say, 30 years. For context, the MSCI World Index has returned 7.03% nominally (and roughly 4.5% in real terms) over the past 21 years.

So, realistically, we shouldn’t expect a global tracker to compound much beyond 7% nominal / 4.5% real over time. Yet, here we are with far higher returns in the recent three-year stretch. What’s driving this? And what comes next?

One caveat: my base year is end-2022, when both the CCP and this blog began. Markets were deeply depressed after a bruising 2022, so the subsequent rebound makes sense. We’re merely catching up to where we might have been had 2022 not been such a washout - simply tracking the historical trend since, say, 2012. That explanation holds water. But does it really?

Let’s zoom out. If we roll back to November 2016, when the Vanguard Global Tracker Fund launched, it has compounded at 11% CAGR (GBP) since then - still comfortably above historical norms. So, something else must be at play.

At the end of 2022, after the market had punished “non-profitable” firms and the speculative froth - SPACs, meme stocks, NFTs, meme-coins - had deflated, I expected a return to sanity. That hasn’t quite materialized. Why?

Ocaam’s Razor points squarely at the rise of Generative AI - a distinctly new phase in the technological cycle. I recently read that nearly all of U.S. GDP growth in 2025 could be attributed to AI datacenter buildouts. That’s staggering.

Modern AI (think Generative AI, as opposed to prior eras of machine learning and statistical AI) only burst onto the scene in 2022 - yet it has gathered exponential momentum, both in capability and in capital flow. Investment, revenue, valuation - all off the charts.

But the AI argument cuts both ways.
On one hand, AI could be ushering in a new era of productivity and prosperity - perhaps justifying structurally higher returns. Maybe 13% nominal / 9% real is the new normal

On the other, we might be pouring trillions in capex into infrastructure whose returns on capital lag the prior generation’s tech plays (OS, Cloud, SaaS). In that scenario, ROCE compresses and returns stagnate as excess capital burns off. Both stories sound plausible.

Then there’s the inflation-interest rate dynamic. In an inflationary world, company revenues rise nominally (they sell the same goods at higher prices). But that’s sustainable only if interest rates stay artificially low - as they did in 2020–21 when governments were effectively helicoptering money. Sound economics dictates that high inflation demands high interest rates, which, in turn, normalizes real returns.

Are there other big dimensions? Possibly. But let’s circle back.

The real point I’m making is this: none of these explanations seem strong enough to justify a permanent break from historical return norms. If we exclude that possibility, we’re left with a less cheerful conclusion - that markets are over-earning today, and this phase won’t last indefinitely. I don’t know when the turn comes, but absent a credible reason for a long-term step-up in returns, mean reversion is inevitable.

Now that the theoretical spiel is out of the way - humour me. Even if you’re a raging market bull: what does this imply for us? Is there a way to hedge it?

If you could predict both the event and the timing, it’s easy: buy PUTs, cash them in post-event, and retire on a beach - Portugal, aí vou eu!
But if you only sense the event and not its timing, options become an expensive drag. (One-year at-the-money PUTs cost roughly 8–10%, depending on the index.) Alternatively, you could go defensive - but that depresses returns, and if the correction takes longer than expected, you lose more waiting than in the drawdown itself.

I don’t have a silver-bullet strategy - but I’m certainly spending more time thinking about it than before.

If you’ve got ideas, drop them in the comments. I’d love to hear them.

Happy Investing!!

Disclaimer: I am not your financial advisor and bear no fiduciary responsibility. This post is only for educational and entertainment purposes. Do your own due diligence before investing in any securities. I may hold or enter into, a position in any of the stocks mentioned above. The above is NOT a solicitation to either buy or sell the securities listed in this post.