Client Update, February 2026: Let's slow it down.

“The big money is not in the buying and selling, but in the waiting.”

Charlie Munger, Value Investor and former Vice Chairman of Berkshire Hathaway

What a year it has already been. Between nonstop headlines, political controversies, and market volatility, it feels like we’ve already packed a year's worth of developments into little more than a month.

In times like this, our first instinct is not to react, but to slow things down.

Volatility does not invalidate a disciplined investment process. Rather, a volatile environment is where discipline matters most. The temptation in a headline-driven market is to treat each new development as some kind of decisive turning point, a trigger to rethink investment strategy. But a great deal of the “news” that moves markets in the short term has very little bearing on the long-term economics of durable businesses.

So rather than respond to every new development, we try to step back and ask two questions:

1. What is actually changing beneath the surface, in ways that are likely to persist?

2. What feels urgent, but will probably be forgotten a few quarters from now?

One window into that distinction came last month from the 56th World Economic Forum in Davos, Switzerland.

Davos and the consequences of being an “unreliable partner”

For much of its first year, the Trump Administration itself has been a driver behind no small amount of political and economic upheaval, and it’s clear at least some of what’s changing will persist.

The Trump Administration has been playing with fire in its relationships with the market and international allies alike. When relationships are stable and based on mutual respect, participants tend to assume continuity; but when they are not, self-preservation becomes the dominant impulse.

That shift was on full display at Davos, particularly in the contrast between how different leaders articulated their vision for the global economy and what they implied about the future of cooperation. In his comments at the event, Canadian Prime Minister Mark Carney highlighted a growing concern about the reliability of international partnerships with the U.S. In his words:

“For decades, countries like Canada prospered under what we called the rules-based international order. We joined its institutions, we praised its principles, we benefited from its predictability. And because of that, we could pursue values-based foreign policies under its protection.

“We knew the story of the international rules-based order was partially false that the strongest would exempt themselves when convenient, that trade rules were enforced asymmetrically. And we knew that international law applied with varying rigour [sic] depending on the identity of the accused or the victim.

“This fiction was useful, and American hegemony, in particular, helped provide public goods, open sea lanes, a stable financial system, collective security and support for frameworks for resolving disputes.

“This bargain no longer works. Let me be direct. We are in the midst of a rupture, not a transition.”

What struck us in these remarks, and other speeches like it, wasn't just their substance, but their tone: there's a palpable shift happening in how global leaders view economic cooperation with the United States.

President Trump's own speech at Davos, along with other public statements, have demonstrated a pattern we've discussed before: a tendency to view relationships through a purely transactional lens, often holding trading partners in apparent contempt. He called Denmark ungrateful, accusing other member of nations of NATO of withholding payments from the organization, and more. Immediately after the Forum, he demeaned Carney by calling him “governor” rather than “Prime Minister” and threatened 100% tariffs on Canada.

The point is this: for other nations, especially current trading partners and diplomatic allies, when you have a partner that appears more threatening than collaborative, economic partners will naturally begin to develop risk mitigation strategies to protect themselves. Those strategies will necessarily involve reducing dependency on (and thus vulnerability to) the United States in favor of other options.

That's exactly what we're seeing: European and Canadian officials moving closer to India and China on trade deals, having conversations about parallel systems that reduce dependence on U.S.-centric structures, and generally recalibrating away from the U.S.

Worse, questions once unthinkable now must be confronted, like “should other nations ‘sell America’?” (i.e., sell U.S.-based assets).

What’s an investor to do with all this?

We’re still left with the question about whether any of this is (1) genuinely a permanent or long-term change or (2) short-term and temporary. The Trump Administration, with constant changes in policy and rhetoric, doesn’t make it easy to tell the difference.

What we don’t want to do is react reflexively to momentary headlines or market swings.

As value investors focused on the long tail of wealth creation, we don't chase momentum or get swept up in headlines that dominate the news cycle for a few weeks (or less) only to fade away.

With this in mind, it might be helpful to re-iterate our philosophy of investing, as it has been a few years since we explained “How GDS Invests.” You can read our full approach at the link, but in short: we do not attempt to predict political outcomes or trade tomorrow’s reaction to the next controversy. We do not assume that a market move is the market “knowing something” about the future. Markets are often emotional in the short term, even when they are efficient in the long term.

Instead, we ask how businesses perform at the ground level, because that is what determines long-term success or failure. We spend most of our time on company-specific fundamentals: balance sheets, competitive positioning, pricing power, management quality, and long-term capital allocation discipline. These characteristics don't guarantee immunity from market or political volatility, but they do provide resilience over the long term.

So, our job is to find those companies that may be misunderstood or out of favor but remain well-positioned for the future. At the end of the day, the core of what we do never changes: identify strength and purchase those assets at a discount to fair value.

That approach has an inherent advantage: it works across different geopolitical environments. You're not betting on a particular political outcome or economic scenario; you're investing in businesses that can succeed in a variety of conditions.

That brings us to two important follow-ups from last month: the Federal Reserve and artificial intelligence.

Follow-up #1: The Federal Reserve

Last month, we discussed concerns around the Federal Reserve and political pressure. We'd like to expand on those comments, particularly in light of recent developments.

First, while rhetoric has been aggressive, there are important structural realities that act as guardrails. Credit markets, in particular, serve as a powerful disciplining mechanism. If investors perceive that monetary policy is becoming a political tool rather than an independent institution, they will demand higher compensation for risk. In other words, when credibility weakens, the price of capital rises.

This is where concerns around the President attacking current Fed Chairman Jerome Powell and potentially appointing a political lackey to the role of chairman comes in. If the market believes the next chairman will not be independent, serving the president’s whims rather than the needs of the marketplace, it will react badly.

As it happens, however, President Trump has nominated former Fed Governor Kevin Warsh for the role. 

This is encouraging. Warsh is probably the best of the realistic candidates, and the market reacted favorably to the news: gold and silver sold off, and the dollar strengthened, which suggests investors view Warsh as a credible and stabilizing choice. As Forbes wrote: “[I]nvestors sold safe-haven metals because they view Warsh as a credible, inflation-focused central banker who will maintain higher rates than a more political appointee would.”

We too are hopeful this nomination indicates that the boundaries of recklessness will, in fact, be respected. By nominating Warsh, we hope that the President understands where the red line is and, regardless of his rhetoric, will stop short of actions that could trigger a genuine crisis of confidence.

Follow-up #2: The AI Capital Cycle

We also noted last month early signs that expectations in parts of the AI ecosystem were beginning to unwind. This trend seems to be continuing.

Consider Microsoft (NSQ: MSFT). Microsoft lost over 10% in its market value in late January, a not-insignificant move. There were multiple concerns, but one particularly noteworthy issue was the revelation that nearly half (45%) of Microsoft’s $625 billion in remaining performance obligations (RPO) is leveraged to OpenAI (the maker of ChatGPT) alone. We don’t hold a position in MSFT, but this dip suggests the market is becoming warier of companies overextending themselves on AI.

Even Alphabet (NSQ: GOOGL) and Amazon (NSQ: AMZN), two positions we do own, took some punishment from the market over their AI spending. Both companies released fourth quarter earnings reports at the start of February, and a sharp increase in 2026 capex spending at both (up to $200 billion at Amazon and up to $185 billion at Google) shook the market, sparking a selloff.

Our take:

• It’s more proof that AI investing is, or is likely to begin, unwinding. The market is clearly growing more skeptical of AI’s ability to be able to reward large-scale investment.

• We think this increasing skepticism will help to instill more discipline moving forward in all the tech companies investing in AI buildouts. It won’t stop the investments that need to happen, but it will force companies to be more mindful of the decisions they make. 

The issue here is the concentration of expectations and valuation. When a company is priced for near-perfect outcomes, any uncertainty forces investors to reassess future assumptions. People are beginning to ask harder questions about return on investment, hence the sell-off.

In our view, Amazon and Alphabet have earned some trust here. Having owned these two positions through several spending cycles, we trust that the capital spend today will generate an acceptable rate of return down the road; or they will cut back otherwise. Both companies have been highly disciplined with capital allocation, their moats are strong, and they also delivered incredible operating results (like (18% YOY for Google, 24% for Amazon’s AWS in the most recent disclosures). They continue to be engines of growth.

Importantly, they also both benefit internally from AI within well-diversified business models, which is a stronger position to be in than companies that are heavily dependent on the continued acceleration of AI-related optimism. Businesses with diversified engines of profit, strong balance sheets, and multiple avenues to deploy technology tend to be more resilient and have more optionality. They can incorporate new tools to become more efficient without requiring a perfect external environment to justify their valuation.

In short: increasing market skepticism over AI? Good. Panicked selloffs of otherwise best-in-class performers? Premature.

Apart from reliable mainstays like Amazon and Alphabet, however, all of this reinforces our interest in looking outside of big tech for new opportunities. If we look at other sectors within the S&P 500, there are numerous high-quality companies, bellwethers in their industries, that aren't growing at spectacular rates but have delivered consistent, low-risk growth for years. These businesses have been neglected. Our job is to tilt toward those names.

A current example: Zoetis (NYQ: ZTS).

Zoetis is an animal health company with a long operating history and meaningful market positioning. It operates in a category that has historically held up well across economic cycles. Animal health spending tends to hold up even during recessions; people continue caring for their pets, and livestock health remains essential for agricultural producers. People may delay certain discretionary purchases when the economy weakens, but animal health is not a discretionary “nice to have.”

We also like the steadiness of the model. With return on invested capital above 24% and a share repurchase program underway, it’s conducting itself in a way we like to see. Yet its market price has fallen to a near 52-week low. When quality businesses become mispriced, often because they're perceived as boring or because capital has rushed elsewhere, that's when we get interested.

We are not buying it because it is exciting. We are buying it because it represents discounted strength: stable demand, durable economics, and the potential to compound value quietly over time. We don't need Zoetis to double overnight. We need it to continue doing what it does well, purchased at a price that gives us a margin of safety and the potential for solid long-term returns.

On Our Desk

• Colossus Magazine recently did a deep dive into private equity investment firm 3G Capital. While we tend to shy away from investing in PE firms directly (we wrote about our thoughts on the private equity model a couple of years ago), that doesn’t mean we don’t pay attention to them. 3G Capital is one that seems to have their finger on the pulse of interesting opportunities, and we found this profile of 3G Capital illuminating.

• Rivian’s RJ Scaringe never fails to impress. His recent conversation with journalist Kara Swisher was another fascinating one. They discuss the R2, Chinese EV competitors, future plans, and why Scaringe is taking Trump’s apparent anti-EV stance in stride. You can watch the whole discussion here.

• Lastly, this was a fascinating mini-documentary from Business Insider asking the question, “Who Actually Makes Trader Joe’s Food?” Because Trader Joe’s is privately owned, it’s not generally required to disclosure such information, but Business Insider did some clever digging and came up with some interesting answers.

Final thoughts

There is no shortage of uncertainty ahead. Political tension, economic adjustment, and market volatility are likely to persist. If anything, the pace of noise may continue to accelerate. Political headlines will keep coming, markets will react, and there will be no shortage of things to worry about. As we approach primary season for upcoming elections, it will likely only get more intense.

But the principles that guide our decision-making remain unchanged. We focus on businesses that can succeed across different environments, we insist on buying at prices that provide a margin of safety, and we stay patient. That approach has worked through numerous cycles, and we believe it will continue to serve us well.

In many ways, environments like this are precisely what value investing was designed for.

Thank you, as always, for your continued trust. 

With warm regards,

Glenn