Client Update, March 2026: Pulling back the curtain

“He who conquers others is strong; he who conquers himself is mighty.”

Lao Tzu

Value investing is sometimes misunderstood as a philosophy of buying a stock and never selling it. It’s understandable why people might think this. Legendary value investor Warren Buffett once said, “Our favorite holding period is forever.”

And it’s true: in an ideal world, we would find exceptional businesses at attractive prices and hold them indefinitely.

But the reality is that circumstances change. Prices move, competitive environments shift around, and sometimes new information emerges that forces us to reassess an earlier judgment.

At GDS Investments, the past month has seen more portfolio activity than perhaps the entire past year combined. That makes it an ideal opportunity to pull back the curtain a bit and walk through not just what we have done, but why we have done it.

The short version: a series of company-specific developments and broader market swings combined to create an unusual window where we saw a rare opportunity to adjust the portfolio and meaningfully improve its risk-to-reward profile.

Positions Sold

Novo Nordisk (NYQ: NVO)

To begin, we exited our position in Novo Nordisk in early February after the company pre-announced earnings results that were materially weaker than expected. Management indicated that both sales and operating profit could decline between 5% and 13%, a big departure from what the market had been expecting.

It was a genuinely surprising announcement. Novo operates in what is arguably one of the most powerful growth markets in global healthcare today: GLP-1-based obesity and diabetes treatments. Structurally, the industry resembles a duopoly, with Novo Nordisk and Eli Lilly (NYQ: LLY) dominating the space. The drugs themselves have proven highly effective, and demand has been enormous. Even better, Novo has been pursuing exciting developments, including the first swallowable GLP-1 medication (which we touched on in our January 2026 letter).

We do not believe the company’s underlying potential has disappeared, but it’s clear there’s an internal disconnect or breakdown of some kind at NVO. They’re seemingly squandering a gold mine of an opportunity. Several factors appear to be contributing here:

• Supply constraints that initially limited Novo’s ability to meet demand

• Intense competition from Eli Lilly’s Zepbound

• A continued inflow of illicit versions of GLP-1 drugs into the country

• A challenging and difficult management transition, with a major leadership overhaul taking effect late last year

Ultimately, when there is a significant gap between our expectations and operational reality, intellectual honesty requires that we step back and reassess.

The position remains on our radar, and it is possible we’ll step back into this arena at some point. But for the moment, we felt it sensible to step aside until we could better understand the breakdown between expected and actual performance.

In our case, we ended up timing the exit as well as we could have; we sold the position in the high-$40s range, before the stock value further plummeted in late February. The stock has since declined by about a quarter.

Constellation Brands (NYS: STZ)

We have long liked STZ for its durable performance even in bear market environments, and unlike Novo, the decision here was not driven by deteriorating fundamentals.

In fact, Constellation had been performing well. Consumer staples broadly have benefited from a “flight to quality” environment as investors became more cautious in other parts of the market. Constellation’s share price reflected that sector revaluation, increasing by over 27% from its 2025 low ($128 per share) to its 2026 high ($166).

This sale was more tactical in nature. A series of high-quality companies in other sectors experienced sharp declines after 4^th quarter reporting, which provided a valuable and narrow window to acquire them below intrinsic value (we’ll discuss these companies in more detail shortly).

When we see a situation where capital can be reallocated from a solid but fully valued company into truly exceptional businesses trading at temporarily depressed prices, the risk-reward equation shifts. At that point, trimming winners like STZ to fund even higher-potential opportunities can make sense.

Valaris (NYS: VAL) and Tidewater (NYS: TDW)

Similarly, we also sold our positions in Valaris Limited and Tidewater Inc. largely to help fund the new purchases we’ve made over the past month.

Both companies had benefited from strength in offshore energy services, and the shares had appreciated meaningfully. However, following the announced merger involving Transocean Ltd. (NYS: RIG) and Valaris, we viewed the sector as having already captured much of the near-term upside. Rather than continue holding those gains, we redeployed the capital into several higher-quality companies that had recently sold off.

New Positions Acquired

We don’t have to tell you that the market has been volatile and skittish for a long while now.

That volatility came to a head after a series of 4^th quarter earnings calls and reports in late January and early February, after which investors fled otherwise valuable companies. These are top-echelon firms operating at the peak of their sectors with very large moats, excellent balance sheets, strong stock buyback programs, and reliable management teams. They’ve all been sitting on our “waiting to own” list for a long time; the only missing ingredient has been price (we can’t make money unless we are able to purchase at prices below intrinsic value).

So, when stock prices tumbled 25% to 30% within just a matter of weeks with no material change to the value or strength of the companies themselves, it created a rare and compelling opportunity we did not want to miss.

Microsoft (NYS: MSFT)

To start, we initiated a position in Microsoft Corporation. Yes, we’ve regarded a few of Microsoft’s AI-related moves with some skepticism, but Microsoft is far more than just its AI investments. Microsoft occupies one of the most defensible positions in enterprise technology. Its ecosystem spans operating systems, productivity software, enterprise infrastructure, and cloud computing. For corporate customers, switching away from that ecosystem would be both disruptive and costly. Those switching costs form the backbone of Microsoft’s moat.

The company also possesses several additional characteristics we value highly:

• A pristine balance sheet, showing extremely strong growth and relatively little debt

• Exceptional return on invested capital (north of 22%)

• Consistent share repurchases

• Multiple revenue streams across enterprise software, cloud infrastructure, gaming, and productivity tools

But even with these strengths, we could not justify buying as long as share prices remained steady near or above $500.

That changed over the past month, when Microsoft’s price fell from a high of $542 late last year to $407 as we write this, a 25% tumble. Much of the recent investor anxiety has centered on artificial intelligence and Microsoft’s relationship with OpenAI. While those concerns are worth considering (we even mentioned them ourselves last month), the associated risks are also highly price-dependent. In other words, Microsoft does not have the same vulnerabilities as a pureplay AI company, and the ability to buy at a low price enables us to more safely enter a space that still offers enormous reward potential.

In the end, price dips this large for companies this strong do not happen often. In our view, the market’s short-term reaction created a compelling entry point.

S&P Global Inc. (NYS: SPGI)

We also established a position in S&P Global Inc. S&P Global operates one of the two dominant credit rating agencies in the world, alongside Moody’s Corporation (NYS: MCO). Together they form a powerful duopoly within the global debt markets. Every time a corporation, municipality, or government issues debt, investors require an independent credit assessment. That demand gives the rating agencies remarkable durability.

The business has several attributes we look for in long-term holdings:

• Strong recurring revenue streams

• High margins (e.g., net profit margin just under 30%)

• Capital-lite business model

• Significant barriers to entry creating a durable moat

We were fortunate to acquire shares when we did, because after hitting a 52-week low in early February (falling sub-$400 for the first time in two years), the stock immediately began moving up again.

Toast (NYS: TOST)

Toast provides vertically integrated software for the restaurant industry, combining point-of-sale systems, payment processing, and operational tools into a unified platform. Restaurants rely on Toast for functions like payments, order management, inventory tracking, and customer analytics. Once integrated into those workflows, switching platforms becomes inconvenient and disruptive. As with Microsoft, that makes customer relationships with Toast extremely sticky thanks to how deeply embedded its platform becomes in the day-to-day operations of clients.

It’s also worth noting that Toast is a restaurant industry leader in data aggregation and analysis, regularly generating credible and widely used industry reporting and analytics and gaining an unusual level of under-the-hood insight into the restaurant industry.

Since hitting a 52-week low in late February, Toast’s price has already begun to rebound.

Visa (NYS: V)

We also initiated a position in Visa Inc. This is another company that hit a 52-week low in February, yet whose inherent strengths remain as attractive as ever.

Visa operates one of the most powerful payment networks on the planet. Every time a Visa card is used, the company collects a small fee for facilitating the transaction. Over time, this model has produced extraordinary profitability and global scale. Its net profit margin, for example, exceeds even SPGI’s, hitting 50.23% as of the end of 2025.

Earlier this year, a highly speculative research report suggested that potential layoffs could lead to reduced consumer spending. The report appeared to spook investors (the NASDAQ fell by roughly 1% following the report’s release). That was when Visa hit its 52-week low, falling from roughly $355 in early January to around $300. That dip caught our attention.

As with all our new acquisitions, we had been watching Visa for quite some time, waiting for a more attractive price. The pullback finally provided that opportunity. We initiated a position and would have happily added more, but the shares rebounded quickly after our initial purchases.

Coupang (NYS: CPNG)

Finally, we added shares of Coupang Inc. Coupang operates one of the most sophisticated e-commerce platforms in Asia, often described as the “Amazon of South Korea” (the company is technically an American firm incorporated in Delaware).

The company has built an impressive logistics infrastructure that allows for rapid delivery and high customer satisfaction. While still in a growth phase, Coupang has demonstrated an ability to improve performance and increase scale.

By being able to purchase at the right price, we believe CPNG’s long-term potential gave us an opportunity to materially improve the risk-reward profile of the portfolio.

Why So Much Activity All at Once?

Now that we’ve detailed the specific changes to the portfolio, it’s worth asking: why?

Value investing is not an autopilot strategy. Yes, there can be long stretches (sometimes, very long) with little material movement because prices do not justify action. During these periods, we research, watch, and wait. Then, occasionally, the market experiences a period of rapid dislocation that creates multiple opportunities at once.

As a result, periods of portfolio turnover often occur in clusters rather than evenly distributed over time. That is essentially what occurred over the past several weeks.

It happened at this time of the year specifically because January and February are particularly active months in the market calendar. Companies release full-year results, provide new guidance, and reset expectations for the coming year. When those expectations diverge from investor assumptions, prices can move quickly. For companies we already understand and have been actively monitoring, those moments can present rare entry points.

In fact, it’s perhaps worth emphasizing that none of our new acquisitions involve new-to-us businesses. We would never buy into a company “just because” the price went down. We maintain an ongoing watchlist of vetted companies we actively want to own and are simply waiting for an acceptable price point to act.

The result is a portfolio that we believe now contains a higher concentration of exceptional businesses purchased at prices that give us substantial room for long-term gains.

Additional Developments Worth Mentioning

The U.S. Supreme Court Tariff Ruling

One notable development last month came from the Supreme Court, which ruled 6–3 to invalidate President Trump’s tariffs imposed under a 1978 statute. The Trump Administration immediately moved to re-initiate tariffs under a different rule, but after this decision, Trump is unlikely to be able to sustain his desired tariffs past further court scrutiny. States have already filed new lawsuits. 

Justice Neil Gorsuch wrote a particularly noteworthy concurrence emphasizing the importance of legislative authority in matters of taxation and trade policy. As he argued, the Constitution deliberately and rightfully places taxing power in the hands of Congress, not the Executive. No single person should have the right to impose this on citizens.

In our view, markets generally function best when rules are transparent and established through institutional processes. We agree with Justice Gorsuch’s apparent view that Congress should undertake a more muscular approach to managing the tariff situation, rather than seeming to cede its authority in this domain.

The Iran Conflict

We prefer not to speculate on the recent military strike involving Iran; there remains too much uncertainty, developments are unfolding too rapidly, and we do not want to add to the breathless and highly speculative commentary proliferating online.

However, it is worth acknowledging that the conflict is likely to disrupt global supply chains to at least some degree, particularly through the Strait of Hormuz bordered by Iran.

That waterway is one of the most critical shipping routes for oil and petroleum products. Any interruption to tanker traffic could increase transportation costs and energy prices. Beyond oil, disruptions could affect pharmaceuticals from India, semiconductors from Asia, and fertilizer products from the Middle East. At minimum, companies may need to reroute shipments through longer or more expensive logistics paths, which ultimately feeds into higher prices.

These dynamics bear watching in the months ahead.

Airbnb (NYS: ABNB) and AI

Almost exactly a year ago (February 2025), we wrote at some length about the state of AI: the hype, the likely realities, and our take. It’s hard not to see this sector as still overhyped in aggregate, but we still hold the view we expressed last year: “When companies can point to clear margin expansion and the associated margin dollars that will come out of their cost structure, it becomes easier to have confidence in AI as a legitimate business-booster.”

We’ve used Alphabet and Amazon as examples of this in previous letters. Now, we can see another potential example in Airbnb, which reported that roughly one-third of its customer support interactions in the United States and Canada are now handled by artificial intelligence. Given that user satisfaction scores have simultaneously risen, the deployment seems to be working well.

For us, when AI enters the picture, we want to know whether the company’s overall structure and incentives allow it to deploy new technologies in ways that benefit both the business and its customers simultaneously. Airbnb appears to be doing that to great success.

On Our Desk

Lastly, a book recommendation. We’ve been reading Americana: A 400-Year History of American Capitalism by historian Bhu Srinivasan.

The book traces the evolution of American business from the colonial fur trade to modern Silicon Valley, weaving together stories of entrepreneurs, inventors, financiers, and cultural movements. Along the way it explores how industries rise and fall, how innovation reshapes markets, and how the uniquely American blend of risk-taking and opportunity has repeatedly reinvented the economy. One running theme looks at how the complicated interplay between the government and private actors has shaped the American economy throughout its history.

At any rate, the book is highly readable, an engaging narrative history, and a reminder that capitalism is not static but evolves through cycles of experimentation, failure, and renewal. For anyone interested in the deeper forces that shape markets, it is well worth the read. Email me at glenn@gdsinvestments and I’ll be happy to send you a copy.

Annual ADV Offering and Privacy Statement

ADV Part 2 has been updated as part of our annual update amendment. Material changes since the previous annual update include: 

• Item 4e: Updated assets under management.

You may request an updated ADV Part 2 brochure at any time by contacting me.

Closing Thoughts

While the past month has involved more activity than usual, the underlying philosophy guiding the portfolio remains unchanged. In fact, in many ways the past month exemplifies how we invest. We continue to focus on identifying exceptional businesses, purchasing them at reasonable prices, and holding them for as long as the investment case remains intact.

As always, we appreciate the trust you place in us and remain committed to managing capital with discipline, transparency, and a long-term perspective.

Thank you for your continued confidence.

With warm regards,

Glenn