I’ve invested on my own for sixteen years. I’ve made real mistakes with real money, and every one of them taught me something school refuses to.

Only 8% of active managers beat the S&P 500 over five years. For the last five, I’ve been one of them.

I’m going to walk you through the strategy, and one piece of it fights against nearly everything you’ll read in a personal finance blog.

I’ll show you why my philosophy works and how to borrow it. It’s a simple framework built on 3 pillars. Let’s start with the one that breaks the rules.

Pillar one: concentration, not diversification

Most fund managers spread their money across seventy to three hundred stocks.

I own eleven.

My top three holdings make up 48% of my entire portfolio. That’s not a typo, and it’s not reckless either. Warren Buffett ran Berkshire Hathaway with 52% of the fund sitting in his top three picks.

Here’s what most financial “coaches” leave out of the conversation:

Diversification protects you, but that same spread caps your upside too. Own enough companies and you’ve basically rebuilt the index.

Once you’ve rebuilt the index, you can’t beat the index.

The math doesn’t bend for good intentions.

So how do you find the handful of companies worth concentrating in?

Start small. Pick a few businesses you already understand. Maybe you use their products every week. Maybe you work for one. Maybe you’ve followed a company’s history for years and already know how it handled the last downturn.

Then go deeper.

Learn the balance sheet. Learn the management team. Get familiar with what makes a business tick before it ever shows up in a headline.

Pillar two: dividends that pay for real life

Seven of my eleven stocks pay dividends.

Every payout gets reinvested automatically and buys more shares of the same company.

Because of that cycle I haven’t paid out of pocket for a vacation in six years.

One warning before you go hunting for yield. A healthy dividend sits somewhere between 2% and 5%. Anything higher deserves a hard look.

Sometimes a high yield is a bargain. Sometimes it’s a company that can’t sustain it.

Dividend stocks also tend to hold steadier during a downturn, because part of the return shows up as cash in hand instead of a paper gain that can vanish overnight.

I track company risk with the Sortino ratio, which measures downside swings only. My dividend allocation has pushed my risk-adjusted return past the S&P 500’s, and that’s exactly where the improvement shows up first.

A quick note. If you want to see the exact investment strategies I used to not only become a millionaire myself, but to make my clients millionaires as well then become a paid subscriber now.

You’ll get access to our private chat where you can ask me questions about investing, the economy, or growing family wealth.

You can request in depth investment data not available to the public.

Data professional portfolio managers use to build $500 million investment funds. Hit the button below and let’s get rich together

Subscribe now

Pillar three: growth stocks for the upside

The last piece of my portfolio sits in growth stocks.

The ones financial “journalists” can’t stop talking about.

This slice exists for one reason. Bull markets last far longer than bear markets, and this is the part of the portfolio built to capture that stretch.

Right now that theme is AI. My approach isn’t to chase where consumers are spending money. The better signal is watching where businesses are spending money, since that usually shows up earlier.

Growth stocks come with a real cost though.

Miss an earnings estimate by even a little, and the stock drops hard, sometimes double digits in a single session.

Doesn’t matter if underlying business keeps growing just fine. That drop stings for a day.

Those swings usually last days, occasionally a couple of weeks at the outside. I’m holding a company, not trading a chart, so a rough week doesn’t change the thesis.

The takeaway

That’s the full philosophy behind the 8%. Concentration instead of spread.

Income instead of pure growth chasing. Growth stocks layered on top for the years the market runs hot. Combine an approach most advisors won’t touch with real discipline, and the returns take care of themselves.

The actual eleven companies in the portfolio would probably surprise you. Some you already know. Some you’ve never heard of.

Thanks for reading. Keep learning, and I’ll see you in the next one.

Subscribe now

Whether owned directly through specific funds or indirectly through mutual funds that purchase private assets, they are becoming a sharper focus for portfolios.

That’s why I reached out to the man behind The Private Public Investor. Through his publication Alex shares his unique perspective on portfolio building and how it relates to the greater economic picture.

You can find his articles . Let’s get started.

Colton: How would you describe your investment philosophy?

Alex: My investment philosophy is never concrete and always changing, but broadly, I usually follow a 50/50 barbell approach of large, blue chip stocks when they crash, and the other 50% being organic, ground up ideas that usually require more risk, and is where I am open to deploying more capital if the opportunity presents itself (like AMD last April’25).

I also utilize social arbitrage to see what retail investor sare following to see what the trends are in the market, so I can then look forward past them.

Colton: It sounds like a thoughtful approach based around anattractive entry point.

That’s how margins of safety are built and where risk/reward ratios really tilt in the investor’s favor.

As more investment conversations happen online as oppose to in an office I think that’s a wise move. We’ve seen how social media, particularly Reddit, can make meaningful impacts on the market.

The work you and others are doing to democratize investment research is important because it gives investors more avenues to think for themselves.

With your expertise in private equity, how should investors be looking at the space to support their portfolios?

Alex: Most investors should not look into private equity as an investment vehicle in my opinion, unless you work in the space.

Private equity managers are penny pinchers and you really have to identify a good fund to be able to invest.

Most retail investors aren’t accredited anyway, so they could only invest in general, broad market PE ETFs with lower alpha than just single, public securities like Apple or META.

Colton: Candidly, I’m fairly new to the private space and I’m glad you’ve confirmed my initial suspicions.

It’s easy to get caught in an esoteric wave and want to be a part of an investment trend because it sounds sexy. It goes to show that sticking with what you know has and always will be a tried and true method of allocation.

What are some of your favorite tools when conducting investment research?

Alex: Claude, Gemini, FRED (macro) ,TradingView, YahooFinance, Company Websites, and Public Filings, My Brain.

Colton: A few of these tools I’ve been using for a while like Yahoo Finance, good old fashion company websites. When I think of getting more comfortable with AI models I can only see more use cases becoming available to investors.

Research in tools like Claude is more pointed and acts as an open discussion instead of people typing in a request only to have to sift through dozens of pages to find data.

What popular investment thesis do you currently disagree with?

Alex: Salesforce (CRM) as a good investment in the SaaS space. I love SaaS (VEEV, NOW), and could be wrong on CRM, but I really do think beyond enterprise customers, SMBs will utilize in-house, custom CRM databases.

Private Equity is very archaic and even these funds are creating their own. I don’t see the long term value proposition beyond enterprise-scale customers.

Colton: I’ll share my experience on this: I’ve talked to a former SalesForce employee and he confirmed they only look at businesses doing tens of million in revenue a year.

I did work with a client who’s business was connecting small businesses with SalesForce but it was not the same experience as I got working at a large firm.

On that note I’m currently looking at building my own CRM due to flexibility and relevance to my business so real world anecdotes support your thesis.

What are the 3 most important metrics you look at with a company?

Alex: 1-2yr Forward PE, FCF/Share Revenue, EPS growth.

Colton: These three metrics help investors understand both the price they’re paying and the quality of the business they’re buying.

A 1–2 year forward P/E ratio estimates how expensive a stock is relative to its expected future earnings, providing a more long term view of valuation than trailing earnings alone.

Free cash flow (FCF) per share growth measures how effectively a company is turning its operations into actual cash that can be used to reinvest in the business, reduce debt, repurchase shares, among others, making it one of the cleanest indicators of financial strength.

Earnings per share (EPS) growth reveals whether that top line growth is ultimately translating into higher profits for each shareholder.

Together, these metrics answer three essential questions:

• Is the stock reasonably priced based on future expectations?

• Is the business generating increasing amounts of cash?

• Is it growing both its sales and profits in a way that benefits shareholders over time?

I’ll leave this question open to interpretation. What’s thebiggest risk investors face with AI?

Alex: Falling into the trap of not thinking for themselvesand falling into analysis paralysis.

Too much information can be overwhelming, but taking a step back, realizing everyone is feeling the same way, and sticking to your investment plan for the long-term is the way to win here.

I think AI will create even more asymmetry in the stock market, as the information scraping will all be the same.

Short-term patterns may be more predictable, but long term value will be more hidden.

Colton: This is exactly why building your own investment philosophy is critical.

Why ChatGPT thinks an investment is a good purchase may not align with your goals, risk tolerance, or personal restrictions. This goes back to your forward thinking metrics. It’s great to see where a company has been but simplicity will always be in favor when evaluating a portfolio.

Alex thank you for your time and expertise in the private space. It’s an area of investing that doesn’t allow for readily available information so it’s great to get an insider’s opinion.

For anyone looking to get more round out their investing knowledge and get approachable investment research subscribe to Alex at

He’s cultivated a loyal following and agreed to spill some secrets of how he measure an investment’s worth. Here’s what had to say

Colton: How would you describe your investment philosophy?

Rob: My whole approach is pretty straightforward.

I don’t pay any attention to the macro economy at all; I’m completely bottom-up, just hunting for amazing individual companies. Basically, I want cash machines.

I’m looking for situations where customers are totally locked in because it’s just too painful to switch, or where the company uses a scale-economies-shared model to keep dominating the market.

I also tend to lean heavily toward mission-critical stuff over “nice-to-haves.”

I want to own the essential systems that other businesses absolutely need to keep the lights on. Because of that, you won’t see many flashy consumer brands in my portfolio, even though I don’t necessarily have anything against them.

Ultimately, I need a business where its long-term destination is relatively predictable.

Since I run a really concentrated portfolio, I can’t afford to be reckless with my picks.

Every single stock I own has to be a reliable powerhouse that I can trust. But I have an opportunistic gene too. If something clearly better shows up, I’ll make the switch. In theory that’s smart.

In practice it’s a double-edged sword, because it can lead me to sell a great business before the compounding has really had time to work.

I know this about myself and try to keep the bar for switching deliberately high.

Colton: You clearly have a diligent investing process.

Like many others you have a tight circle of stocks you’d prefer to know really well rather then dozens you barely know the ticker for. What I like about your philosophy is it’s centered on needs over wants.

By design these companies have a predictable customer base and tend to be fairly recession resistant.

The fact that you are self aware enough to know selling early is a possibility I’m sure puts you miles ahead of others.

Colton: Talk to me about the Titan Test. How did you come up with it? If you can, share one or two metrics you look for

Rob: The Titan Test is one of my series on Atomic Moat, alongside The Money Mind, Thesis Briefs, Simple Truths, and a few others.

It started with a simple “what if” question.

What if Dev Kantesaria, one of the sharpest quality investors out there, was working with a small amount of capital and decided to look at a tiny Swedish microcap?

Would his methodology even translate? What metrics would he use? What would his verdict be? What would Buffett look for? Terry Smith? Peter Lynch? And so on.

That thought experiment was fun enough that I turned it into a series.

The whole premise is taking a stock and running it through the strict framework of a legendary investor, and seeing what survives. As for the metrics, I don’t want to give too much away here, ‘cause that’s what the series is for.

But I’ll say this: what’s interesting is how different each titan’s lens actually is when you apply it to the same company.

Some would pass a business that others would immediately reject. That tension is exactly what makes it worth reading. I will create more of these Titan Tests going forward!

Colton: That’s something I look forward to learning more about.

Strong investors coming to different conclusions is actually something I’ve learned by interviewing others. It goes to show people interpret the same quantitative data differently, but there is ample room for qualitative data to be debated as well.

Colton: What is the strongest moat you’ve ever studied, and what made it nearly impossible to replicate?

Rob: This might be surprising to you, as there are plenty of huge companies out there who will enter most investors’ minds, like FICO, SPGI, Moody’s, Apple and so on.

But my answer will be Medistim, a Norwegian medical device company.

They make intraoperative ultrasound equipment used during cardiac surgery. And I kept waiting to find the weakness when I was researching it. I never really did.

A competitor needs to go through a 12-plus year regulatory approval process. You need to build a clinical evidence base that doesn’t currently exist. And then, even if you somehow clear all of that, you still need to convince cardiac surgeons who’ve spent their entire careers trusting one specific system to switch to yours.

Colton: Sounds like there are few different moats pooling together here.

Regulatory hurdles can be a big enough deterrent but when you combine it with the capital required for substantial clinical evidence it can make things near impossible.

Another thing I like about your answer is the company is not from North America.

Too often as investors we put blinders on focusing on home grown talent however Medistim reminds us there are wins to be had in Europe as well.

Colton: How do you distinguish between a genuine economic moat and a company that’s simply benefiting from temporary momentum?

Rob: Hmm,I think about this in two completely different ways, and they almost look like opposites. The first is about pain.

Is the product so deeply embedded in how a customer actually operates that ripping it out would break something? Not just be inconvenient, but genuinely break things. I think Cerillion is a good example.

They handle billing for telecom operators.

If you leave, your billing stops. That’s an existential problem. That kind of lock-in creates pricing power, and that pricing power shows up in predictable, reliable cash generation year after year.

The second is almost the opposite.

Instead of trapping customers, the business earns their loyalty by consistently giving them a better deal as it grows. Costco is the textbook example.

The bigger they get, the more buying power they have, and they pass that back to the customer rather than pocketing it as margin.

The customers genuinely don’t want to leave because the value keeps getting better. Two completely different mechanisms. But both produce the same outcome: customers that stay, and cash flows you can predict. And momentum businesses tend to have neither.

The customer could walk tomorrow if something shinier came along, and if you look closely enough at the cash flows, that fragility is usually already visible. People just aren’t looking.

Colton: This reminds me of how different Titans of investing can come to different conclusions on the same investment.

It’s also not about the product having an air tight patent because anyone can sell food.

Logistics themselves can prove to be a moat.

My big takeaway here is watch for shiny object syndrome and read beyond the headlines. It’s also a reminder that people need to put in the work when evaluating a business.

Really dig into the important metrics like cashflow and test their sustainability. I’m glad you mentioned Costco so we can give their $1.50 hot dog a shout out.

Colton: Your framework blends ideas from Buffett, Nick Sleep, Peter Lynch, Terry Smith, and Chuck Akre. Which of those investors has had the biggest impact on your thinking, and where do you disagree with them?

Rob: Yes, they’re all huge inspirations.

And for very different reasons. Munger has the story. He had a tough and bumpy road to his first million, and the mentality and self-confidence he carried through that is something that genuinely inspires me on a personal level.

The most important thing I took from Buffett is to think like an owner.

We forget that stocks are ownership pieces in real businesses, and especially nowadays when so many shiny things are competing for attention in the markets.

Nick Sleep and his focus on quality and scale economies shared really speaks to me.

The way he views the world is probably the closest to how I see it myself. So I absorb everything I can find on Sleep, Zakaria, and the Nomad letters whenever I come across them.

If you haven’t read Zen and the Art of Motorcycle Maintenance; do it.

Lynch, Akre, and Terry Smith are more framework to me. From them I’ve picked up the metrics and categorisations I’ve built into my own process: things like the PEG ratio, FCF Yield, and ROCE.

Practical tools rather than philosophical foundations. Where do I disagree?

The one that came to mind immediately is Lynch on diversification.

He ran hundreds of positions, but I think that applied by most investors just produces a long list of companies you half-understand rather than a short list you really know. And when something drops 40%, half-understanding is not enough.

Colton: I read the Warren Buffet Way and your highlight of viewing stocks as a business jumped out to me as well.

Nick Sleep is not someone I’ve done a lot of research on so I appreciate the recommendation.

I like how you divided the teachings of each into qualitative and quantitative approaches. It’s important to have that balanced approach with investing. In terms of Lynch and diversification the way I view it is use diversification as your entry point and the concentrate once your skills improve.

I say this to those that want above market returns because concentration is the only way to get there.

This is why portfolio managers notoriously underperform their benchmarks, because they hold dozens if not hundreds of positions and they can’t possibly monitor them all with success.

Colton: You write that “profit is an opinion, cash flow is a fact.” What’s the biggest misconception investors have when evaluating profitability?

Rob: The biggest mistake I see is people trusting the income statement without checking whether the cash actually showed up.

The income statement involves estimates, timing decisions, revenue recognition choices. Management can use all of those levers completely legitimately.

But it means the profit number is a construction.

The cash account just tells you what happened. Amazon is a great example I always come back to. For years the market looked at near-zero net income and concluded it was a thin-margin, barely-profitable business.

What was actually happening was that Amazon was generating substantial cash and choosing to reinvest every dollar of it into widening the moat: AWS, logistics, Prime. The economics were extraordinary.

The reported profit was deliberately suppressed because Bezos was playing a completely different game.

The income statement looked bad.

The competitive position was getting stronger every quarter. Most people missed it entirely because they stopped at the profit line. On the flipside you have Intellego (Swedish company). Explosive revenue growth, exactly the kind of numbers that generate excitement.

But the cash wasn’t there. Revenue going up, cash staying flat, receivables growing faster than revenue. That divergence, when it persists for more than a couple of years, is almost never a timing issue.

It’s almost always either very aggressive revenue recognition or something worse.

In Intellego’s case it was much worse.

The CEO got arrested and the company de-listed. And worse; a LOT of people lost their hard earned money.

The question I always ask before anything else: at year end, where is the profit? If it’s sitting in the bank account, great, let’s keep going. If it’s in growing receivables or a bigger asset base, something is off.

A genuinely great business drowns in cash. It produces more than it knows what to do with. When the profit is real, you can see it.

Colton: These are incredible examples.

It’s an important reminder that numbers can be manipulated. Another cautionary tale that comes to mind is Enron.

They used mark to market accounting which essentially allowed them to book sales than never came true. Once the profit does land in the bank account it’s only a matter of what to do with it.

With Bezos’ it was all about building horizontal businesses. It’s an important reminder that management massaging numbers to boost stock price typically pay for it in the long term.

Rob thank you so much for your time and insight. I’m positive readers will get a ton of value from this. For anyone that wants to read more of Rob’s material check him out at https://substack.com/profile/44808806-rob-h-atomic-moat?utm_source=global-search

Since we’re almost half way through the year let’s take a look at which sectors have opportunity, and which are worth waiting on.

I reviewed 11 ETFs as a proxy for each Sector. Then I broke each one down by valuation, momentum drivers, where they sit in the 52 week range, and risks. All data is as of June 2nd.

The S&P 500 is trading at elevated valuations, with a trailing P/E ratio of 29.83 and a forward 12-month P/E of 21.2.

This forward multiple sits notably above both the 5-year average of 19.9 and the 10-year average of 18.9, indicating the market is pricing in continued earnings growth despite already strong performance.

The valuation premium reflects investor optimism around drivers including AI infrastructure buildout, digital transformation, and the US-onshoring boom that has pushed forward revenues and earnings to record highs for nine of the eleven S&P 500 sectors.

Five sectors are reporting double-digit earnings growth, led by Information Technology, Communication Services, and Utilities.

Materials posted the third largest year-over-year earnings growth at 42.5%, while Industrials delivered the fourth largest positive earnings surprise at +18.8% above estimates.

For investor positioning, this environment demands selectivity. The broad market premium suggests limited margin of safety at current levels, making relative valuation a major consideration.

Sectors trading below their typical multiples while demonstrating earnings momentum, particularly Financials at 14.5x forward P/E and Energy at 13.2x, offer better risk adjusted opportunities than richly valued growth sectors.

Meanwhile, defensive sectors like Consumer Staples and Utilities face headwinds from weak revenue growth and elevated valuations, despite their traditional safe haven mantra.

Financials (XLF)

Valuation:

Trading at a P/E of 17.60 with a forward 12-month P/E of 14.5, Financials sit at the lower end of their typical 10-15x valuation range.

This represents a juicy discount to the S&P 500's forward P/E of 21.2, offering a 32% valuation advantage despite solid fundamental positioning.

Key drivers:

The sector is positioned to benefit from continued economic activity and lending growth, though the -4.26% YTD return suggests investor concerns about interest rate trajectory have created temporary headwinds.

The sector's traditional sensitivity to economic cycles and interest rate environments remains the primary driver of performance.

52-week context:

XLF is trading at $51.18, positioned in mid-range between its 52-week low of $45.14 and high of $56.52. The current price sits approximately 9.4% below the 52-week high, suggesting room for recovery if sentiment improves while providing downside protection from the 13.4% cushion above the low.

Risks:

Rising credit defaults if economic conditions slip could pressure earnings quality. Regulatory changes or capital requirement increases could constrain profitability and return on equity, particularly impacting the mega-cap banks.

Health Care (XLV)

Valuation:

At a P/E of 17.62, Health Care trades at a 41% discount to the S&P 500's 29.83 trailing P/E and well below the market's 21.2 forward multiple.

This valuation is compelling given the sector's defensive characteristics and growth potential from technological advances and operational efficiencies.

Key drivers:

The sector is benefiting from technological advances in treatment and diagnostics, improving operational efficiencies, and demographic tailwinds from an aging population.

The -4.10% YTD return despite a strong 13.75% one-year return creates an attractive entry point, as the sector offers earnings growth, high dividends, and low valuations.

52-week context:

Trading at $149.47 against a 52-week range of $127.96 to $160.59, XLV sits in mid-range, approximately 6.9% below its high.

This suggests the recent pullback has created opportunity without the sector being oversold, maintaining a 16.8% buffer above the 52-week low.

Risks:

Policy uncertainty around drug pricing and healthcare reform could pressure pharmaceutical and biotech margins.

Medicare reimbursement rate changes could impact hospital systems and medical device manufacturers, particularly if cost containment becomes a political priority.

Energy (XLE)

Valuation:

XLE's P/E of 20.83 appears elevated relative to the sector's forward 12-month P/E of 13.2, the lowest among all sectors.

This discrepancy may hint trailing earnings have been compressed while forward expectations are strong, driven by the Iran war and elevated oil prices that have caused earnings upgrades.

Key drivers:

High oil prices stemming from geopolitical tensions have driven the sector's eye popping 40.50% one-year return and 26.71% YTD performance.

The sector has outperformed significantly since the conflict began, with earnings upgrades reflecting sustained commodity price strength and improved producer discipline.

52-week context:

At $57.44, XLE trades in mid-range between its $40.83 low and $63.46 high.

The current price sits 9.5% below the peak, showing much of the geopolitical premium is already priced in. The remaining 40.7% above the low reflects the fundamental improvement in the sector's earnings power.

Risks:

Elevated earnings expectations and valuations create downside risk if oil prices normalize or if tensions ease.

Not seemingly a risk now but technology disruption from electric vehicle adoption and renewable energy transition could poses long term structural headwinds to fossil fuel demand.

A quick reminder if you become a paid subscriber here are the benefits:

• Private chat where you can ask me questions about investing, the economy, or personal finance

• Access to our Discord community where we break down in depth what’s happening in the market

• Custom charts portfolio managers use to manage $400 million investment funds

• Learn the same investing strategies I use with my multi-millionaire clients

• Full access to all Substack articles

  ---

  Subscribe now

Utilities (XLU)

Valuation:

Trading at a P/E of 20.92, Utilities are valued in line with the market's 21.2 forward P/E despite traditionally trading at a discount due to their regulated, lower-growth business models.

The sector is starting to underperform after a strong run that drove valuations and earnings expectations higher.

Key drivers:

Double digit earnings growth has been driven by electricity demand from AI data centers, plus capital spending on grid upgrades.

However, the 4.77% YTD return significantly lags the sector's 14.52% one-year performance, signaling momentum is fading as valuations have caught up to fundamentals.

52-week context:

At $43.10, XLU sits near the bottom of its 52-week range of $39.89 to $47.80, just 8.0% above the low and 9.8% below the high.

This low placement suggests recent underperformance has created technical weakness.

Risks:

Rising interest rates disproportionately impact Utilities due to their similarities to bonds and high dividend yields.

Elevated valuations after the recent run-up leave little room for disappointment if earnings growth moderates from current double-digit levels.

Materials (XLB)

Valuation:

At a P/E of 27.71, Materials trade at a 7% discount to the S&P 500's 29.83 trailing P/E but above the market's 21.2 forward multiple.

This premium valuation reflects the sector's impressive 42.5% year-over-year earnings growth, the third-largest among all eleven sectors.

Key drivers:

High demand from infrastructure spending, US-onshoring initiatives, and industrialization trends are driving fundamental strength.

Recovery in global manufacturing supports chemicals and basic resources, while data centers are creating demand for specialty materials. The AI-capex boom has pushed forward revenues and earnings to record highs.

52-week context:

Trading at $51.62 within a $42.04 to $54.14 range, XLB sits in mid-to-upper range, just 4.7% below its 52-week high.

The current price reflects 22.8% appreciation from the low, indicating strong momentum has already been baked into the price. The 15.75% YTD and 23.17% one-year returns confirm this strength.

Risks:

Cyclical exposure to global manufacturing and construction activity makes the sector vulnerable to economic slowdown.

Supply chain pressures caused by tariffs expected in the second half of 2026 could disrupt production and compress margins, particularly for commodity-exposed businesses.

Real Estate (XLRE)

Valuation:

XLRE's P/E of 31.73 represents a 6% premium to the S&P 500's 29.83 trailing P/E, an unusual positioning for a sector traditionally valued for yield rather than growth.

The lofty multiple appears disconnected from the fundamental challenges facing commercial office properties, suggesting valuation risk despite the sector hovering around 52-week highs.

Key drivers:

The 9.75% YTD return has been supported by interest rate stabilization and investor rotation into real assets.

The sector remains challenged by supply imbalances in commercial office segments that have persisted since the COVID-19 pandemic in 2020.

Residential and industrial properties are performing better, creating internal sector dispersion.

52-week context:

At $44.07, XLRE trades near its 52-week high of $44.99, just 2.0% below the peak and 10.9% above the $39.73 low.

In my view this makes for limited upside in the near term, with the 10.52% one year return indicating steady but unspectacular appreciation that may not justify the current valuation.

Risks:

Commercial office vacancy rates remain elevated as remote work persists, creating potential for valuation write-offs and dividend cuts among office-focused REITs.

Rising interest rates would pressure property valuations and increase financing costs.

Communication Services (XLC)

Valuation:

With a P/E of 17.14, Communication Services appears attractively valued at a 43% discount to the S&P 500's 29.83 trailing P/E.

However, this low multiple hides significant concerns: the sector's Q1 earnings actually fell 3.2% year-over-year when excluding Alphabet's gain, which artificially boosted reported earnings by 36%.

Key drivers:

The sector ranks well on fundamental measures but faces headwinds from lofty valuations in mega-cap constituents.

Potential advertising market disruption from economic slowdown or AI-driven changes in digital marketing creates additional uncertainty despite the sector's -0.93% YTD return suggesting some pessimism is priced in.

52-week context:

Trading at $116.34 in a fairly narrow $100.04 to $120.41 range, XLC sits in mid-to-upper range, 3.4% below its high and 16.3% above its low.

The 15.05% one-year return demonstrates solid performance, but the flat YTD return indicates momentum has stalled as concerns about AI capital expenditure returns have mounted.

Risks:

Concentration risk with it’s top 3 holdings of Meta, Alphabet, and Take-Two making up over 31% of the sector is worth note.

I’ve mentioned before but it bears repeating: high AI capital expenditures may not translate to proportional earnings growth, disappointing investors who have bid up valuations on transformation expectations.

Industrials (XLI)

Valuation:

At a P/E of 29.63, Industrials trade essentially in line with the S&P 500's 29.83 trailing P/E but at a significant premium to the market's 21.2 forward multiple.

This elevated valuation reflects strong fundamentals. The sector delivered the fourth largest positive earnings surprise at +18.8% above estimates—but leaves little room for error.

Key drivers:

Increased capital spending in electricity capacity, defense, and energy is driving robust demand.

The secular construction themes previous discussed provide multi-year tailwinds, with the sector achieving record-high forward revenues and earnings.

The 11.92% YTD and 22.34% one-year returns confirm this momentum.

52-week context:

Trading at $171.62 within a $140.84 to $179.31 range, XLI sits in mid-to-upper range, 4.3% below its high and 21.9% above its low.

Pricing confirms strong appreciation has already occurred.

Risks:

Elevated P/E multiple leaves little room for execution disappointment or order slowdown.

Closing of global trade could disrupt production schedules and compress margins, particularly for manufacturers with complex global operations.

Consumer Staples (XLP)

Valuation:

XLP's P/E of 24.88 represents a 17% discount to the S&P 500's 29.83 trailing P/E but a 17% premium to the market's 21.2 forward multiple.

This valuation appears unjustified given the sector's weak revenue growth and price pressures.

Key drivers:

The sector continues to face issues from weak top line growth as consumers resist price increases and trade down to private label products.

The 7.33% YTD return (ranking 7th among 11 sectors) and modest 5.72% one-year return reflect these challenges, with the sector offering neither growth nor compelling value at current levels.

52-week context:

At $83.22, XLP trades in mid-range within its $75.16 to $90.14 band, 7.7% below the high and 10.7% above the low.

This positioning suggests the sector is fairly discovered by the market, with limited technical factors for a breakout in either direction.

Risks:

Continued margin pressure from input cost inflation and limited pricing power could compress earnings.

Consumer trading down to private label and discount retailers threatens branded manufacturers' market share and pricing power, particularly if economic conditions weaken.

Consumer Discretionary (XLY)

Valuation:

With a P/E of 30.52 and the highest forward 12-month P/E among all sectors at 27.8, Consumer Discretionary trades at a 2% premium to the S&P 500's 29.83 trailing P/E despite significantly weaker performance.

This valuation appears disconnected from fundamentals, with the 1.42% YTD and 6.20% one-year returns the weakest across sectors.

Key drivers:

The sector has benefited historically from economic expansion and rising consumer spending, but is now highly exposed to uneven job numbers and reduced consumer confidence.

The weak returns suggest investors are already anticipating headwinds, yet the valuation premium lingers, creating unfavorable risk-reward dynamics.

52-week context:

Trading in the $118.71 range against a 52-week span of $103.86 to $125.01, XLY sits in mid-to-upper range, approximately 4% below its high and 15% above its low.

This positioning offers limited upside while the elevated valuation increases downside risk if consumer spending weakens further.

Risks:

High sensitivity to economic conditions makes the sector vulnerable to recession or consumer confidence deterioration. Elevated valuations provide no cushion if discretionary spending contracts, with the 1.18 beta amplifying downside in market corrections.

Information Technology (XLK)

Valuation:

At a P/E of 42.90, Information Technology trades at a 44% premium to the S&P 500's 29.83 trailing P/E and roughly double the market's 21.2 forward multiple.

While technology typically commands higher multiples (often 25-35x) the current valuation sits at the upper end of this range despite questions about AI capital expenditure returns.

Key drivers:

The sector's extraordinary 71.34% one-year return and 32.84% YTD performance reflect investor enthusiasm for cloud computing, digital transformation, and automation solutions.

52-week context:

At $195.74, XLK trades just 0.4% below its 52-week high of $196.50 and 70.2% above its $115.01 low.

This near-high positioning after a 70%+ rally leaves virtually no room for missteps. The price is reflecting maximum optimism about AI-driven transformation and leaving the sector vulnerable to any disappointment in execution or returns on capital.

Risks:

Technology disruption risk is elevated as massive AI capital expenditures may not generate expected returns, potentially triggering valuation compression.

Valuation selectivity is critical in this market environment.

With the S&P 500 trading at a forward P/E of 21.2 versus its 5-year average of 19.9 and 10-year average of 18.9, the broad market offers limited margin of safety.

So there’s a different flavor of market coverage than I’d normally provide. Let me know what you think in the comments below.

Thanks for reading.

Russia–Ukraine is in year four. The U.S.–Iran conflict has escalated. Gaza remains unstable. At the same time, sovereign debt concerns and global power realignment are intensifying.

Markets don’t respond well to rising tension in the short term. But volatility often creates attractive entry points. With virtually every G10 country committing to higher defense spending, there are structural tailwinds across defense, cybersecurity, aerospace, and public safety.

Here are a few companies I have on my radar

CrowdStrike (CRWD)

Modern warfare is digital as much as physical. CrowdStrike sits at the center of that shift.

Its Falcon platform is a unified, cloud-native cybersecurity system covering endpoints, cloud workloads, identity, and data. It processes trillions of transactions weekly through its AI-driven Security Cloud.

In 2026, CrowdStrike signed a strategic agreement with Aramco to help advance Saudi Arabia’s cybersecurity infrastructure and AI transformation. Falcon also became available in the Microsoft Marketplace, allowing Azure customers to deploy it through existing commitments.

Partnerships with Vast Data and Super Micro are expanding coordinated AI security capabilities.

Additionally, NordVPN recently selected CrowdStrike’s threat intelligence, reinforcing both enterprise and consumer relevance.

Fiscal 2025 revenue reached just under $4 billion with nearly $3 billion in gross profit.

Risks include intense competition, regulatory complexity, and the reality that cybersecurity firms must defend their own reputations constantly.

Lockheed Martin (LMT)

When geopolitical risk rises, governments throw a lot of money toward defense.

Lockheed operates across four segments: Aeronautics (F-35, F-22), Missiles and Fire Control, Rotary and Mission Systems, and Space. The company continues investing in AI, digital engineering, hypersonics, and next-generation missile systems.

Recently Lockheed secured $9 million in new F-16 component contracts extending through 2028. They’re also growing through acquisition spending $360 million to take over Amentum’s Rapid Solutions business, expanding space and airborne capabilities.

As of year-end 2025, revenue stood at $75 billion with $5 billion in net income. Gross margin is 10.15% and price-to-free-cash-flow sits near 22.9. The company is hitting it’s numbers while paying a reasonable 2.97% dividend yield.

Risks are tied to heavy reliance on budget cycles, government shutdowns, large program execution challenges, and competition from peers like Boeing, and Northrop Grumman.

Howmet Aerospace (HWM)

Howmet is less visible but deeply embedded in aerospace and defense supply chains.

It manufactures high performance engineered metal components for jet engines, gas turbines, and defense systems. Engine Products posted sector-leading margins, reaching 34% in the final quarter of 2025.

The gas turbine segment represents roughly 12% of total revenue and grew 32% year over year in Q4. Management sees potential for that sector to double to roughly $2 billion over the next 5 years.

The $1.8 billion acquisition of Consolidated Aerospace Manufacturing is expected to close in the first half of 2026, expanding fastener capabilities and production capacity.

The company has proven shareholder friendly executing $700 million in buybacks in 2025 and another $150M so far in 2026.

Risks include aerospace cyclicality, acquisition integration, and premium valuation sensitivity.

Axon Enterprise (AXON)

Security is also domestic. Axon focuses on public safety infrastructure.

Its ecosystem includes TASER energy devices, body and in-car cameras, AI-powered reporting tools like Axon Assistant, drone management via Axon Air, and immersive VR training for de-escalation.

The final quarter of 2025 saw revenue jump up 39% year over year. Full-year 2025 revenue reached $2.78 billion up 33%.

We can’t ignore management and one thing that I find favorable is founder led companies. Patrick Smith owns over 50 patents and is a leader in the public safety space.

Risks include competitive AI innovation, tariff-related margin pressure, and valuation risk. The company does not pay a dividend and instead returns capital through buybacks.

Bottom Line

Geopolitical instability is unlikely to fade quickly. Defense budgets are expanding. Cybersecurity threats are increasing. Aerospace demand remains structurally supported. Public safety technology continues to modernize.

Volatility will remain part of the equation. But the spending direction from governments and institutions is clear.

In uncertain environments, capital often follows necessity.

The answer is based on 3 pillars. Two are relatively new developments, the other has been in the works for decades.

Geopolitical Tension

Throughout 2025 we’ve witnessed the steepest annual increase of gold since 1979.

Turn on the news or scroll through legacy media and there is no shortage of social drama and doomsday predictions. Tariff wars, ICE raids, Iran protests, pick your poison.

Gold has been a safe haven for investors for thousands of years. In times of uncertainty capital flees riskier assets like stocks and cryptocurrencies hiding under gold until the storm passes.

Even as the U.S. dollar remained mostly steady and Treasury yields saw minor bumps, the interest for gold was reinforced by global investors seeking insurance against economic and political risk.

April 2nd, aka Liberation day, brought globalization to a halt with unprecedented tariffs. Copper enjoyed a healthy price boost of 37% last year as a result of a 50% tariff rate. Countries scrambled to secure supplies before the tariff was implemented which caused a knee jerk price reaction.

Geopolitical tensions aren’t necessarily new, but the next reason for higher metals prices has been snowballing into something we can’t ignore.

Industrial Demand

The infrastructure build out needed over the next 10 years will be something civilization has never seen before.

Data centers, renewable projects, and housing demand all requires metals. Investors have been trying to get ahead of the game evident in the 200% price increase silver has experienced since last year.

The metal is woven into the fabric of electrical boards, battery systems, and automotive parts making it an integral part of our economy.

Gold is used in high-tech industrial applications like electronics and aerospace, thanks to its conductivity and corrosion resistance. Aerospace is noteworthy because of a global commitment to increase defense spending which again is a result of political drama.

America itself has allocated $1.48 trillion for defense spending in 2026.

Aggressive infrastructure investment in the U.S., Europe, and Asia, as well as the continued shift to green energy has lifted copper to new heights. China carries the world’s heaviest demand for copper using 15-17 million tonnes annually.

The insatiable demand will carry metals prices for a decade or more.

But China doesn’t just alter demand metrics, the Asian powerhouse also contributed to a major supply shock.

Under Investment

Metals are a highly cyclical industry for two reasons

1. The cost to mine changes in big swings. Think of financing and labor costs. Not to mention mine yields are never guaranteed

2. The price of the metal is volatile. If the price of silver isn’t high enough to generate a profit, companies won’t dig

For those reasons there has been a significant absence of mines being developed over the last 20 years.

When supply is constricted that naturally brings the price of gold, silver, and copper up. Eventually they get to a profitable point again and the cycle repeats.

A new layer of volatility was added by China’s dominant position in the silver supply chain, especially in processing and exports.

In 2025, China’s tightening of export licensing and oversight of silver caused market anxiety over supply availability. These supply side constraints did not merely boost prices: they exposed systemic vulnerabilities forcing countries to rethink where they sources their silver.

A quick reminder if you become a paid subscriber here are the benefits:

• Private chat where you can ask me questions about investing, the economy, or personal finance

• Access to our Discord community where we break down in depth what’s happening in the market

• Custom charts portfolio managers use to manage $400 million investment funds

• Learn the same investing strategies I use with my multi-millionaire clients

• Full access to all Substack articles

  ---

  Subscribe now

Is It Too late?

If you’re looking for an investment for the next 12-18 months then I would say it’s too late.

The buying power precious metals has seen is not sustainable especially given they are not income producing assets. We’re going to see some mean reversion.

That’s fancy finance talk for the price will drop down closer to it’s historical average. From 2019 to 2024 gold averaged about a 10% gain each year compared to roughly 30% annually from 2024 to now.

If you’re investing for the next 5-10 years I’d be comfortable putting my money in gold, silver, and copper. What’s nice about these commodities is they provide great diversification benefits.

For example while the world was imploding in 2022 the S&P 500 lost about 20%, the aforementioned metals nearly broke even. That’s a major insulator for your portfolio.

Final answer: Short term stay where you are. Long term buy.

The story was simple: fear around stretched valuations, rising volatility, shifting rate expectations, and mixed economic data.

In the US, all three major indexes finished the week in the red.

The S&P 500 closed at 6,602.99, down almost 2% for the week and now negative for November, though still up double digits year-to-date. The NASDAQ and Dow Jones each fell around 3%. Tech was the main culprit.

The sector dropped nearly 5%, with names like Advanced Mirco Devices (-17%), Micron (-16%), and Nvidia (-5.9%) dragging the market lower. Even strong earnings couldn’t offset anxiety that AI spending is heating up too fast.

Oracle’s slump added fuel to the selloff. Only Alphabet broke higher, jumping more than 8% on the launch of Gemini 3 and headlines about an investment from Warren Buffet. A few defensive pockets—communication services, health care, and staples—managed small gains. Volatility spiked as the VIX pushed above 26, its highest in months.

Economic data added fuel to the fire. The delayed September jobs report showed stronger payroll growth but an unemployment rate rising to 4.4%, the highest since 2021.

That mix convinced investors a rate cut in December is more likely. By Friday, odds of a 25 bp cut at the next Fed meeting climbed from 39% to 70%.

Canada followed the turbulence but showed late-week resilience. The S&P/TSX Composite fell sharply mid-week on the same tech fears, then recovered nearly 1% on Friday to finish around 30,160. Metals and health care bounced, while energy lagged.

Some optimism was built around export diversification, including Prime Minister Carney’s trade trip to the UAE, and a brighter outlook from business surveys, hinting at improved sentiment despite the pullback in equities.

Commodities were split. Gold firmed on safe-haven demand and rising expectations for Fed cuts. Oil slid below $59 as supply stayed heavy. Bitcoin dropped to a low of $85,000 on the back of less institutional support.

Bottom line: This was a tech-led correction driven by valuation fears, AI exhaustion, and rising volatility. Canada held steadier than the US, but caution still dominates as markets wait for clearer footing.