Two Minute Offense: Navigating Volatility in Early 2026

The goal of this little piece is to enlighten the reader on how we have been addressing the opportunities and risks presented by the stock market correction induced by the onset of hostilities with Iran at the end of February.

Some longer term market strategy thoughts are contained in a thought piece published in March:
CHOOSE YOUR BATTLES

Framework

We expressed in the above piece the view that the economically important aspects of the conflict (energy commodity supply restrictions) would likely abate after several weeks.  This looks like an accurate read. Inflationary risks pushed the 10-yr U.S. Treasury yield up from 4.0% to 4.5% over a couple of weeks, and in parallel with this rise in risk, stocks declined by 10-12%, depending on the index.

Arguably, the United States and Iran have been in a “Cold War” with each other for the last 47 years following the Iranian Revolution of 1979. This year, it briefly turned into a hot war given Iran’s proximity to a nuclear weapon, an opportunistic window to eradicate key Iranian leadership, and President Trump’s broader efforts to reshape America’s external relationships and threats from rogue regimes. We don’t have a crystal ball here, but reverting back to a Cold War with a weakened regime seems like a reasonable base case post-military actions.

The market correction was most concentrated in energy price-sensitive businesses such as air travel and consumer-facing names.  However, this has also coincided with broader valuation compression as the business models and longer-term forecastability for a variety of technology companies seem vulnerable as AI penetration and spending broaden. Valuation compression has been particularly acute in software stocks and private credit-linked businesses.

Based on our framework, we approached this period like a two-minute offense in football. Because time is limited, defenses set up to protect against the deep ball, leaving shorter-range passes open for the taking. That is where we concentrated our purchases. This includes a combination of adds to existing positions and a couple of new names with attractive secular stories. Arguably, there could be more upside in “deep balls” such as buying highly controversial software and credit-exposed businesses. Our view is that these names are “covered” in football speak and not adequately likely to appreciate if the hot war ceases. There are plenty of shorter passes available.

Playing the Short and Intermediate Routes

This discipline led us to initiate positions in companies where we see compelling risk-reward dynamics. For our Large Cap Value portfolio. We purchased Aptiv PLC, a dominant player in advanced driver assistance systems (ADAS) and software-defined vehicle architecture, i.e., the “brains” of the car. These technologies still have a long way to evolve, but work now and are valued at less than 10x forward earnings, i.e., an attractive entry point with a clear path for value creation.

We also added ON Semiconductor, a leader in power and industrial, at a cyclical inflection point. With improving utilization, exposure to electric vehicles and industrial automation, and an underappreciated opportunity tied to next-generation AI datacenter infrastructure, we believe the company offers significant operating leverage and earnings growth potential.

In the course of 2024-25, Cambiar had substantially reduced its position in major card network businesses such as Mastercard and American Express as valuations became rather full. These descended to attractive levels in March. Arguably, if there is really going to be an inflation problem from this point forward, card names will see it flow through their revenue, yes?

Also, in keeping with our framework of a short disruption in energy supply and “available throws” we added to airlines (Delta) and aircraft supply (Airbus).  Not hard to understand why these would rally in the event that the supply disruption fades.

These are not speculative deep throws. They are calculated intermediate passes, businesses with durable fundamentals, strong management teams, and valuation support.

Staying Disciplined in a Fast-Moving Game

Periods of geopolitical stress and commodity volatility can tempt investors to make bold directional bets, or alternatively to eschew any risk-taking.  History suggests neither course is prudent. Our focus remains consistent: invest in durable businesses, demand valuation support, and maintain flexibility to adjust as conditions evolve.  In a two-minute offense, success is not about one dramatic play. It is about execution, discipline, and consistently moving the ball in a compressed time frame.