Quick updates on two high conviction names: Modern Dental Group (3600 HK) and CBL Properties (CBL US).

Modern Dental Group (3600 HK)

2025 P/E: 8.9x

2026 Forward P/E: 8.4x

Dividend Yield: 3.45%

Insider Ownership: 67%

Modern Dental Group released a positive profit alert last night, indicating 2025 Net Income surged to $600 Million HKD, a 48% increase over 2024’s $406 Million HKD.

I said it in the recent Trade Review and I’ll say it again: Modern Dental is one of my favorite HK Small Caps.

Modern Dental Group (3600 HK) is a global dental prosthetics (crowns, bridges, dentures, implant components, and aligners) manufacturer listed in Hong Kong, but its largest markets are Europe (48%) and North America (22%) where it operates 80 dental labs under local banners. It’s innovative approach of rolling-up local dental labs and inserting its offerings has enabled it to grow like a weed: it slashes overhead, reduces product costs, and increases distribution while avoiding a “made in China” stigma since the labs operate under local banners.

I believe Modern Dental Group trades at a deep discount to its intrinsic value due to lower liquidity and Western wariness over HK Small Caps - all too often “too good to be true” stories in Hong Kong turn out to be shams, casting a dark cloud and disbelief over many value setups.

Modern Dental Group, with its strong M&A track record, shareholder-first capital allocation (share repurchases in the 3-4 range, 2025 Dividend: $0.199 HKD, 2024 Dividend: $0.17 HKD, 2023 Dividend: $0.104 HKD), and significant insider ownership (67%), however, continues to shine through. The stock is up nearly 120% over the last three years as the good times roll, and Hillhouse Investment Management (an Asian investment firm with $60 Billion in AUM and a specialty in Healthcare Investments) recently acquired a 17% stake at $5.80 HKD from the founding Ngai family, signifying rare Institutional interest in a HK Small Cap. I believe Hillhouse’s January purchase marked a turning point: Modern Dental Group is now a value setup that is compelling enough for Institutions to buy-in at a premium.

The positive profit alert is a welcome surprise. It affirms Modern Dental Group is already generating significant returns from its acquisition of Hexa Ceram (Thailand), and Digital Sleep Design (Australia), both of which closed in 2025, and the company is likely to report earnings of $0.64 HKD for 2025 (a CAGR of 19.25% over the last decade) and a bump in the dividend when the Board of Directors convenes later this month.

As the company continues to grow, attracts Institutional attention, and returns cash to the shareholders, I think Modern Dental Group will prove that the “HK Discount” applied is unwarranted: if it were listed in the US or EU it would likely demand a much higher valuation. Based on the positive profit alert and estimating moderate growth of 5-7% in 2026, I believe Modern Dental Group shares are within striking distance of $6.50 HKD - $7.80 HKD, which still implies a very reasonable multiple of 10x - 12x for a business with its track record of expansion.

CBL Properties (CBL US)

2025 P/FFO: 5.8x

2026 Estimated P/FFO: 5.6x

Dividend Yield: 4.76%

Insider Ownership: 30%

CBL Properties, an operator of lower-tier Malls and Open-Air Centers, announced a transformative financing package last Thursday that blows a hole through the “bear case”. For years, CBL detractors have asserted the company deserves a low valuation due to the “music stopping” in 2027 when CBL’s sizeable Term Loan matures. It was a reasonable concern to have, no-one wants to own a melting ice cube and if CBL wasn’t able to successfully re-finance, it’d have to hand over the keys on more than a dozen properties that accounted for 25% of FFO.

After last weeks refinancing, however, those concerns have been put to bed. CBL refinanced its $634 Million 2027 Term Loan with two smaller packages, a $425 Million Non-Recourse Term Loan secured by 13 properties (7.40%, Matures in 2031), and a $176 Million Non-Recourse Mortgage secured by 3 open-air centers and one mall (SOFR + 4.10%, Interest-Only, Matures in 2031 with two optional one-year extensions). While the loans carry a slightly higher weighted average interest rate of 7.50% vs 6.42% on the previous Term Loan, the package is massively accretive to cash flow.

How? Now that CBL is on much more solid financial footing, lenders are willing to accept significantly lower amortization: the $425 Million Term Loan is amortizing on a 22.5 year schedule, and the $176 Million Mortgage Loan is interest only. As a result of significantly decreased debt paydown, CBL’s 2026 guide for principal amortization has dropped from $90 - $95 Million to $58 - $63 Million, implying an additional $32 Million in discretionary cash flow. Even after accounting for $4 Million in additional Interest Expense, the net impact to CBL is an extra $28 Million in Discretionary Cash Flow, a massive 42% increase to 2025’s $66 Million in Discretionary Cash Flow.

Simply put, CBL’s financial engineering pushes out the “debt wall” 5 years and sacrifices just $0.18 out of its $6.90 in Funds From Operation (due to $4 Million in additional Interest Expense) to boost Discretionary Cash Flow from $66 Million to $94 Million. When your stock is trading at just 5.50x Funds From Operation, incurring $4 Million in Interest Expense to free up $28 Million for dividends and buybacks is exactly what you should be doing.

CBL is no stranger to capital returns, in 2025 the company returned $75 Million ($2.50 per share) via dividends and $18 Million ($0.60 per share) via share repurchases on roughly $66 Million of Discretionary Cash Flow. With 2026 Discretionary Cash Flow likely to come in near $94 Million, CBL has plenty of additional firepower to raise the dividend and repurchase shares.

It’s important to note that (just like the previous Term Loan), CBL’s new Term Loan and Mortgage are entirely non-recourse - the company can simply walk away from bad assets if mall Real Estate plummets. Additionally, all collateral pledged for the new Term Loan and Mortgage already served as collateral for the previous Term Loan (meaning CBL did not have to add collateral), and in fact, the Northgate Mall in Chattanooga, TN was released as collateral, offering CBL flexibility to sell or borrow against this property.

Despite the progress CBL has made in delevering the balance sheet, pushing out the “debt wall”, and boosting Discretionary Cash Flow (not to mention 2025’s copious dividends and repurchases), the stock still trades at a massive discount to Simon Property Group, Macerich, and Tanger. While these peers clearly have higher class properties, the discount is astounding: even highly distressed entities trade at a more respectable FFO multiple (and they aren’t even repurchasing shares or paying a dividend). I am by no means calling for CBL to trade at 12x FFO or 8x FFO, but even a small bump to 6x - 7x FFO implies $44 a share at the midpoint, significant upside from the current $38 price.

Given the company was repurchasing shares around $35.62 in December, I think $37.50 (5% above their repurchase price) represents an attractive entry. CBL will likely never trade at a peer multiple due to its past history of implosion (this time I think things are different - the balance sheet is 98% non-recourse) and lower quality properties, but I think the elimination of the bear case, improving sentiment surrounding retail Real Estate, and a massive decrease in debt-paydown due to the refinancing package offers a compelling-setup at the current valuation. As long as CBL continues to return cash to shareholders, gradually delever, and maintain a non-recourse balance sheet, I think the setup will continue to work.

There is no need to subscribe, there is nothing below the paywall.

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The S&P is down 1.34% YTD, practically unchanged. After a 25.95% SPX return in 2023, 25.00% in 2024, and 17.86% in 2025, this should feel like nothing, but Fintwit seems to be singing a different tune. To their credit, things really do feel different.

Underneath the headline -1.34% figure, whipsaw and dispersion are at the highest levels since 2008.

The whipsaw isn’t even limited to sector-vs-sector, sub-sector volatility is also raging. As an example, the broader Real Estate Index is up 6.29% yet Office REITs have plunged more than 21%. Financials are down 7%, yet Regional Banks were up nearly 14% at one point and are still clinging on to tiny YTD gains. To top it all off, traditionally sneered-at capital-intensive sectors such as Commodities, Chemicals, and Oil & Gas are leading the way with 30%+ returns.

Fund Flows are notably different. For the first time in years, QQQ inflows are flat while investors clamor into RSP (the Invesco Equal Weighted S&P ETF) and the Korea craze continues as investors remain undeterred by the largest drop since 2008.

While it is easy to blame these moves on the Iran War or Tariff Policy, most of them have been bubbling up since the beginning of the year and I think the widespread rotation and dispersion was bound to happen anyways.

The rose-colored glasses we had on for the last three years are coming off, and the AI bull case that powered a two-year “everyone is a winner” rally in everything aside from a few phone-support stocks (Five9, Concentrix, etc) seems to be increasingly two-sided. These days, it seems one name’s AI Bull Case is another’s Bear Case.

Pieces such as Citrini's Global Intelligence Crisis have gone viral, and I think these thought exercises are valuable: the World is changing at a light-speed pace, and it’s worth questioning assumptions and asking “what if’s” to see if your thesis is still compelling.

Just this weekend, Bloomberg reported Stripe and Circle are racing to build their own payments systems for autonomous agents. I’m sure you’re skeptical, so am I. But also consider in 2022 AI was a gimmick that made pixelated videos of Will Smith eating spaghetti, and now in just a few sentences, you can draw up a lifelike-video with near Hollywood quality. Tools like Claude and Shortcut can save minutes, even hours in Excel. Claude Code and Codex aren’t perfect, but they can turn one man into a one man army.

Just imagine where things are in a few years.

If Visa, Mastercard, and Amex are unwilling to let their payments systems be used for autonomous transactions (due to concerns over chargebacks or fraud), someone will create a system that will. In 5, maybe 10 years, you might forget to buy Valentine’s day chocolates and flowers, and perhaps you can load a Claude or OpenAI “Wallet” with 100 USDC or PYUSD (PayPal’s stablecoin) and simply tell it what you want it and where it should be delivered. Is this a certainty? Of course not. But there is a slim chance it happens, and the disruption risk it represents is easy to understand when many names trade at historical valuation highs and shareholders emphatically claim “it won’t happen”.

As an aside, even after Amex’s 20% December - March drawdown, Amex still trades at just a 2% discount to the 5-Year historical valuation average.

I’m the last guy to call a top, and in fact, I’m not going to. But from a stock-picker’s perspective, I think 2026 is shaping up to be fundamentally different: the playbook of piling into large-cap “quality” regardless of the multiple is no longer working, and I think this is when active management and conservative position sizing (keeping names below 10%) begins to shine, especially when it comes to steering clear of value traps such as troubled Software Oriented BDCs, no matter how cheap they appear.

Since I’ve started this blog, I’ve covered about 50 different trades, most of which are still open, across Financials (Banking and Insurance), AI Infrastructure and Memory, and Global Equities. Over the past two weeks, I’ve been making many adjustments to my portfolio: I’ve entirely closed a few winners, been stopped out on a loser, raised cash to 20%, and added 2 new names where I think the risk-to-reward is compelling despite the current turmoil.

To be entirely transparent with you, my Portfolio is heavily skewed towards Small Cap Value and International Equities. The S&P Regional Bank Index has a market cap of less than $600 Billion (a tiny fraction of the S&P 500’s $59.94 Trillion), and countries such as Sweden, Japan, Australia, Georgia, Canada, and Kazakhstan make up less than 10% of the World’s Market Cap, but a much larger portion of my Portfolio.

As a result, in this Trade Review I’m going to cover the trades I am in, what I’ve been trimming, what I’ve been adding to, and my conviction on each trade, but ultimately the weights are up to you to determine. I want this blog to be a place to see ideas and setups you might not usually see, when I write up Small Cap setups such as International General Insurance, CBL Properties, Chain Bridge Bancorp, and Georgia Capital, it’s to get these names on your radar. It’s entirely up to you to conduct your own due-diligence, determine if you find the thesis attractive, whether these trades are suitable for your portfolio, and of course what the appropriate weight might be.

The Trade Review is organized into:

1. Trade List and Performance Review

2. Trade History - Removals and Hedging

3. Trade History - Additions and New Positions

4. General Commentary and Conclusion

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Kazakhstan

Kaspi reported earnings of $2.76, missing the consensus of $3.34 due to higher taxes and bank reserve requirements impacting its Fintech division, but there is more to the story here.

For several quarters Kaspi has been plagued by an absence of capital returns as it poured billions into its acquisition of Hepsiburada(the second largest E-commerce firm in Turkey). Now, Kaspi is finally turning its attention back onto the shareholders.

Letter from Mikhail Lomtadze:

Two topics have dominated my conversations with investors over the last year: our progress in Türkiye and our approach to dividends. I want to address these and the other questions we hear most often, so that you better understand the context behind the decisions we’re taking.

Both Türkiye and dividends connect to a single ambition: to build Kaspi.kz into a 100 million user company. We believe that every strategic decision we make – the launch of new products and services, investments in Türkiye, and dividend policy – is anchored to this goal.

Earlier today, Kaspi announced an 850 KZT dividend per ADS, which translates into roughly $1.71 at the current exchange rate. The company also stated it believes this dividend is now the baseline going forward.

Based on the business's current performance and cash generation, we believe this is sustainable for the remainder of 2026.

Absent any exchange rate fluctuations, $6.84 in annual dividends represents a roughly 9% yield, immediately vaulting Kaspi from a flailing “value trap” into a cash cow.

Even after lowering my 2026 EPS estimate to $11.75 USD (sharply below the $13.08 consensus), due to more stringent regulations on the banking sector and a higher effective tax rate, Kaspi at 6.5x earnings and a 9% dividend yield still represents a compelling setup.

Kaspi is a “superapp” in Kazakhstan, their proprietary payments, e-commerce marketplace, travel, lending, and grocery divisions dominate the country. Practically every Kazakh adult uses Kaspi. While the government has taken action to “open up” Kaspi’s QR payments division (to allow clients with bank accounts at other institutions to also receive payments), Kaspi’s position in e-commerce is unchallengeable, and remains highly linked to a growing Kazakh economy.

With a massive 9% dividend yield now in place, I believe the bottom for Kaspi is finally in. Kaspi is a growth name trading at a deep-value multiple, and I think the recent share buyback program paired with the long-awaited resumption of the dividend is finally enough to change the narrative. I have increased my position to 2% of my portfolio, and have orders to buy more in the $70-$75 range should it trade down in the coming days - Kaspi is a high conviction name for me. Based on the current multiple and implied 9% yield, I think a more reasonable valuation for Kaspi would be $90 a share, implying a 7.5% dividend yield and 7.5x 2026 earnings.

Japan

A lot of times I get asked if “it’s still a good time to add to Japanese positions”. It’s a good question, the Topix is up 50% in the last year and many Japanese Banks and value setups that previously traded at just 5-6x earnings now trade at 10-12x/ It’s hard to determine if the setups are still compelling at first glance.

An excellent guiding point, however, is if the company finds its own shares attractive. Unlike US-listed equities where share repurchases are reported quarterly, Japanese-listed equities announce share repurchase authorizations and buyback activity on a monthly basis, with detailed reports denoting the exact price and volume executed on an individual day reported at the end of the month.

While these disclosures mildly complicate buybacks since they tend to “tip the hand” of the company to investors (sometimes leading to buybacks being massively front run), they provide an excellent way to determine if a company still has an “appetite” for its shares after a run up in price.

One of the names we discussed last summer has been on an impressive 50% run, but February’s repurchase report indicates their appetite is just getting started and the setup is still highly compelling at just 0.61x Tangible Book Value.

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Earnings

Two names we discussed, Comfort Systems and Ategrity Specialty Insurance released Q4 earnings yesterday.

Comfort Systems, a leading provider of mechanical, electrical, plumbing, and HVAC Systems, reported blowout results: $9.37 in earnings per share versus the $6.76 consensus and $2.646 Billion in Revenue vs the $2.337 Billion consensus. Backlog grew a record $2.56 Billion to $10.1 Billion as demand surged from existing clients and new data center projects across the board. Comfort Systems remains a top infrastructure pick of mine, along with IES Holdings , Powell Industries , Sterling Infrastructure , and Power Solutions International . While Comfort System’s blowout results likely captivated everyone’s attention, I think Ategrity Specialty’s quiet beat stole the show.

Insurance has been a chaotic sector this year. Declining Global P&C Rates and intensifying competition in E&S (Excess and Surplus Lines) and Reinsurance has triggered a broad sell-off. Interestingly, many small cap names posses the agility to dodge overall rough market conditions have been punished the most, as investors rally around “large-cap quality” and ferociously buy-the-dip on “the generals”, leaving smaller names out to dry. I think Ategrity has been mistakenly left behind.

Ategrity Specialty is (as the name implies) a specialty insurer focused on low ticket Excess and Surplus lines for small and medium sized businesses across the United States. Ategrity distinguishes itself via a concentration in Casualty (liability), and its brand new technology stack has enabled it to reduce turnaround times despite overall policy pipeline growth of 250% in 2025. Its fast turnaround times and focus on traditionally underserved small businesses and states like North Dakota, Ohio, and Nebraska has helped it steadily poach market share from peers, with 2025 gross written premium jumping 30%, nearly 20% above the broader E&S industry.

Based on early 2026 monthly E&S Stamping data published from states such as Florida, it’s clear Ategrity’s growth and outperformance is showing no signs of slowing. Ategrity’s January 2026 Premium in Florida is up 14% YOY to $7.06 Million , while the more well-known E&S giant Kinsale Capital Group is down 6% YOY from $28.9 Million to $26.9 Million.

Despite excellent financial performance and clear growth ahead, Ategrity has languished the past few months due to three primary reasons: concerns about its reserves, jitters over the E&S market, and overall low liquidity. What really caught my eye yesterday is the fact Ategrity put all three concerns to bed.

Unlike previous quarters, Ategrity showed no prior year development:

We again had no prior year development. Catastrophic losses were 3.2% of net earned premiums, down from 3.7% last year due to very few catastrophe events in the fourth quarter. Our reserves are in a very strong position overall, both in property and casualty. You heard Chris mention in the prepared remarks that the early indicators for the recent years are coming in very strong. And so we are highly confident in our reserves there.

Of course, every insurance executive will want to state their reserves are adequate, but several quarters of “no bad news” on the reserve front is enough to be “good news” given how downbeat overall sentiment was.

Ategrity also affirmed it is still in “growth mode”, with internal projects such as “Operation Heartland”, a focus on “flyover states”, and new brokerage packages in Florida and New England are projected to help further increase market share.

Yes. So there’s two parts to Project Heartland. There’s an appointment component, adding more partners, and we are nearing the end of that phase. It’s more about getting more wallet share from partners. So we’re just at the beginning of that phase.

That is a, we feel like the investments we have made in the Midwest, not just in distribution, but in terms of developing products and really making a unique play in our verticals, is really what’s allowing us to stand out. So we see a huge runway for growth.

Lastly, and perhaps most importantly, Ategrity is taking steps to address the undervaluation of the stock.

Ategrity is tightly-held, founder Stuart Zimmer of Zimmer Partners owns 38 Million shares, ($760 Million, roughly 80% of shares outstanding). Due to the low overall float, liquidity has been thin and market activity has been highly choppy, dissuading new Institutional Investors and leading many June 2025 IPO buyers to throw in the towel.

Yesterday, Ategrity announced a new $50 Million buyback, which might seem small relative to the $960 Million Market Cap but once you realize less than $200 Million of shares are floating, the scale of the buyback becomes apparent.

From the transcript, it seems clear that they are saying one day Stuart Zimmer might want to sell shares, but only at a good price and that given the valuation Ategrity is trading at, they will be happy to repurchase shares until a premium valuation is hit. Given Stuart Zimmer himself was purchasing shares in the high 20s and 19s, it seems apparent that the buyback will provide significant support where Ategrity is currently trading, and that the risk of a secondary offering is minimal at the current valuation. Perhaps a concern at $24 - $26, but doubtful at $20.

Ategrity’s $0.51 report yesterday set an excellent tone for 2026: underwriting income tripled from $5.9 Million in 2024 to $15.4 Million in 2025, and the company clearly sees its shares as undervalued. While I am not expecting a triple for 2026, it’s apparent Ategrity is a scale story: now that they have their foot in the door via nearly 600 broker partners, new growth is highly accretive to the bottom line as investments in AI and technology keep underwriting costs relatively flat.

I think Ategrity found itself in the wrong place at the wrong time as investors mercilessly dumped insurance stocks and the IPO became considered as a “flop” Yesterday’s earnings report provided a highly important “reset”, and with the stock now trading at just 11x 2026 consensus earnings of $1.83 (frankly, I think Ategrity is within striking distance of $1.90 to $1.95) paired with a buyback program that amounts to 25% of the float, I think the narrative surrounding Ategrity is about to flip: Ategrity is drastically undervalued relative to peers and the broader market, and is perhaps one of the only insurance “growth” stories for 2026.

With Specialty Peers such as Palomar and Kinsale all trading in the 14x - 18x range, I think Ategrity is simply too cheap to ignore at 11x given an industry-leading growth profile and highly-aligned insiders. Given the excellent report, I have increased my position to 2% of my portfolio, and added Ategrity to my global basket of high conviction banks and insurers.

A Software Shot in the Dark

Up until Tuesday, I had zero software names in my portfolio. Now, I have one.

Old habits truly do die hard, I’ve traded Bumble on and off since 2024 and I have once again bought a speculative position. I’ll keep this one brief since Bumble is pretty obviously a melting ice-cube and a loser, but I also think there is a price for everything.

Bumble currently trades at 4x 2026 GAAP projected EPS of $0.75. Users are fleeing (I anticipate losses of another 150k in Q4) and the company is priced for terminal decline. Not everything is as it seems, though.

A good chunk of Bumble’s $1.15 Billion in liabilities was a complex $399 Million Tax Receivable Liability, cash due to Blackstone and Bumble Founders due to complications surrounding a reorganization of partnership shares into C-corp shares. Subsequent to the quarter end, Bumble was able to “buy out” this liability for $186 Million in cash at roughly 44 cents on the dollar, reducing overall liabilities to less than $800 Million (and its cash balance to $120 Million). Looks like Blackstone wanted to “cash out”, given they’ve also filed Form 144’s to liquidate their shares.

Given Bumble’s history of perpetual disappointment I would by no means qualify management as competent (stock is worth less than 5% of what it was when it IPO’ed) but given current cash flow it looks as though Bumble would have to intentionally try to run the company into the ground. One thing that caught my eye last quarter was the impact of the Apple App Store ruling.

In April 2025, Judge Yvonne Gonzalez Rogers ruled that Apple willfully violated a 2021 injunction in the Epic v. Apple case, and banned Apple from charging any commission on purchases made through external links in iOS apps. Although this decision has been partially walked back after an appeals court ruled “Apple can charge a reasonable fee” for external payments (links that divert to Stripe, etc), this reasonable fee has not yet been determined.

As a result, there is a goldilocks period where Apps are temporarily able to redirect existing clients to external payment methods such as Stripe, and entirely cut out the 30% due to Apple. For names like Match and Bumble, they are still charging the same price on both Apple-native and external payments, but it is obvious that any customer switched to an external payment rail, even if enticed with a “one month freebie” or a discounted annual rate via a marketing deal, is vastly more profitable when Stripe’s cut is 5%, versus the app-store at 30%.

The earnings call itself hinted at this:

Okay. So, no, I haven’t seen the details, so I don’t have any insight to share there. I can comment briefly on, sort of our direct billing initiatives. As you might expect, we, as soon as permitted, we set up alternative payments, and we’ve been testing those strategies throughout Q3, and we’ll continue to do that in Q4. You saw in our cost of sales a meaningful improvement in Q3, and we would expect to continue to, while we will, refine strategies around alternative billing throughout Q4, we’d still expect that benefit to persist into Q4, and we should have a full quarter effect of cost of revenue benefits.

Even if the appeals court enforces a “reasonable fee” that is levied on external payment methods established during this grace period, it’s obvious that the net effect will still be positive for Bumble provided they are able to switch users in Q4 and Q1. A mere 20% move of users from a 30% commission payments rail, to a 5% commission payments rail, could significantly boost earnings and cash flow, yet analyst consensus for Q4 and Q1 does not seem to price in the possibility at all.

Could Bumble blow up? Certainly, although I think it might be the first company in history to “marketing spend” itself into bankruptcy. The possibilities for cost cuts are endless: $119 Million in R&D, $189 Million in Marketing, $141 Million in G&A.

The Bumble founders still have decent equity in the company, roughly 25 Million shares, a little more than 15% of the company. I think after this epic implosion, they will be incentivized to enact cost cuts across the board to save their 8 figure salaries and equity stake. A mere 10% reduction in R&D and G&A (which seems possible given Claude Code and the implementation of AI) could add nearly 20 cents in earnings per share.

I get the Software-pocalypse, a lot of new tools seem to pose an existential threat to many businesses. I think the differentiator here, however, is Bumble’s edge isn’t the matching of users, it’s the users themselves.

Even if you had 1,000 upstart dating apps that could match regional bank lovers and SK Hynix fans with eachother at pinpoint accuracy, it would only really work if you had hundreds of thousands of users on the app. While Hinge is likely the only “growth” story in dating apps (Match Group also seems cheap to me), Hinge, Tinder, and Bumble still have massive user bases, and I think at the current valuation Bumble has several options at its disposal to prevent a total implosion and start returning value to shareholders.

Given Bumble’s history of implosion, however (not even kidding they usually drop 30% on each earnings report), caution is warranted, so I’ve sized the position very small at 0.50% of my portfolio. At 0.50% it’s not large enough to cause havoc, but if you sprinkle in a few Chinese AI names like Minimax, or Georgian Discount -to-NAV setups like CGEO, they can really add torque to returns while being isolated enough to eliminate catastrophic implosion risk, a 60% drop on a 0.50% stinks, but isn’t the end of the world.

Overall, I am way more confident in Ategrity Specialty over the next 10 years than Bumble, but there is a price for everything and I think Bumble below $3 a share may warrant a small, highly speculative position. At 4x 2026 earnings, plenty can go (and has been going) wrong, but with expectations so low (just like the Ategrity setup) we only need a little bit to go right for things to work out.

Next weekend, I will be posting a Review of my US Portfolio. Until then, have a good one. There is nothing below this paywall but I can’t figure out how to publish without one.

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They told us 2026 would be the “Golden Age”. What they meant, perhaps, was the “Golden Age of Disruption”.

This piece is a departure from the usual, a rant about AI, followed by earnings updates from Portfolio Holdings, and finally two names I have been adding to recently in Infrastructure and Insurance.

It’s not hard to see how fast AI is evolving. Three years ago, it was a fun gimmick: videos of Will Smith munching on spaghetti and screenshots of people trying to “trick” ChatGPT into answering ridiculous questions. Now, we have models generating 3-D Worlds, production class videos, custom dashboards that may have taken weeks or months to build, and as of yesterday, reviewing and analyzing legal contracts. Things have moved, quickly.

Everyone seems to be hard at work guessing when the Memory and Storage cycle tops, and there’s no doubt given the recent run of Hynix, Samsung, Micron, Western Digital, and Kioxia that there is bound to be another -10% or -15% day and everyone will quickly declare it to be “over” (we had that last week for Western Digital and Kioxia, and Monday for the Kospi, Samsung, and Hynix). But what if the cycle lasts longer than a mere year or two? What if the pace of new AI features, model development, and data generation continues to accelerate. Do you think that is reflected in the price of Hynix at 6x 2026 earnings, or Samsung Preferred Shares at 6.5x 2026 earnings? Personally, I don’t believe so, which is why I own them.

I think we are just beginning to see AI features in daily life. Investment Bankers are using Claude, Shortcut, among others, to generate rough models in record time. Companies like Oura are using agentic AI to entirely handle customer service. Angie’s List is slashing their engineering and marketing department in half as productivity explodes higher. Digital Banks like Mercury now let you upload invoices that will automatically be processed, paid, and it sends a nice confirmation email to the company’s billing email address as well.

It’s not hard to use a bit of imagination to see where things are going.

What’s next?

Tax Software that can connect to your expense accounts and brokers, classify transactions, and have a return prepared quickly? Microsoft “revitalizes” Copilot, and all of the sudden you can just hit the Start Menu, ask it to organize your Downloads Folder, send a few emails, and purchase something online? Insurance software that can communicate with new home buyers and package together Inspection Reports and questionnaires, saving agents countless hours?

All of this sounds far-fetched now, and even if it is implemented you are right to assume the road will be bumpy and littered with errors, but give it 5 years to a decade and I have a feeling you will see all of these new products emerge.

The question is, how to play it, and what to buy?

I’ll be blunt, I don’t know.

I’ve sold my Nvidia shares and Powerchip shares, and I own a basket of Memory and Storage names (Samsung Preferred, Hynix, Western Digital, Micron, and Kioxia) as well as AI “Buildout” Names (Comfort Systems - probably expensive here, Power Solutions International, Powell Systems, IES Holdings). Is there still upside? Hopefully.

What I feel more confident in, however, is simply steering my Portfolio clear of setups with limited upside and decent downside (had to close FRSH out today). One group fits this in particular: “Direct Lending Funds” and BDCs.

I think when you take a look at someone like Adobe or Thomson Reuters (I’m no longer short ADBE), it’s easy to argue the moves are not based on short-term fundamental implications (both are reporting decent results), but rather shifting sentiment regarding the terminal value of their businesses. What will happen in 5 or 10 years?

While both names are fine long-term (from a credit perspective), imagine how the lenders to smaller software firms are feeling as they watch the equity of Large Cap software names implode.

The allure of Private Credit is that investment marks don’t change day-to-day. But with software names imploding left and right, do you really think the value of these loans has remained stable? Furthermore, do you think the guys extending credit at SOFR + 5.00% will be happy to do it again when these loans mature? I think the more likely answer is: They’re going to want their money back.

I love buying financials names at a discount, but I am entirely steering clear of Private Credit Funds and BDC’s specializing in software. I think in the coming years, their concentration in “Software Lending” will no longer be considered an asset, but rather a liability.

Take Saratoga Investment Corp as an example. It’s a name I used to own, and at first glance, it looks like a winner. A historical return of 16.2% since inception versus 15.7% on the S&P 500. Trades around 10x earnings, 0.92x Tangible Book, and a dividend yield of 12%. I don’t think anyone would argue it is an “expensive” name.

Once I take a look at the Portfolio however, things get less positive. Nearly 44% of the Portfolio is concentrated in software. Real Estate Software, Healthcare Software, Education Software, the list goes on.

Another publicly traded credit name, Blackrock TCPC (TCPC), recently recorded a 19% drop in Net Asset Value, driven by declines across E-Commerce (SellerX) and Software (Edementum) names, among others. Private Credit giants such as Blue Owl Capital Corp, Ares, and Apollo are down nearly 20% as people begin to worry about Investment Gone Bad.

My point is, with the Asset Managers themselves sounding the alarm, why take a risk by bottom fishing BDC’s or Publicly Traded Lending vehicles with sizeable Software Lending exposure?

At best, you have limited upside to Tangible Book Value (I don’t anticipate any of these names trading above Book Value due to the high management fees charged), and at worst, you are stuck with Portfolios with greater than 10% software lending exposure coupled with high fees, in an era where Large Cap Software Equities are getting halved left and right.

I get asked about “bottom fishing” BDC’s nearly every day, and I wanted to answer it clearly: I’m steering clear.

I believe that by merely staying away from falling knives exposed to AI, and instead adding a bit of exposure to names that stand to benefit significantly from the trend (such as Google, Samsung, Hynix, etc), you are doing yourself a favor.

Earnings

Several Portfolio Holdings reported earnings last week: OPY, CBNA, WSBF, NECB, and MBIN.

OPY - Oppenheimer stole the show last week with its strongest quarter since 2022: $6.51 in Diluted Earnings.

I really like Oppenheimer’s unique structure of a very stable Wealth Management business, coupled with a Capital Markets division that provides significant right-tail optionality when Small Caps and Biotech do well. Operating Income from the Capital Markets segment surged from a loss of $5 Million in 2024 Q4, to a profit of $52 Million in 2025 Q4. While I am not expecting similar results for 2026 Q1, given the strength of Small Caps, Biotech, elevated Equity Issuance, and record market valuations, I think Oppenheimer is firing on all cylinders, and is in a strong position to beat 2025’s $13.04 in EPS.

Unlike Banks and Insurers who come with significant left-tail risk when asset quality declines or catastrophes occur, Oppenheimer is a fee-based business, and they are free to do with their profits as they please. They are sitting on a clean balance sheet with no debt, and recently announced a $1 Special Dividend in December. While the name is choppy day-to-day, long-term I believe Oppenheimer will continue to be an outperformer, and that record results and a bit of time under the spotlight will demonstrate the compelling value it is generating.

CBNA - Chain Bridge reported earnings of $0.81, a decent beat relative to the consensus of $0.75. Perhaps most encouragingly, Chain Bridge recorded nearly $400 Million of deposit inflows in the quarter for GOP-linked Political Action Committees ($200 Million of which were diverted to other banks via the Intrafi network).

As a reminder, Chain Bridge is a highly unique bank. It has minimal credit risk as it simply does not lend out its Non-Interest bearing deposits, instead parking them in Treasury Bills and reserves. Chain Bridge is a beneficiary of higher for longer, and balances out other rates down names in my Portfolio (such as OP Bancorp and Waterstone Financial). I have a feeling this year’s Midterms will be vicious, and in an age where cash continues to pour into politics, Chain Bridge represents a one the only ways to “own the house”.

NECB – Northeast Community Bancorp reported $0.79, a bit lower than the consensus of $0.82. Asset quality remains pristine with no non-performing loans. NECB is beneficiary of higher interest rates, and stands to gain (just as CBNA does) from the prospect of reduced rate cuts this year. What I like most about NECB’s report is 40,000 shares repurchased below Tangible Book around $23 a share. With Tangible Book Value now upwards of $25.30 a share, I think entries in the high 23’s and low 24’s provide compelling value, you are getting the stock just under 8x earnings, and the share repurchase program is likely to provide support in the low 22’s, should it trade down there.

WSBF – Very strong quarter at $0.44. No estimates, but I am pleased with the results. Net Interest Income continues to grow steadily, and the mortgage segment posted the strongest results in years. The company still trades at nearly $2 discount to book, and repurchased another 140,000 shares to take advantage of this. I think the stock is well on its way to make $2 a share this year, which means it is currently trading at just 8.5x earnings, a very compelling valuation given the upwards optionality of the mortgage underwriting segment. Ultimately, I think the mortgage segment is worth a significant premium to book, and that WSBF will one day be acquired by someone looking to grow their own mortgage business. While WSBF’s mortgage segment is what most people care about, Net Interest Income has grown from $13.7 million in Q2, to $14.7 million in Q3, to $15.5 million in Q4. This steady improvement, as a result of declining deposit costs, will continue regardless of activity in the mortgage segment. WSBF still trades slightly below book value and closely comparable peers, and if mortgage activity increases, I think WSBF is within striking distance of $2.00 a share in earnings this year.

MBIN – Great results, and asset quality improved significantly. EPS $1.28 beat the consensus of $0.94 (although the $1.28 figure includes some one-time tax impacts). What was most impressive was the announcement of a new $100 Million share repurchase program, which should help change sentiment now that MBIN is back in “capital return” mode. Still, MBIN at 6x earnings was a bargain, but at roughly 8x I’m not so sure given lingering credit issues. I think the upside and downside are fairly balanced here at $42 a share.

Now, time for two new trades.

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Morning fellas. Felt like sending this out via email rather than chat.

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1. Introduction

2. What are Box Spreads / Portfolio Margin

3. Uncertain Taxation of Box Spreads and the BOXX ETF

4. Using Box Spreads to Borrow and Lend at Favorable Rates

5. Risks

6. Conclusion

1. Introduction

Box Spreads seem to have earned a mythical reputation recently. We hear constant whispers of tax advantages and attractive funding rates, yet concrete examples remain elusive.

(Pictured Above: Bloomberg Article on the BOXX ETF)

With ETFs such as BOXX (that employ Box Spreads to generate money market like returns) soaring in popularity, I wanted to write a brief piece on what SPX Box Spreads are, the uncertain taxation risks associated with Box Spreads and the BOXX ETF, and show a real life example of borrowing and lending $100,000 near the Overnight Bank Funding Rate (currently 3.64%) via SPX Box Spreads.

While Box Spreads enable market participants to borrow and lend to each other at highly favorable rates (currently 3.94% for lending, 4.07% for borrowing), it’d be remiss to ignore the fact tax treatment of Box Spreads and the BOXX ETF is uncertain.

There is considerable debate over whether Section 1258 of the Tax Code applies to income generated from loans facilitated by Section 1256 Box Spreads, and the future of current BOXX “loophole” may close - the IRS may one day issue a notice requiring BOXX profits to be reclassified as Interest Income, forcing investors to refile previous taxes and creating significant adverse tax consequences (here is an excellent article explaining that risk). There’s no such thing as a free-lunch.

Since I am not a Tax Professional, I am not taking a position on potential tax treatment - I will simply discuss what both sides argue. The tax implications of Box Spreads and the BOXX ETF is a matter for you and your qualified Tax Professionals to determine.

Additionally, the utilization of Portfolio Margin to borrow or lend via Box Spreads involves the use of advanced margin calculations and significant financial risk. Portfolio Margin is designed for experienced, sophisticated investors who fully understand the risks of leveraged trading and may result in rapid, substantial losses in excess of your account’s equity. Whether Box Spread borrowing and Portfolio Margin is appropriate for you is a matter for you to decide in consultation with qualified Tax and Financial Advisors.

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Timing. Sizing. They have more to do with each other than you’d think.

What are the odds of “top-ticking” or “bottom-ticking” a name? Just look at the graph of cosine(x).

If you tried to “top-tick” cosine(x) on the way up at various points, good luck, nearly all of your attempts would end in tears. The same goes for trying to “catch a falling knife” on the downswing.

Individual stocks and the market as a whole follow a much more complicated regime than a simple cosine graph, but the one thing they share is that top-ticking and bottom-ticking is nearly impossible. My advice: don’t even try to do it.

Frankly, it isn’t just traders who try, companies do it as well with share repurchases. Take Designer Brands, for example. In Q3 of 2024 they spent $50.6 Million (a massive amount relative to the market cap) repurchasing shares at $6.59, leaving roughly $20 Million in capacity remaining on the existing authorization. The repurchase screamed “bottom tick” attempt. Shortly afterwards, the stock dropped to $5.00 a share in Q4, $4.00 in 2025 Q1, and into the low 2’s in 2025 Q2, before recovering to the present $3.60 - $3.80 range. DBI’s repurchase activity since 2024 Q3? Essentially zero.

People angrily shake their fists “If you spent $50 Million buying it back in the 7’s you should love buying it back at $3!” It’s a good point.

But ask yourself, how many times have you done the exact same thing? You buy a position, it dips to a level even more attractive than your original entry, you don’t add, and a few months later you wish you did. For me, way more often than I’d like to admit.

That’s why I think timing and sizing have a lot to do with each other. Once you understand that the odds you have timed the “bottom-tick” are slim, starting with a smaller position and leaving yourself with room to add at more attractive levels can come in handy. The worst thing that can happen is the name runs away from you, and you make slightly less than you would have if you bought your entire position at once.

If I’m looking to make something a 3% position, I’ll start at a third of the desired weight, 1%, and buy another third of the desired position (1%) over the next 5 days. I’m not a large trader and it isn’t a matter of liquidity, rather, it prevents me from rushing in at a top or blowing out at a bottom and making emotionally charged decisions. If you look back to Google at the low 160’s earlier this year and Google at 320 currently, bullish / bearish sentiment entirely dominated a few trading days. Spreading your buys / sells over a few days reduces the likelihood of making drastic decisions at emotionally charged moments (of course, you can always make exceptions for moments driven by earnings, regulatory issues, etc).

I like to use the last third of my “firepower” to add at more attractive levels if the price moves against my entry, or add to my position at higher levels upon a breakout. This might sound counterintuitive; why save capital to buy more of something once it is already moving higher? The purpose of retaining the last third is to avoid “dead money”. Doing this gives you the option to add at more attractive prices, or establish a full position by adding at higher levels once a breakout begins; chances are once the breakout begins it has room to run.

In a market that is increasingly momentum driven, this tactic helps ensure your capital is deployed when the risk to reward is most favorable, not just when you first got excited about a trade. If you have a focus on smaller cap US Equities, or Global Value names that tend to float around until the breakout finally begins, saving a third of your firepower to add at more attractive levels, or upon a breakout, ensures you don’t tie up capital in a value trap.

Now, three trades I’ve been adding to recently.

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You’re so cute, I wish there were two of you.

What if there were?

In the United States, many large publicly traded companies have dual classes of listed shares, all of which trade at a relatively tight spread to each other.

Google Class C (GOOG US Equity - $290.59) vs Google Class A (GOOGL US Equity - $290.10), Zillow Class C (Z US Equity - $73.05) vs Zillow Class A (ZG US Equity - $70.82), FOX Class C (FOX US Equity - $60.05) vs FOX Class A (FOXA US Equity - $66.53), in pretty much every instance even including Malone tracking empire (Liberty, Formula One, Atlanta Braves), different classes of shares tend to trade within 10% of each other.

There are a few global instances where this isn’t the case, and interestingly enough two of them belong to today’s AI darlings. There are various reasons why these discounts won’t close (one is a non-freely convertible ADR), but if you are a long-term investor, a believer in AI, and have an Interactive Brokers account, here are a few ways you can maximize “bang for your buck”.

1. Long Samsung Electronics Preferred (SMSD LI Equity) instead of Samsung Electronics Common (SMSN LI Equity)

Contrary to popular belief, you can buy Samsung if you are American, just not in America. More on that later.

Samsung has two classes of shares, the Common - 005930 KS Equity (88% of shares outstanding, $3.1 Billion USD daily volume) and the Preferred - 005935 KS Equity (12% of shares outstanding, $200 Million USD daily volume).

In the United States, Preferred Stock and Common Stock differ meaningfully. Preferred Stock usually carries no voting rights and receives fixed (occasionally floating) dividends. In the event of bankruptcy, Preferred Stock stands higher up on the capital structure and are entitled to liquidation payments prior to Common stockholders.

This isn’t the case in Korea.

Samsung Common and Samsung Preferred are almost identical. The Preferred Stock carries no voting rights, but the Common and Preferred have the same exact claim on the company. The only minor difference is that due to Korea Securities Law Samsung must pay a higher dividend on Preferred Stock than Common Stock. In 2024 Samsung paid a dividend of 1,447 Won to Preferred holders vs 1,446 Won to the Common, and in 2025 paid a dividend of 1,473 Won to Preferred holders vs 1,472 Won to the Common. As you can see, the difference in dividends is just a token amount of 1 Won.

Given the slightly higher dividend, you’d assume the Preferred would trade somewhat close to the Common, but that is not the case. In fact, it trades at a 24% discount. Why? The elephant in the room: passive ownership via index inclusion.

Only Samsung’s Common Stock is allowed into indexes such as the benchmark Kospi 50, Kospi 200, and MSCI Korea. As a result, as investors hungry for Korean equities and AI related names plunge into the Kospi and MSCI Korea, Samsung Common has benefitted from a massive passive tailwind, while Samsung Preferred has experienced no benefit at all. As a result of this passive buying differential, the Common Shares have outperformed the Preferred by 15% year to date, and trade at the highest premium in 5 years, 31%.

I’m not calling for a widowmaker trade of Long the Preferred and Short the Common – if you want to shove a fork in a toaster there are easier ways such as owning a value ETF, being an energy investor, or adhering to red lights as a cyclist in New York City (you will be rear-ended).

What I am saying, however, is that if you are a long term believer in Samsung, the Preferred is certainly looking attractive.

The Common is trading at a forward valuation of 12x 2026 earnings and a dividend yield of 1.43%, while the Preferred is trading at 9x 2026 earnings and a dividend yield of 1.87%. Samsung at 9x earnings? Don’t mind if I do.

While you can’t trade the Common and Preferred directly on the Korean Stock Exchange, luckily both are listed as GDRs (Global Depository Receipts) on the LSE International Order Book under the tickers SMSN and SMSD, and trade in US Dollars. The volume in these GDRs is notably lower than on the native Korean Stock Exchange (about $35 Million for SMSN and $5 Million for SMSD), but there is still sufficient liquidity to buy a handful.

I’m not expecting this valuation differential to close anytime soon as the passive flows into Korea continue, but if you want some Samsung exposure, why not consider the Preferred at 9x earnings and get an extra 0.44% in dividends? Food for thought.

2. Long Taiwan Semiconductor (2330 TW Equity) instead of Taiwan Semiconductor ADR (TSM US Equity)

Taiwan Semiconductor is unique not just for its dominance in chip fabrication, but also for having one of the world’s only one-way ADRs. Historically, local Taiwan semiconductor shares (2330 TW Equity) have been convertible in small quantities into the ADR (TSM US Equity), but the ADRs have never been convertible back into local shares.

Currently, 21% of outstanding shares are ADRs, and any additional conversion of local shares to ADRs has to be expressly approved by the company. ADR conversions haven’t occurred for years, and as a result American tech investors hungry for chip exposure compete for a tiny slice of the pie, and the price differential between local shares and the ADR has grown larger.

This year alone, Taiwan Semiconductor’s ADR (TSM US Equity) has outperformed the native listing by 4%, and the differential between the ADR and the Native Listing has risen to a record 30% before retreating to 24% this month.

(Note 1 share of TSM US Equity = 5 Shares of 2330 TW Equity, so a ratio of 6.2 means the ADR is trading at a 24% Premium to the local listing).

Once again, I am not calling for a widowmaker trade of Long 2330 TW Equity Short TSM US Equity Trade.

However, if you are a long-term believer in Taiwan Semiconductor, why not get a larger slice of the pie for the same amount of cash?

IBKR’s currency conversion is seamless (a few basis points), and while you do need to pay a 0.3% Financial Transaction tax when you sell and 0.15% in annual custody fees, the local listing trades at 20x forward earnings with a dividend yield of 1.30%, while the ADR trades at 24x earnings and a dividend yield of 0.98%. The lower valuation is attractive, the elevated dividend yield covers expenses, and you stand to gain from superior returns if the differential ever narrows to the historical range of 10% - 15%.

It’s also important to note tax treatment for dividends from ADRs and the local listing is the same for US residents. One concern you may have is that if China ever invades Taiwan, treatment will be different for ADRs vs local shares, but I can assure if China indeed invades Taiwan, what happens to your local shares will be the least of your concerns once you are on the front lines.

3. Miscellaneous – SK Hynix GDR

While the Hynix ADR in the United States doesn’t trade (aside from a guy bidding 100,000 shares at a penny), you can still own SK Hynix as an American. SK Hynix has a Global Depository Receipt listed on the Frankfurt Stock Exchange under the symbol HY9H that trades in EUR. Since the GDRs are freely convertible, just like SMSN and SMSD, it tends to trade close to the local listing.

Hynix has had an incredible run up this year, but I still find it interesting at 7x 2026 earnings. Furthermore, recent rumors that Hynix is contemplating a sponsored US ADR get me even more interested – a sponsored US ADR would enable a massive increase in passive ownership.

Korea itself is rapidly becoming investor friendly. The President literally promised to “double the Kospi”, and regulatory crackdowns on abusive related party transactions, and a government push for companies to return capital (similar to the Tokyo Stock Exchange’s shame list of companies who refuse to provide clear-cut capital return guidelines) have driven the stock market to record highs.

Hynix and Samsung moving forward with sponsored US ADRs would be a genius move. Imagine this from their perspective, pump your own markets 100% and then when things get shaky, list your two largest companies on the Nasdaq and watch the American passive money waltz on in. If Pinduoduo can be in the Nasdaq 100, so can Hynix (if they follow through with an ADR and list on Nasdaq).

The purpose of this isn’t to slam the table for Hynix as a buy, but rather, to let you know it is purchasable.

Finally, bonus round.

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It’s been a busy start to earnings season. Five out of six names covered in previous articles reported excellent results, and more are set to report this week. I wanted to briefly discuss each report, some recent events (Argentina Elections and a Potential China Trade deal), and the setups I find most attractive.

At the time of writing (Sunday 7:39 PM), preliminary results indicate Javier Milei’s party, La Libertad Avanza, is headed towards a decisive victory.

I’m long a small basket of Argentinian Financial Institutions, all of whom were trashed this year over fears that Milei’s pivot to Free Markets would be overturned at the ballot box. Grupo Galicia, Banco Macro, and Banco BBVA Argentina have heavily underperformed the MSCI Argentina, and if Milei’s party indeed secures 40%+ of the vote I think the combination of US Support (via a $20 Billion Swap Line to support Argentina’s currency) and political certainty for the next two years will provide an excellent backdrop for these banks to recover much of their 2025 YTD losses.

I certainly don’t expect them to bounce back to 0% YTD within a day, but the names should be up 15%+ given the lethal bear case is now entirely removed. The reaction today is likely to be “kneejerk”, so if you are interested in Argentinian banks, I think it make sense to wait and see how things settle out this week.

Nonetheless, I think the “Argentina Comeback” trade is one that will last for a while given Milei’s free market reforms, and that regardless of today’s knee-jerk move, the positive trend among Argentinian financials, energy (YPF), and airports (CAAP), will continue for some time.

It also seems a “Sweetheart” trade truce between the US and China is on track. Both sides are already drawing attention to the meeting and praising the “tough but understandable stance” of the other negotiators, so that they can both play off an agreement as a win. Will anything of substance happen? Probably not, but mere reassurance is enough to get markets happy again.

Most names within the “Tariff Slime” basket have already recovered from the April 4th lows, but I think increased trade certainty could benefit names heavily associated with product sourcing from China and Southeast Asia such as Gigacloud Technology, Sonos, and Jakks Pacific, as well as tech names such as ACM Research (semiconductor cleaning equipment) given the prospect of a chip-war detente.

Between Argentinian Banks and “Tariff Slime”, I think Argentinian assets provide a more favorable long term setup, but given the event-driven nature of today’s market and a massive fixation on “themes”, I think both groups are worth paying attention to today.

Earnings Analysis and Setups

1. Customer’s Bancorp

Multiples: 8.9x 2026 EPS, 1.17x Tangible Book Value

Reported: $2.20 vs $1.90 Estimate

Takeaway: Strong Beat and Guidance Upgrade Boosts 2026 Outlook

Customer’s delivered a significant beat. The quarter was marked by excellent credit quality, accelerating loan growth, and increasing deposit activity driven by its newly hired banking teams.

The regional bank industry has been plagued by credit “cockroaches”, which makes Customer’s beat even more impressive. Customer’s dispelled any concern over its sizeable NDFI (Non Depository Financial Institution) loan book, stating:

Most of the recent attention this past quarter has been on the lender finance space. For Customers, this is one of the oldest specialized lending businesses we’ve been in. It’s one we’ve been in for over a decade, and we’ve not only had zero losses, but zero loan defaults. In this business, this is typically lending to a private credit fund where the collateral is a broadly diversifies pool of loans out to middle market companies. There’s significant overcollateralization. We have low advance rates and there is a -- it’s very diversified. So our single obligor exposure is very low, kind of mid single-digit. So when you put all those things together, it’s translated into, again, zero losses, zero defaults.

Customer’s also highlighted the success of its proprietary CUBIX offering. CUBIX is a private payments rail (similar to Zelle, but for Insitutions) that allows clients to transfer hundreds of Billions to other Customer’s clients. The primary use case for this is Institutional crypto activity. CUBIX is integrated across all major exchanges and most trading desks, and comes with an added element of security relative to pure stablecoins like USDC or Tether, since CUBIX can only be transferred to other Institutional CUBIX clients, and thus can’t really be stolen or hacked by third parties.

Customer’s has brought in nearly $3.9 Billion in zero-cost deposits (which they store in cash to minimize liquidity risk) via CUBIX, and growth has been accelerating as crypto trading volume hits record highs.

Customer’s provided very rosy guidance in terms of organic deposit growth, stating that its new 2025 hires are likely to give a “25% lift on the $300 - $400 Million” in quarterly deposit growth, starting in the middle of next year.

What I like about Customer’s is that time is on its side and that its successes build upon each other. Unlike other regionals stuck with low-rate securities or deteriorating office loans, Customer’s winning technology solutions such as CUBIX, and its highly successful new banking teams (poached from Flagstar, Signature, and SVB) contribute to the bottom line immediately and help it secure new opportunities and clients. Simply put, it’s a growth story, not a value story.

Despite Customer’s history of success and its impressive 46% YTD return, it still trades at a steep discount to the broader regional banking index (9x 2026 EPS, 1.17x Tangible Book Value vs 10x 2026 EPS, 1.47x Tangible Book Value for the index). Customer’s has differentiated itself from peers via its proprietary offerings such as CUBIX, its minimal credit risk, and its consistent growth track record, and as analysts slowly bump 2026 estimates up from $7.50 to $8.00 and as investors warm to the name, I think additional upside is present. A baseline case would be for it to trade at the Regional Bank peer multiple (implying $80 a share) and an optimistic case would be for it to trade at 11-12x earnings (implying $88 - $96 a share).

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A lot of times success isn’t determined by how you trade, but rather what you trade. As markets become increasingly thematic, baskets and stories (Uranium, Rare Earths) seem to be more powerful than ever. I think desperation is a driver behind a good chunk of the move – many Americans, and in fact global investors, feel left behind and thus a need to break out of the rat race by generating massive gains. Companies with strong stories and narratives, combined with quick moves, help scratch this itch.

Are these investors putting the cart before the horse? Given a good chunk of the meme squad hasn’t generated a single dollar of actual revenue, it’s reasonable to say yes. Nonetheless, the price of a stock is simply what people are willing to trade it at 4 PM, and there are a few lesser-known names across AI Infrastructure, Critical Metals, and Defense, and Capital Markets that I think are worth a look. The purpose of this article is to briefly discuss them and bring them to your attention.

Bleichroeder Acquisition Corp (BACQ)

Bleichroeder Acqusition Corp is a SPAC intending to merge with Merlin Labs, an autonomous aviation contractor. Merlin Lab’s primary product, Merlin Pilot, combines proprietary hardware and software solutions with GE’s Flight Management System to fly a variety of aircraft, and can substantially reduce the need for large crews as Merlin Pilot can interface with Air Traffic Control and handle re-routing and collision avoidance.

Merlin has already won substantial long term business contracts. In 2024, Merlin secured a $105 Million contract from the US Air Force to retrofit C-130 Transport Aircraft with its Merlin Pilot system, and is in further discussion to expand this to the KC-135 Tanker Fleet. I think Merlin’s autopilot offering, which runs in partnership with GE’s Flight Management system (currently used on more than 14,000 military aircraft), has a strong opportunity to play a role in military readiness as drones and autonomous aviation play a larger role.

The SPAC transaction isn’t expected to close until early 2026, but what I like about BACQ is the favorable risk to reward of the trade. Spac Holders have the right to “redeem” their shares from the SPAC and receive cash. BACQ is currently trading at 10.88, and the redemption value is somewhere in the 10.40 – 10.50 range. As a result, your downside (up until the deal closes) is 30 to 40 cents, as you can simply “redeem” your shares upon the close of the transaction if the SPAC is trading below cash value. As a result, at 10.88, I think a favorable setup is in place as a move to $12-$14 would provide a significant gain relative to the 30 to 40 cents of risk you are taking.

Willow Lane Acquisition Corp (WLAC)

Willow Lane Acqusition Corp intends to merge with “neocloud” provider Boost Run. Boost Run specializes in “Bare Metal” GPU hosting solutions where a tenant rents the entire server. Boost Run does not own data centers, rather, it partners with Tierpoint Data Centers to offer capacity across Charlotte, St. Louis, and Pennsylvania. Boost Run’s founder, Andrew Karos, is well connected and previously ran high frequency trading firm Blue Fire Capital before it was purchased by Digital Asset Giant Galaxy Digital (who ironically, is also building data centers).

Boost Run has been profitable since inception in 2023, and has not needed outside Series A, B, or C funding.

Boost Run has never raised Series A, B or C funding. They’ve grown organically while maintaining profitability. This transaction values Boost Runat roughly $614 million on a post-money basis, with over $112 million of cash added to Boost Runs balance sheet, assuming no redemptions by Willow Lane shareholders. Boost Run’s 2026 revenue midpoint of $180 million implies an attractive 3.4 times forward EV to revenue multiple, significantly below the comparables. We are very excited about this transaction.

The company is cash flow positive, and is forecasting significant growth in 2026.

Our financial course demonstrates what we believe is a powerful model. Pre-cash flow positive since year one, and we are committed to this principle. 2026 estimated revenue is $180 million at the midpoint. This represents approximately a 470% growth year-over-year. We generate strong profitability within the neo-cloud industry with adjusted EBITDA margins of approximately 80%.

I hesitate to do “relative valuation” within the Neocloud industry, since practically anyone trades at sky high multiple (I sold Nebius at $30), but with Boost Run trading at an implied 5x EV / Revenue, it seems to be much cheaper than peers.

There is almost no coverage of Boost Run as of now, but I think that is likely to change quickly. Boost Run has an institutional call with DA Davidson later today, and I think heightened awareness will significantly benefit the stock.

While Boost Run is trading around 4 dollars higher than the SPAC redemption value (so significant downside is present), I think it provides an interesting opportunity to gain exposure to a neocloud provider at a sub-industry multiple.

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1. The Collapse

2. The Comeback

3. Names to Consider

The Collapse

Ambulance chasers. Roofers. What?

The Florida insurance market was pushed to the brink of collapse in 2022 due to a highly litigious practice known as assignment of benefits. What started as a cottage industry in the early 2010’s quickly grew into a parasitic billion dollar combination of inflated claims, fraud, and millionaire sportscar-driving lawyers known for tying insurance companies up in court for years over roofing claims.

On face value, assignment of benefits is a simple tactic designed to make the insurance claims process easier. An individual claimant, whether for health, auto, or homeowners insurance gets immediate relief (surgery, auto repairs, emergency home restoration services) in exchange for assigning the financial value of their claim to a third party company, who then works out the cost with the insurer and receives the settlement.

The obvious issue with assignment of benefits is it creates a perverse incentive for repairs to be as expensive as possible. If you are a third party and know an insurer is going to pay you, you’re going to charge as much as you can legally get away with for repairs.

Florida roofers quickly realized they could turn roofing damage into a billion dollar industry by aggressively soliciting business. Highways were dotted with advertisements for “free roofs” and the practice soared in popularity from 2015-2022. After all, who wouldn’t want a free new roof?

Given the frequency of hurricanes in Florida, it was an easy tactic to get away with. Roofers simply claimed that regular wear and tear on older roofs (wear and tear is not a covered peril) was in fact hurricane damage, and if insurers wanted to fight this they’d have to go to court against attack dog lawyers who would also demand significant attorney’s fees when the case concluded.

The lawyers almost always won due a concept known as “social inflation” (jurors love sticking insurance companies with massive settlements and siding with the “little guy” as a way of lashing out). Given the cost to even fight a claim ranges from $50,000 - $100,000 in legal expenses, insurers just paid out. To the roofers, it was free money.

The scale and breadth of the shenanigans was widely apparent. News articles and academic studies discovered assignment of benefits claims were typically 30-50% more expensive due to inflated, sometimes fraudulent costs, but insurers had no tools to stop the slow motion train wreck.

Like the story of the scoprion and the frog, eventually parasites get large enough to kill their host. By 2022, after suffering Billions in losses, most insurers were high-tailing it out of Florida and most of those who remained, collapsed.

FedNat insurance, a Florida specialist, saw income plunge from $35 Million in 2014 and 2015 to -$120 Million in 2021, and went into liquidation in 2022.

American Coastal (previously known as United Insurance Holdings UIHC), had its United Property and Casualty subsidiary fall into insolvency, and the stock collapsed from $30 to just 62 cents as net income swung from $40 Million to -$400 Million.

Heritage Insurance faced similar disaster as income plunged from $30 Million to -$60 Million and the stock was “written off” after losing 90% of its value.

By late 2022, it wasn’t a mere corporate issue. State lawmakers began to panic.

Florida’s government runs an insurer of last resort called Citizens. The insurer is only open to homeowners that cannot find insurance elsewhere (at a somewhat reasonable price), and was originally intended to fill very small gaps left by private insurers.

As Gulfstream, United, Fednat, Southern Fidelity, Lighthouse, Avator, and Weston went bankrupt and Farmers, AAA, Allstate, and Progressive fled the state, more and more homeowners flocked to Citizens and it quickly became overloaded. After significant damage from Hurricane Michael (2018 - Category 5, $8 Billion in damage) and Hurricane Ian (2022 - Category 5, $50 Billion in damage), it was clear to even the lawmakers that Citizens was on its last legs.

Faced with the prospect of a total insurance industry collapse, lawmakers had to act.

The Comeback

In late 2021, Florida banned aggressive roof advertisements, and determined that claims for damaged roofs would be limited to actual cash value rather than the cost of a new roof. While this was well intentioned, it did nothing to stop roofers from inflating the “cash value” of old roofs to get away with larger payouts.

In early 2022 as the situation worsened and public outcry mounted, the state established an emergency $2 Billion reinsurance fund to help insurers find reinsurance coverage (a giveaway to private insurers), hoping they would pass some of the cost savings to policy holders. They didn’t.

Faced with an imminent insurance collapse, in late 2022 and early 2023, state legislators chose the nuclear option.

They entirely banned assignment of benefits on new policies, eliminated one way attorneys fees making policy holders liable for their own court costs, and reduced the statute of limitations on property damage claims to just one year.

Assignment of benefits and most fraud ended instantly. Property claims declined 40% in 2023, and insurer’s legal expenses plunged from 10% of premiums to just 3% as they no longer needed to fight frivolous claims.

The effect was immediate and insurance profits exploded higher. Increasing margins were compounded by the fact there were only a few surviving insurers left in the state, meaning there was no immediate competition to take advantage of the gold rush.

Growth accelerated as Florida took steps additional steps to wind down its Citizens Insurance operations. Private insurers were allowed to assume Citizens policies, as long as they promised to not raise premiums by more than 20%. These Citizens “takeouts” are wildly profitable to existing private insurers as they come with lower brokers fees and private insurers don’t have to pay for reinsurance during the first year, providing a significant boost to net income upon policy assumption. Citizens polices have since dropped from a peak of 1.4 Million in 2023 to 800k in June 2025.

Despite the incredible megatrend, the Florida Comeback has gone widely unnoticed. Aside from a few scattered posts and Jonathan Cukierwar’s 20 page write-up on ACIC, it’s hard to find any mention of the turnaround.

Heritage Insurance (HRTG) is up 22x from $1.12 to $25.30. American Coastal is up 41x from $0.29 to $12.07. Universal Insurance Holdings is up 3.5x from $8.39 to $29.84. HCI Group is up 7.1x from $27.65 to $196.94.

While the runup has been incredible, I think further gains are to come.

For starters, we have miraculously made it through hurricane season without any major windstorm incidents. I don’t want to jinx things, but if we get to November 1st without any hurricane damage I believe the entire sector will drift higher as the one year statute of limitations implies wind damage claims for the 2025 and early 2026 period will be non-existent and loss ratios will plunge.

Simply put, you can’t blame roofing damage on a hurricane if there are no hurricanes.

Additionally, the entire sector stands to gain from improved reinsurance pricing.

Insurers never bear the entire risk of their policies since a single hurricane could wipe them out. As a result, all of them purchase reinsurance coverage from larger entities such as Swiss Reinsurance, Reinsurance Group of America, Everest Group Re, Axis Capital, Arch, and Renaissance Insurance among others, to split and cap their risk.

Given the vast increase in profitability in Florida policies, not only are the primary insurers like UVE, HCI, ACIC, SLDE, AII, and HRTG benefiting, the reinsurers themselves are making a fortune since reinsurance payouts are significantly lower. As a result of increased profitability, and no elimination of reinsurance capital due to sizeable hurricane losses, it’s becoming increasingly clear that reinsurance rates for the gulf region are set for double-digit declines in 2026.

Lower reinsurance costs and stunningly low loss ratios will provide a massive tailwind for the entire Florida sector in 2025, 2026, and 2027, but I believe the market is not yet pricing this in for a few select names.

Your first thought might be improved profitability will generate increased competition among the Florida specialists. That’s true. However, homeowners insurance is a very sticky product. Switching insurers is real pain as brokers require intricate wind mitigation reports and extensive documentation to accurately price risk. Unlike reinsurance which is an active, competitive market (insurers are always shopping for the best rates), even if homeowners insurance rates decline 1-3%, to someone paying just $4,000 or $5,000 it might not even be worth the hassle to switch. As a result, the good times should continue to roll for the Florida specialists all the way into 2027. Here’s how I’d play it.

Names to Consider

Before I get into the individual trades, I wanted to do a brief overview of the sector, and what the individual insurers are known for.

Heritage Insurance has sizeable operations in Florida, and growing exposure to New York and California. Both states have rapidly improving market conditions.

Universal Insurance Holdings has minimal geographical diversification, and is thus highly dependent on Florida insurance rates. While they handled the 2022 implosion better than others, they are still more than 30% below their 2018 high.

American Integrity has a unique focus on new build homes, and intends to significantly expand operations in South Florida, where housing is booming.

American Coastal has deep underwriting expertise and is known for its focus on low-rise apartment and garden style condo buildings. It only covers damage and does not cover liability, lowering its exposure to massive “social inflation” slip and fall claims. It’s also a heavy reinsurance purchaser, and stands to benefit significantly from lower reinsurance costs.

HCI Group is known its advanced risk modelling and expertise on Citizens “takeouts”. Its underwriting model subsidiary, Exzeo, is slated to IPO in 2026. While it may seem expensive on a P/E basis, Exzeo is likely to trade at a significantly higher multiple given the capital-light nature of the business. HCI also has a great track record of Office investments in the Tampa area, which lends credibility to the sharpness of the management team.

Slide Insurance recently went public in June and is a new entrant to the Florida market. Slide touts extensive AI capabilities (which I am not sure of), but it does pursue an interesting hybrid model via an in-house brokerage in addition to partnerships with external brokerages, which lowers its policy acquisition expenses.

Trade 1: Long Heritage Insurance (HRTG)

I think Heritage Insurance is attractive at roughly 6.5x consensus 2025 earnings. Frankly, I think if we make it through to November without a substantial hurricane, it may easily able beat the $0.47 Q3 earnings consensus (which I think has not been adjusted to account for no hurricanes occurring in the period). In an optimistic scenario, Heritage may earn as much as $4.50 this year and next, which would put it at a sub 6x multiple.

While Heritage does trade at a relatively rich 127% premium to Tangible Book Value, I think its strong earnings, geographical diversification, and 2026 growth potential justify a premium to book.

As mentioned on the recent earnings call, Heritage has significant growth opportunities in California and New York, two regions it pulled back from in 2022. Another insurer I follow, Kingstone, frequently pounds its chest on pricing improvements in the New York Region.

While you can’t blame them for celebrating their impressive comeback, Kingstone ironically attracts competitors like Heritage, who used to underwrite in the Long Island region through its Narragansett Bay subsidiary by showing how profitable the state has become. Heritage has the technical expertise and distribution to re-enter this heavily profitable geography, and given they explicitly mentioned they are opening up New York in 2025 and 2026, I think they will make quick progress to seize this opportunity.

Simply put, Heritage has engineered a huge turnaround and stands to gain significantly from lower reinsurance costs in 2026 and an improved 2025 loss ratio provided no hurricane occurs. It’s geographic diversification poises it to gain from improved Florida, California, and New York conditions, yet it trades at an extremely low industry multiple. The lower multiple is likely due in part over damaging claims made in a 60 Minutes Piece. Interestingly, the company has fully denied the allegations and filed a large lawsuit against the adjuster who made these claims in early 2025; either way, if Heritage ever does indeed need to pay a civil penalty, it is unlikely to be material to the company. It would be wrong for me to discuss Heritage without mentioning this risk, which is why I wanted to bring it up.

I think an attractive entry is within the $23.50 to $25.50 range. The stock trades wildly and moves up or down a dollar or two, despite the $750 Million market cap. If you recall, just a few weeks back we had the opportunity to get in a $17.50, and Heritage also traded up to $29.50 in late September before falling 6 dollars in the span of three days. It’s a volatile stock. Given the volatility, I think it’s prudent to consider a starter position at the upper end of the $23.50 to $25.50 range, and leave yourself firepower to get active at the lower end. If you prefer a more conservative entry, selling the December 20 strike puts for 90 cents, which would imply an entry point of $19.10, is also something toconsider. Absent a massive hurricane or terrible regulatory news, I don’t think Heritage trades that low this year and that strong Q3 and Q4 results may propel it to an ideal $30 within the next year.

Trade 2: Short Slide Insurance $12.50 November Puts (SLDE)

There was a recent short report on Slide Insurance, which has spiked the implied volatility of Slide’s options. Slide trades around 6.4x 2026 earnings at $15.99, which is standalone attractive, but I think an even better risk to reward setup is shorting the 12.50 November Puts for 54 cents. That would imply an entry of under $11.96 a share, and I think Slide is unlikely to return to the 12s given its recently announced $75 Million buyback, which should support the stock within the $12.50 to $14 range.

I’d take Heritage over Slide given the geographical diversification, but a sub 12 entry point on Slide is attractive and I am otherwise happy to collect the 52 cent premium if it stays where it is.

Trade 3: Long American Coastal (ACIC) within the $10 - $11 Range

American Coastal trades around 7x earnings and 8x 2026 EPS so it is a little less compelling than HRTG given the valuation and 100% Florida concentration, but I am attracted to its deep underwriting expertise and its capital light Managing General Agent unit, Skywater Underwriters. The MGA takes no risk and operates under a fee-based structure where it underwrites policies and transfers them to a third-party insurer, AmRisc, which is an affiliate of the Chairman of ACIC (who also owns more than $100 Million worth of stock).

The stock is down from its high of $14 last year. I think the $10 - $11 Range represents a compelling opportunity. American Coastal is an excellent underwriter and stands to gain significantly from lower 2026 reinsurance rates. Still, it’s extremely important to pick an attractive entry point for insurers and banks and I think the $10 - $11 Range (7-8x earnings) provides an “easier” entry point with more room for error, than the current $11.90 - $12.10 range. While this trade isn’t immediately actionable, small cap insurers move quickly, and if ACIC enters the $10 - $11 range, I will be adding to my position.

Reinsurance

An interesting way to play the Florida comeback is via reinsurers themselves. While Everest Group, Axis Capital, Arch, etc are all trending higher as the market realizes the prospects of a FL Hurricane are decreasing as we inch closer to the “finish line”, I am not too bullish on reinsurers long term due to the commodity like nature of reinsurance and indications of lower reinsurance pricing in 2026. While reinsurers themselves may experience a bumper profit in Q3 and Q4 of this year, softer reinsurance pricing in 2026 will serve as a headwind, and a tailwind to the primary Florida specialist insurers. Still, reinsurers are likely to beat Q3 and Q4 estimates and present a short term “earnings” setup as they “surprise”, but earnings trades are difficult to structure.

As we inch closer to the end of hurricane season, the entire FL Specialist sector stands to benefit from the first clean hurricane season in years. The setup is simple, if we can make if just four more weeks with no major hurricane activity, the entire sector is likely to blow through Q3 and Q4 2025 earnings estimates.

The group trades at a deep discount to the broader insurance sector and market as a whole, and I think a compelling opportunity is present in names like Heritage Insurance, and (at a lower valuation) American Coastal and Slide Insurance, to gain exposure to growing insurers at extremely low multiples. The broader FL Specialist sector has, for years, been written off as toxic and dangerous, but with litigation reform, lower reinsurance pricing, and stunningly low loss ratios driving profits to record highs, I think the sector is finally ready to let the good times roll.

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1. Introduction

2. Trades

3. Sizing

Introduction

Don’t overthink it.

A lot of times, the best setups are simple. After all, the value of a stock at 4 PM is simply the price others are willing to trade with each other at. If your thesis is hard for others to understand it’s unlikely the market will see the same value you do.

I’m mixing things up for this week’s piece. Some of the best trades I’ve made this year weren’t predicated on a long winded thesis of “secret situation the market doesn’t understand”, but rather, “the stock just looks cheap”. Whether it was Heritage Insurance at four times earnings, or Brighthouse Financial at a 60-40% chance of being bought, or even perennial value trap OSB bumbling around at 5x earnings with a big buyback, the setups were simple.

This brings me to the land where cheap is, in fact, the norm: Chinese ADRs.

Despite the incredible run of Baidu and Alibaba, many of their smaller peers have entirely missed the recent rally. A few at 3-4x earnings with sizeable capital return programs are increasingly catching my eye, especially given their liquid options chains.

One of the largest risks when investing in Chinese ADRs is “zeroed” risk, that you wake up one day and discover your entire investment is gone, hence why the entire group tends to trade at a rock-bottom valuation.

Liquid options chains present an opportunity: the ability to dabble in these 3x - 4x names with strong capital allocation programs while hedging nearly all of your downside risk.

Many of these trades are still in the formative stages and I put on most yesterday, but I think the combination of rock-bottom valuations, strong capital allocation programs, aligned insider ownership, and options overlays that substantially eliminate downside risk present a few unique setups with 31% upside potential (if things go right) with just 11-12% downside risk. Without further huffing and puffing, let’s get into it.

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1. Introduction

2. Trades

3. Final Thoughts

Introduction

I’ve written up some wild trades before. A crypto Closed End Fund trading with 100% upside to Net Asset Value, a Jordanian Insurer at 4x Earnings, a Georgian Financial Conglomerate with 70% upside to Net Asset Value repurchasing 15% of shares a year, and a Japanese Publisher with a concealed securities portfolio repurchasing 15% of the float every year.

I don’t seek out these setups just because they are crazy or niche, rather, I’ve learned some of the best risk-to-reward setups lie in names that are off limits to larger Institutional Investors.

As a Retail Investor you have two distinct edges, no investment mandate and a significant execution advantage. Unlike Institutional Investors who have risk, liquidity, and portfolio constraints, as a Retail Investor you can trade whatever you want, whenever you want. One day you can be an AI Expert and the next day you can specialize in Women’s Jeans. I’m not saying this is the best approach to take, but the freedom to trade anything is an advantage as it allows you to pursue the most favorable risk-to-reward setups.

Secondly, and more importantly, Retail Traders have a massive execution advantage. Kenneth Griffin and Douglas Cifu are your friends. Allow me to explain.

For Institutional Traders, the price and quantity they see on the exchange is the price and quantity they get. If a market is 200x15.05 to 100x15.10 and they want to buy 100 shares, 100 shares fill at $15.10 and then the ask evaporates, making it more difficult to buy shares (hence why Institutional Investors gravitate towards large caps with plentiful liquidity).

It’s an entirely different setup for Retail Traders.

A slew of market makers, Jane Street, Citadel Securities, Virtu Financial, gleefully pay your broker for the opportunity to fill your order at a better price at near unlimited quantity, because in general Retail Traders are wrong on a short-term timeframe. In the same market (200x15.05 to 100x15.10) where an Institutional Trader struggles to buy more than 100 shares, you might be able to buy 1,500 or even 3,600 at $15.0879. The market maker is happy to sell at $15.0879 because their model thinks the true price is $15.075, but you got a great deal and were able to execute significantly more efficiently than a larger a Institutional Investor.

What this means is if you cast a wide enough net and wait patiently for attractive entries, you can dance in and out of excellent risk-to-reward setups that are simply off-limits to Institutional Investors due to execution constraints.

I’m changing things up for this article. I’m focusing on four new names I’ve been buying starter positions in this week, and following the “early-stage” format of the 2023 IGI Pitch. Maybe they’ll go on to become larger positions, maybe the stories fall apart and they don’t.

All of them seem to be rapidly inflecting and have significant 2026 tailwinds, yet are priced as if everyone is skeptical, or more likely, unaware of the stories. Of course it’s possible the narratives fizzle out, but at the valuations they are trading at I think they are too compelling to ignore.

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1. The Case for Small Caps

2. Banking

3. Real Estate

4. Final Thoughts

The Case for Small Caps

As the curtains close on Chair Powell’s “There is no 2% inflation target” Jackson Hole speech and Fintwit’s very own Bill Pulte investigates the things that really matter, like “Are Crayons erasable?” and “Did Lisa Cook really commit mortgage fraud?” one thing is clear: “Small Cap Summer” is blossoming into a surprising “Rate Cut Fall”.

The Federal Funds Futures market seems assured of a September rate cut (88%), and in fact implies more than 5 cuts will happen by next September. If this gets you thinking “wow more cheap cash to buy Nvidia”, this post isn’t for you (although history indicates you’re probably right anyways).

The impending rate-cut backdrop gets me interested in Small Caps, in particular inrate-sensitive names that found themselves in the wrong place at the wrong time in 2022 and have been left-for-dead ever since. Many of these names (especially within Real Estate and Banking) have been working tirelessly to improve efficiency and optimize their balance sheets, to minimal attention.

The backdrop for Small Cap outperformance is already materializing. For the first time since 2020, the Russell 2000 is projected to marginally outpace the S&P 500’s and Nasdaq 100’s earnings growth this year, and the picture gets even rosier in 2026.

The fun isn’t constrained to Small Caps. The S&P 400 Mid Cap Index is projected to put up its strongest EPS growth since 2021 next year. Despite the improving fundamental backdrop, a “rate cut” boost from Powell’s Jackson Hole Speech, and the most impressive relative Small Cap performance last week year-to-date (the Russell is now just 3% behind the S&P 500), Small and Mid Caps continue to trade at the largest discount to Large Caps since COVID.

How could this be? The truth is most people just don’t care. The proof is in the flows.

Despite the slight reversal last week, flagship Small Cap funds continue to bleed assets at a record annual pace. Money continues to flow into the S&P 500 and Nasdaq 100 as more and more Small Cap finally hang up their hats.

But where one man (or pretty much the entire market at this point) sees trash, another sees treasure.

I think the earnings, rate cut, and rotational backdrop for Small Caps is favorable and I am especially interested in comeback stories that are rate sensitive and are poised to gain from dovish Fed Policy.

When trading Small Caps, half the equation isn’t just how you trade, but rather what you trade. Knowing which names are especially exposed to certain factors is paramount, and establishing baskets like Tariff Slime or Government Efficiency or Mortgages leaves you prepared to spring into action in either direction, while others are cobbling together L/S pairs or baskets at the last minute.

I think it’s time to prepare a comeback basket for rate sensitive Small Caps. Here are 5 inflecting rate cut beneficiaries I am looking at across Banks, Mortgage Origination, and Real Estate, as well as a 7.60% REIT Preferred that has caught my eye.

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1. In Buybacks We Trust

2. Screening

3. Putting It Together

In Buybacks We Trust.

Asian equities have long been considered value traps, and it’s not hard to see why. Over the last 20 years, the HSI (Hong Kong), Topix (Japan), and Straits Times Index (Singapore) have underperformed the S&P 500 by a significant margin.

Much of this differential is due to the US’s superior economic expansion and the S&P’s incredible earnings growth, but an often under-discussed piece of the puzzle is capital management.

American companies are ruthless when it comes to using financial engineering to maximize shareholder value.

Take Transdigm, for example. Not only does the company operate with negative equity and leverage of 3.8x ($17 B of net debt on $4.7 B of EBITDA), they announced plans today to borrow an additional $5 Billion to fund a “special dividend”. This would cause the average Japanese or HK CEO a heart attack, but to an American, it’s just business as usual.

Recent regulatory reforms and government initiatives are pressuring more and more companies in South Korea, Japan, Singapore, and China to be more active on the capital management front. Many of these countries have observed how the United States and Australia have turned their markets into perpetual wealth machines by encouraging active capital management and passive investment by the public, and are eager to emulate this for themselves. This gets me interested, especially given that all Asian indices trade at a steep discount to the S&P 500 despite having near-zero interest rates (making it easier to buy on margin).

The Asian regulatory push for active capital management is commendable, but it also overshadows a select few companies who don’t need to be told: they’ve been doing the right thing for decades.

Before we go further, don’t look at the legend on the graph below, and try to guess what the chart is of.

Is this the equity curve of an advanced quantitative strategy, a multistrategy hedge fund, or the average life of a tech investor? Guess again.

It’s the active performance graph of the share repurchase factor within Asian equity indices.

The share repurchase factor is simple: rank all index components in descending order by percentage of outstanding shares repurchased within the last 12 months. This graph outlines the outperformance relative to the index if you went long the top quintile of the repurchase factor (20% of the list) relative to the benchmark.

Whether you look at the HSI, BBG APAC, or Topix, the result couldn’t be more clear: repurchasers outperform.

There are many reasons why this is the case. For starters, buybacks tend to separate real operators from those that are cooking their books; it’s extremely rare for frauds (frequently on HKEX) to have the cash to meaningfully repurchase stock. Additionally, buybacks practically serve as a filter on cash flow, capex intensive, struggling, businesses simply don’t have the capacity to repurchase stock. Finally, and perhaps most importantly, buybacks are indicative of whether a company is truly being run for the benefit of shareholders.

Japan and Hong Kong are rife with subsidiary listings or closely held companies where cash is siphoned to related parties of the insiders, or worse, used for low return M&A so executives can pursue an ill-conceived power trip. The last thing these guys tend to do is return cash to the shareholders, so the presence and execution of a buyback almost always removes these types of companies from a buyback factor strategy.

This isn’t to say that any Asian company with a buyback is unquestionably better than peers, or that a company without a buyback can’t be a winning position for you. Of course, anything is possible.

Still, Asian value investing hinges equally on forecasting earnings and assessing whether profits will actually be returned to shareholders. Who wants to own something at 4x earnings if you’ll never see a dime of the cash? In this context, the presence and execution of a buyback has huge signaling value in Asia. It shows management is serious about capital allocation and is committed to maximizing shareholder value.

The results clearly show that the deck is stacked in favor of repurchasers - if there is one thing you takeaway from this article let it be this: the buyback factor works in Asia.

Given a value screen in Japan or Hong Kong can turn up hundreds if not thousands of results, why not add in a screen for buybacks to help refine your list?

Screening.

It’s important to contextualize Asian buybacks with overall capital returns. Baby steps are fine; if a company pays a 4% dividend and starts repurchasing 2-3% of shares outstanding a year, I’m interested.

I prefer names that execute a repurchase in a slow-and-steady manner. A few Japanese and Hong Kong names like to announce sizeable 5-10% buybacks that lead to an immediate pop, but ultimately these maneuvers lead to an unfavorable repurchase execution and the moves tend to fade quickly.

For example, Itoki 7972 announced it would repurchase 10% of shares in a block transaction in February of 2024. The price spiked 33% within two days (leading to an unfavorable repurchase price), and the stock retraced the entire move over the next twelve months.

Screening for repurchases is simple on Bloomberg. My rule of thumb is to add a repurchase filter within my screen for names that have bought back at least 2% of outstanding shares within the last 12 months.

You can accomplish this on EQS by inputting Shares Outstanding as of the Latest Filing on the first line, is less than or equal to Shares Outstanding 4 Quarters ago x 0.98 on the second line (When you input Shares Outstanding in the second line, give it a few seconds, and then click the dropdown arrow to the right of Latest Filing on the second line, then select customize period).

If you want to filter for companies that have repurchased 3%, replace 0.98 vs 0.97, etc. Of course, you can also change the revelavant time frame by selecting Q-8, etc. Unfortunately, this method will exclude any names that have repurchased shares and also conducted a stock split, but by and large it gets the job done.

It’s pretty easy to screen for share repurchasers on Koyfin as well. Although Koyfin doesn’t allow for custom formulas when screening, there is a simple workaround.

If you are screening for companies in the 500 Million to 1 Billion Market Cap range who have repurchased at least 2% of Shares Outstanding, you just need to do some mental math. Any company that fits this criteria would have spent at least 10 Million on repurchases, so select the Repurchase of Common Stock Field and set the lower bound to -999,999 Million and the upper bound to -10 Million.

If you are looking for names in the 5 Billion to 10 Billion Market Cap range who have repurchased at least 2% of shares, you’ll need to modify the upper bound to -100 Million.

You shouldn’t blindly jump into a company due to the mere presence of a share repurchase program. Nonetheless, if you have two equally compelling setups with similar fundamentals at a similar valuation, why not go for the repurchaser? The repurchase program itself skews the risk-to-reward of the trade since the company is actively supporting the stock price, and furthermore, the data shows that Asian share repurchasers tend to significantly outperform the broader index. Now, let’s get into two names that have caught my eye.

Putting It Together

I’ve been increasing my exposure to Asia. I think the tailwind of passive investment and capital management is beneficial to the indices overall, and I’ve been focusing on names with a global presence that trade at depressed, local valuations.

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1. How to Source and Evaluate Uplistings

2. Putting It Together - A Real Life Trade

Uplistings.

There’s tremendous opportunity in monitoring new NYSE and Nasdaq listings, but not in the way you think. The real edge isn’t in red-hot IPOs at sky-high valuations, but rather “graduates” from the Over-The-Counter Market; forgotten, discarded businesses with rapidly inflecting prospects who regain enough fundamental footing to be admitted to the “big leagues”. If conducted properly, an exchange uplisting can serve as a massive catalyst, drawing Equity Research attention, enabling Index Inclusion, and ultimately opening the floodgates to Institutional Capital.

Some of the most extraordinary winners of 2024 and 2025 have been uplistings as the AI / Electrification Boom resuscitates businesses back to life.

Power Solutions, for example, is up nearly 199% since its uplisting and more than 40x its April 2024 low of $2.00. After fending off near bankruptcy, Power Solutions took advantage of heightened AI demand for power systems and soaring revenues and profits grew shareholder’s equity from just $3 Million at the end of 2023 to $65 Million at the end of 2024. Given its significantly improved financial footing, Power Solutions was able to re-list on Nasdaq in December 2024, nearly 7 years after it was first delisted in April 2017.

The flood of institutional capital has continued. After a brief drop to $20, the stock has since soared to $88; it is now an “AI Darling” and a Russell 2000 component.

Talen Energy (TLN) is a similar story. After emerging from bankruptcy in May of 2023, the stock languished on the Over-The-Counter market despite rapidly improving fundamentals as a reuslt of skyrocketing power pricing. Earnings and Cash Flow surged as the company reduced its share count through a highly unusual tender offer in June 2024 at $116. It was uplisted to the Nasdaq in July, becoming “accessible” to Institutional Investors who were precluded from trading OTC names. It is up 183% since then.

It’s incredibly easy to find uplistings before they occur. All you need to do is the control-F equivalent for “Uplisting” on Edgar - use its full-text search functionality. In fact, I’ve already done the work for you, just click here.

Nearly every company announces its intention to uplist months in advance; I check this link daily to maintain a list of uplistings in progress that I am interested in, as well as those that will soon be effective.

Checking daily might be a pain, but it is a great way to spot opportunities before others.

An uplisting itself isn’t a sure sign of success. You could run through the value trade checklist, but there is an even easier way to filter out the potential winners from the garbage. Ask yourself a very simply question, why is this company uplisting?

If the uplisting is pre-revenue company, in a disreputable industry, or simply a shell game like Bitmine Inversion Technologies becoming a crypto treasury company, it’s an immediate red flag. Stay away from companies who have uplisted for the purpose of raising additional capital by selling fresh shares. Many times a reverse-merger uplisting is simply a way to avoid the regulatory scrutiny of an IPO. While you might be able to win, in general you will serve as someone’s exit liquidity.

Instead, focus on companies that are already profitable, growing, and have a strong or inflecting story. Chances are the uplisting is intended to boost visibility and provide long-term holders with additional value and improved liquidity. Pay special attention to names that are buying back shares into the uplisting, like Talen Energy did, this is a strong signal.

While not all uplistings are success stories, incorporating a simple once-a-week check of Edgar is a great way to source fresh ideas, provided you are a skilled, active, investor. Uplistings are a prime hunting ground to identify and get in on inflecting businesses, before Institutional Investors can.

Here’s one that has caught my eye.

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I wanted to write a brief update on my position in Oppenheimer Holdings (OPY) and run through the "Value Trade" checklist.

Oppenheimer Holdings is a middle-market investment bank and wealth management firm with a focus on Healthcare, Technology, Municipal Bonds, and “Baby Bond” / Preferred Stock offerings. Over the past two years, its consistently profitable Wealth Management Division has been overshadowed by steep losses in the Capital Markets Division due to slowing M&A and deal flow.

After the small cap / SPAC mania of 2021 faded, Oppenheimer’s Capital Markets Division swung from $30 - $90 Million in quarterly pre-tax profits to $15 - $20 Million in quarterly losses as a result of depressed deal activity and an unfavorable small cap backdrop. Oppenheimer immediately began restructuring, largely pausing new hires in the Capital Markets division and merging the Private Client and Asset Management segments into Wealth Management. The efforts are yielding results - losses in the Capital Markets Division have narrowed from a quarterly $15 - $20 Million in 2023 to just $5 - $6 Million in 2024, and I believe they are on track to turn positive once again in 2025.

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1. Welcome to Japan

2. Roses and Thorns - What to Look for and What to Avoid

3. Using Repurchase Reports to Your Advantage

4. 5x Earnings, Half Book, and a Hidden Investment Portfolio

Welcome to Japan

A Value Investor’s paradise or a bottomless pit where money goes to sleep? In all honesty, Japan’s probably a mix of both.

It’s a remarkable place where nearly everything is optimized. The trains run on a 15-second schedule, the streets of Tokyo are lined with vending machines to ensure you never have a thirsty moment, convenience stores are stocked with everything from gourmet meals to fresh shirts and even the bathroom greets you with a cute jingle as you sit down (always fun “making music” on the toilet).

The same goes for companies. Salarymen work withering hours, executives are scantily paid and constantly update guidance, and most investor relations decks look like a 50-slide invasion plan.

The only downside? Most companies are hesitant to pay out profits.

Some experts attribute this to a societal sense of risk aversion, others, as a financial response to the “Lost Decades” from the 1990s to the mid-2010s where the Nikkei imploded from 38,000 points to just 8,000. The aversion to paying out earnings is also compounded by the unusual structure of Japan’s large cap market: most companies own substantial stakes in publicly traded subsidiaries, as well as competitors.

For example, Mitsubishi Shokuhin (7451) is a wholesaler of processed food and beverages and a member of the Mitsubishi Keiretsu Family (a term for large corporations with a network of subsidiaries and cross-shareholdings). Mitsubishi (8058) owns 50.50% of Mitsubishi Shokuhin Co (7451), and Mitsubishi Shokuhin itself owns 37 different stakes in its own suppliers. What a wild web. It’s difficult to focus on shareholder returns when so much time is spent juggling stakes in peers, and it’s also difficult to exercise pricing power when doing business with a parent company that owns a majority stake. (Mitsubishi recently bought out Mitsubishi Shokuhin at a massive premium).

The cobweb of cross shareholdings and abusive parent-subsidiary relationships stymied capital returns and M&A for decades, but the tide has begun to turn.

In 2015 the Japanese Government and the Financial Services Agency passed a regulation that required companies to disclose the rationale behind cross-shareholdings, and encouraged institutional investors to vote no on any cross-shareholding proposals. The government took further action by removing tax shields and simplifying the tax code to make it easier for large corporations to exit equity positions.

The efforts intensified in 2022 when the Tokyo Stock Exchange announced a new “Prime” Listing Segment. The segment imposed strict criteria on corporate governance and required intricate disclosures on plans to “Improve the Price to Book Ratio and Return on Equity”. This implicitly pressured companies to begin winding down cross-shareholdings and to pay out excess cash in the form of dividends or share repurchases in order to remain eligible for the segment.

The efforts were massively successful, and an influx of share repurchases and dividends began what has been a nearly five-year bull run in the Nikkei (if you exclude the two mini-panics).

The Tokyo Stock Exchange took further action in 2024 by initiating a “name and shame” applicable to all market segments. Companies were given the opportunity to file a disclosure called “Action to Implement Management That Is Conscious of Cost of Capital and Stock Price” (perhaps the most Japanese thing I have ever heard), where they could outline specific targets for Return on Equity, Payout Ratio, and their overall framework to boost shareholder returns.

A monthly Excel sheet is published and shows which companies have released the disclosure, and additionally, which companies have responded in English as well. The Excel list is published here.

The central thesis of most of my Japanese Value Trades isn’t to focus on growth, but rather on setups where the value already exists and is simply being returned to shareholders.

The Tokyo Stock Exchange Excel Sheet is a great place to start - if you have two equally compelling fundamental setups where one company has already published its disclosure and the other has not - it should be an easy decision.

Roses and Thorns - What to Look for and What to Avoid

Before we get into what to look for, there are some obvious “value trap” setups to avoid.

The first and most common are controlled subsidiaries of larger Keiretsu. Many of these names lack pricing power as a result of their complicated relationships with their parent companies, and they lack the independence necessary to return profits to shareholders.

While you might get an “acceptable return” over the long run, most of these subsidiaries are textbook value traps that have significantly underperformed peers, their parent companies, and the broader index over the last decade.

Toyota Boshoku (3116), a supplier of automobile products and textiles to Toyota, is a great example. While it may appear optically cheap at 8x earnings and a 4% dividend yield, its parent company Toyota owns nearly 48% of the shares outstanding. Margins have been declining and despite a massive cash pile, shareholder returns are minimal; the company is simply “under the thumb” of Toyota. It’s a difficult spot to be in - do you think Toyota would be happy if Toyota Boshoku raised the price of car seats by even 2%? Of course not. In order to please their corporate overlords, they’ve thrown shareholders under the bus.

Another setup to avoid is companies where the majority of equity is comprised of disproportionately large cross-shareholdings. For example, Kyocera (6971) is trading at ¥ 1627 with Tangible Book Value of ¥ 1950, but almost half of that tangible book value is comprised of its stake in KDDI (9433). You can say “it’s at a discount to book value” to back your thesis up, but unless strategic cross-shareholdings are being wound down, the Tangible Book will never be converted into repurchases or dividends if the position is held for “strategic reasons”. (Interestingly Kyocera sold 20% of its KDDI position last month, the first sale since 2016).

The last, and most obvious trap to avoid are companies with zero outreach or blatantly bad corporate governance, as we discussed earlier. Using a basic screen like:

• < 10x Earnings

• < 1.5x Tangible Book

• Net Cash as % of Tangible Book > 70%

You’ll find no shortage of results, and most of them trade the way they do for a reason.

The most prominent example I came across is RS Technology (3445), which trades at ¥ 2960, 8x earnings, 1.2x Tangible Book Value, and ¥ 2,450 of Net Cash Per Share. It’s undoubtedly cheap. The path to improving shareholder returns is obvious: buybacks, but the company has no interest in reaching out to the shareholders and is instead focused on establishing new subsidiaries in China. Simply put, in names like this where capital is not being returned and Investor Relations makes little effort to discuss shareholder returns, it’s unlikely you will see a positive one.

There are also three factors I pay close attention to in determining if a value trap has the potential to be a turnaround story.

The first and most obvious is when the company guides an increase to its payout ratio (percentage of income returned to shareholder via dividends and buybacks).

In early 2024, Mebuki Financial (7167) was trading at half Tangible Book Value and announced concrete plans to boost its payout ratio to 40%. The message couldn’t be more obvious: they were dissatisfied where they were trading, and would use buybacks and dividends to force the market to realize the value they were building.

The stock has since risen more than 60%.

Another great setup is when a company with large cross-holdings announces a strategic goal to unwind its positions. This immediately vaults a value trap to a value trade.

In 2024, MUFG and Sumitomo Mitsui Financial Group announced their intention to divest their $8.5 Billion stake in Toyota and use the proceeds to fund buybacks. Both stocks are up 40% following the announcement.

These setups are easy and obvious because they aren’t about creating value via future growth, but rather monetizing existing value by converting Tangible Book Value into cold hard cash.

The final thing I look for is a bit niche and highly applicable to small caps. Many Japanese companies offer Yutai - shareholder gifts. The gifts are exclusive to Japanese residents and dependent on levels of share ownership.

For example, if you own 100 shares of McDonald’s Japan you get a free annual meal, if you own 500+ shares of JR Rail you get a discounted train ticket. It’s a cool concept and a very charming aspect of Japanese culture.

Nonetheless, as an American I’d rather be paid a dividend since I can’t use any of the shareholder perks. In recent years, many Japanese companies focused on boosting shareholder value have swapped out Yutai for higher dividends and repurchases, which have driven mouth watering returns.

For example, in 2021 Tanabe Consulting (9644) announced it was eliminating its annual ¥ 3,000 ($20) diary gift and that it would instead:

“provide returns through dividends (based on shares held) and, in the long term, share buybacks are more appropriate”

They also announced a shareholder friendly split, and the share price has since doubled.

While the elimination of shareholder perks is by no means indicative of a promising investment on its own, it demonstrates a company is focused on boosting shareholder value. (Although now that I am writing this, I have to say I think Yutai is a charming aspect of Japanese culture and I hope it doesn’t go away entirely - just on the names I own).

Using Repurchase Reports to Your Advantage

I love repurchases as a form of returning capital, and one of the best things about Japanese corporate governance is that repurchase plans are detailed and timely. When companies want to repurchase shares they will announce an authorization for a period typically up to three months, and include a set target with an upper limit on quantity and notional value. Updates on the program are provided monthly.

These updates are usually posted on their Investor Relations page. Use them to your advantage.

For example, one of my favorite Japanese banks, Mebuki Financial (7167) published in its April Repurchase Update (May 2) that it went “balls to the wall” repurchasing 23.5 Million shares during “Liberation Day” at ¥ 526 Yen and that it continued repurchasing shares even at a much steeper ¥ 673 Yen.

It doesn’t take a genius to realize this means they have a significant appetite for their stock between ¥ 526 and ¥ 673.

By reading repurchase reports, you can structure a beneficial risk-to-reward trade setup by adding to your position at the same levels a company has an “appetite” for their stock. This provides significant downside protection as share repurchases are likely to intensify at lower levels, providing a favorable short-term setup.

In case you are curious, the stock has since risen to ¥ 780 in June.

5x Earnings, Half Book, and a Hidden Investment Portfolio

It sounds too good to be true, doesn’t it?

The name I am about to discuss is incredibly small and surprisingly liquid. Most investors haven’t realized that the company “gem” is not the core operating business, but rather the massive Securities Portfolio the CEO has built.

Say what you will about Microstrategy, but the fact it trades at a Premium to Book Value is a tremendous asset since it can issue new shares at a Premium and increase overall Book Value per Share for existing shareholders.

In a similar vein, the fact that this company trades at just half of its book value provides a tremendous opportunity for the company to continually grow Tangible Book Value per share by conducting massive share repurchases at a discount.

Now, let’s get into it.

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1. Understanding Context

2. A “Value Trap” Checklist

3. Putting It Together - A Real Life Trade

Context.

Context is one of the most important factors an investor needs to understand. It’s the reason why a value-driven framework can deliver outstanding results for certain stocks while having absolutely no bearing on others.

Context is more than just being aware of current events, peers, and pertinent financials; it’s about knowing the tendencies, positioning, and thesis held by a “crowd” that trades a stock. Take Tesla’s 15% drop on June 5th as an example. Was the brief Twitter war between Trump and Elon worth an immediate $152 Billion plunge in market cap (roughly 20 times Tesla’s 2024 Net Income)? Probably not if you were applying a value-driven framework to the news, but you have to understand context: Elon’s proximity to Trump was the driving factor behind the November to May rally, so to the Tesla bulls the 15 minute Twitter war was devastating news.

Understanding context can help you structure asymmetric trades. My "Welcome, Mr. Mayor" basket was engineered to pay off if Mamdani won, knowing that there are few, if any, regional banks bulls. If Cuomo won, do you think the average institutional trader would’ve been excited to purchase Regional Banks with NYC Rent Stabilized Exposure? Of course not, no one likes these banks anyways, and for good reason - they’re largely losers. On the other hand, if Mamdani won, would institutional traders + the average Joe who happened to ChatGpt “Give me a list of 5 Banks with high NYC Rent Stabilized Lending Exposure” at 9:25 make a beeline to dump Flagstar Bank at the open? Of course they would, which is exactly what ended up happening (I've since covered).

My point is, before applying a fundamentals-based framework to a position or a long short pair, apprise yourself of current news, price action, and ask yourself “what does the crowd who trades this stock really care about?” If what they care about is unrelated to your fundamental analysis, you’re essentially just playing craps with a position.

Context is also about understanding yourself, your strengths and weaknesses. As a Retail Investor you’re at an informational disadvantage to Institutional Investors. Anyone with a Bloomberg Terminal gets the news a minute before you do, those with a large broker network might learn of large buyers or sellers and adjust their trading accordingly, and participants in a bank sponsored “1-on-1” meeting might pick up on some pertinent information from management.

Does this mean investing is hopeless? Of course not.

Retail Investors have a tremendous edge that trumps the informational disadvantage: execution. Payment for Order Flow Brokerages like Fidelity, Schwab, and Etrade route their flow to Market Makers such as Citadel, Jane Street, and G1 Execution Services, who are happy to take the opposite end of your trades since in general, they are trading against noise traders. What this means is retail order flow rarely hits the exchange and thus doesn’t impact the price (move the bid or ask).

While the usual losers love to blame Citadel or Virtu for their losses, they fail to realize the markets are actually rigged in your favor provided you have a diligent, fundamentals-based approach. If you have conviction (and enough cash), you can “pick your spots” and get in and out of small caps at astoundingly attractive prices, something Institutional Investors simply cannot do - which is why many of them don’t pay attention to small caps - it simply isn’t worth their time.

It’s still the Wild West in much of small cap land. A massive chunk of $100 M - $1 B names lack substantial equity research coverage and there is still near “free” money to be made by diligently reading news articles or calculating EPS based off a simple earnings pre-release (Kingstone). You’d assume opportunities like this wouldn’t exist in 2025, but they do, and occur on a near weekly basis.

While a small market cap is by no means indicative of a promising investment, I think you’re significantly more likely to find a gem where no one is looking. But with so many small caps optically cheap at first glance, it’s vital to be able to distinguish potential winners from perennial value traps. Here is my simple four rule framework on how to separate the value trades from the value traps.

The Approach.

It doesn’t take a genius to set a screener for names under 10x earnings or half of tangible book. It’s one thing to be purchasing cheap because it’s cheap, it’s another to be purchasing “a turnaround story at a deep value multiple”.

See what I did there? Even saying it sounds better than “I bought it because it’s cheap”, and that’s because the best investments have a clear, convincing story behind them.

There are four factors I pay attention to when reviewing screening results and separating winners from total value traps:

1. Quality of the Business and Consistency of Earnings

2. Insider Alignment and Management Expertise

3. Capital Allocation

4. Reading the Tea Leaves

“Quality of the Business and Consistency of Earnings”

A struggling natural gas driller that plows all of its earnings into capex, or a Korean videogame studio with wildly variable earnings and no IR page will never be thought of as a “winner”.

Typical winners have growing, predictable earnings, stable margins, and are anchored in a respectable line of business. Avoid decaying sectors or “reputationally-troubled” groups (Greek shippers). Even if you find a name in a questionable industry that is well-run, it’s extremely unlikely the market will ever assign it a premium valuation. Understand that businesses that carry huge regulatory risk or wildly variable earnings (ZIM) will consistently trade at a discount to the market.

Pay special attention to industry outperformers. If your first thought is “growth”, think again. Industry outperformance can be something as little as managing downside risk better than peers (IGIC), or developing in-house technology that attracts zero-cost deposits (CUBI). The highest-valued names across industries always tend to have a moat or competitive advantage that sells the valuation, and you take note of an Investor Relations team that makes this competitive advantage a central tenet of their presentations.

Similar to dating, investors want to feel special - that they lucked out. Cheap will always be cheap, but a dynamic story like telehealth with exclusive partnerships (LFMD) or a regional insurer that has no competition after its two peers imploded (KINS) will always garner more attention from Institutional Investors, as they want a “Set and Forget” name that can continue to outperform.

“Insider Alignment and Management Expertise”

I can’t stress this enough, if the company you are looking at has an unaligned, overcompensated, incompetent CEO, it simply isn’t worth the stress of owning it. Remove it from your list immediately.

One of the first things I do when evaluating a company is I download the DEF 14A Filing (Proxy), and Control-F for “Summary Compensation Table” and “Beneficial Ownership of Management” to calculate an “Alignment Score”.

A healthy alignment score is > 5.

Take AMC Networks, for example. The insiders own a combined 7 Million Class A shares (currently worth $45 Million) and took $25 Million in compensation in 2024 and $30 Million in 2023. The alignment score for both years was barely above 1.5x.

With a market cap of just $280 Million, and the stock down roughly 72% in the last 5 years, it couldn’t be more clear the insiders are still living the high life while investors are getting flushed down the drain.

Management expertise isn’t just restricted to results or compensation, management expertise is also how leadership articulates themselves on earnings calls and in public. Pay special attention to CEOs / CFOs who make a compelling case for their own stock, and be weary of executives who doesn’t seem to grasp basic capital allocation principles.

For example, take the InMode CEO’s conduct on the Q3 2023 earnings call.

The fact that his capital allocation view at the time was that a buyback “is something that will have a few days and the market will forget that” because a peer with a buyback went down, did not inspire investor confidence in the name (the company is down a further 35% since the call).

While wealth is not an antidote to stupidity, the best way to ensure alignment is ownership. Executives should be reasonably compensated relative to the overall market cap of the company (never more than 5%, ideally less than 2.5%), and should have a stake several multiples of their salary.

If they don’t believe in the company, why should you?

“Capital Allocation”

Capital Allocation is what distinguishes value investments from value traps. Companies throw around terminology like Tangible Book Value and Price to Book all the time. But more important than a purported discount to book is whether the book value is realizable, and can be returned to shareholders.

What I mean by realizable is can the tangible book value be trusted and converted into cash? If a company continually impairs book value or the tangible book value is comprised of heavy industrial equipment and plants that likely can’t be sold absent a massive discount, proclaiming the company “trades at a fraction of book” is a very unconvincing argument.

Take Gravity (GRVY) for example. It trades at 1x Tangible Book (almost entire market cap in cash), 10x Earnings, and is in a reasonably attractive sector (Video Games). Yet over the past 5 years the annualized return has been just 1.5%? Why?

Horrendous capital allocation.

The company seems to have zero interest in repurchasing shares or paying a dividend, and investors who had hoped for one have been taken for a wild ride. Ultimately, poor capital allocation has defined it as a “loser” and despite the very reasonable valuation it simply won’t trade in line with the market until investors are confident that capital will be returned to them.

Compare and contrast that to IGIC, who repurchased millions of shares around book value while also paying special dividends along the way. In 2022 and even 2023, it traded at a discount to book, and it now trades at a reasonable premium as the share repurchase program and special dividends have instilled investor confidence that excess profits will ultimately be returned.

The rules to evaluating capital allocation are simple:

• If a company has a strong balance sheet and is trading below book with ample cash flow / earnings, they should be repurchasing stock at a discount to book

• A company should not be squatting on cash

• If a company’s earnings are being plowed into capex just to remain “competitive”, you should assign a discount to the company relative to competitors with lower capex burdens

Steer clear of companies that tout a “significant discount to book” or a “compelling investment opportunity” while doing nothing to address the discount, they are either fools, or taking you for a ride.

“Reading the Tea Leaves” (Putting it All Together)

The three factors above are important, but you don’t want to miss the forest for the trees. Pay attention to buyback announcements, dividend hikes, even innocuous comments like a CEO refusing to engage in M&A because he’d rather repurchase his own stock (Pathward Financial), or a value fund with a history of success that continues to file Form 4’s as they purchase more stock - tiny updates and news should play a role in your analysis.

Another question you should always ask yourself is “what am I missing” / “why does it trade where it is?” Know that complexity is not rewarded, and if your thesis hinges on value being realized suddenly years or decades into the future, perhaps it makes sense to size your trade smaller until what you anticipate is finally beginning to happen.

Of the first three rules I mentioned, the only immediately disqualifying factor is poor management. Flexibility is important, it’s rare to find companies in a great line of business with skilled management and excellent capital allocation at a reasonable valuation - chances are these names are already trading at sky high multiples. Instead, pay attention to progress. If a Japanese name at 0.6x book pays a 3% dividend and announces a new repurchase program for 1-2% shares outstanding - that’s good enough. Progress doesn’t always come all at once, and patience in value trades is rewarded.

Putting It All Together - A Real Life Trade

I like Georgia Capital (CGEO:LSE). Georgia Capital is an investment holding company, with a 19% stake in the Georgia’s seond largest bank, Lion Finance Group, and a diverse portfolio of private Property and Casualty Insurers, Pharmacies, Hospitals, Renewable Energy Plants, and Utilities. (Original Write-Up on it at 1300, and I still like it at 1800).

CGEO perfectly fits the mold of a turnaround name at a deep value multiple, trading at just 7x 2024 EPS and 0.6x Tangible Book Value. The earnings are strong and the Capital Allocation is especially impressive. The reason I like it now, even 40% higher than my original pitch price, is because the company just liquidated its stake in a water utility for $70 Million USD and essentially tells you in the pres release that the proceeds will be used to narrow the valuation discount by repurchasing additional shares.

Here’s a quick walk through of how the trade meets my “value trade” criteria.

“Quality of the Business and Consistency of Earnings”

After a rough start from its spinoff from Bank of Georgia in 2018 (now known as Lion Finance Group), Georgia Capital has steadily grown its Net Asset Value per share.

The businesses continues to perform well, and its sizeable shareholding in Lion Finance Group has roared to a record high (up 28% since Q1) and now comprises nearly half of Net Asset Value. This is especially impressive, as the portfolio can be easily marked-to-market and thus we have the rare ability to estimate NAV on a daily basis.

Georgia Capital’s private portfolio continues to report near record EBITDA and Cash Flow, and last Friday the company announced it is divesting its stake in a Water Utility at book value, which is a positive as it converts more of the balance sheet into cold, hard cash. The diversified nature of its holdings (banking, healthcare, insurance, energy) and its outsized investment returns and close history with the second largest bank in Georgia lend credence to the argument that it has access to plentiful investment opportunities within the country, and that it can continue to grow.

“Insider Alignment and Management Expertise”

The Insiders currently own 5.8 Million shares ($150 Million USD), roughly 16% of the company.

Annual Executive compensation is around $4 Million USD, which results in an alignment score of 35x, certainly qualifying as “well aligned”. The CEO, Irakuli Gilauri, takes no cash salary and his variable equity compensation is almost entirely tied to the performance of the stock.

The company has a robust capital allocation plan in place. NAV per share has doubled since the end of 2022, and the stock is up an impressive 315% over the last 5 years (33% annualized). It certainly seems as though the Management Team is pulling the right levers at the right time. The company is shareholder friendly with well written letters, detailed presentations, and open conference calls. This is what I like to see.

“Capital Allocation”

Georgia Capital’s Capital Allocation is what I am most impressed with. After trading at a significant discount to Net Asset Value in 2021, CGEO began using a portion of its portfolio dividends to repurchase stock. Since then, the pace of share repurchases has accelerated significantly, with the company utilizing its cash balances to repurchase 3% of shares outstanding in 2022, 5% in 2023, 7% in 2024, and based on recent filings, more than 4% in the first two quarters of 2025 alone. Currently just 3% of the balance sheet is cash, down from 20% in 2022).

It’s especially interesting to note that the company significantly stepped up the pace of repurchases during the “Liberation Day” mayhem of early April in the 1300-1500 range, and also stepped in heavily on June 19th to repurchase shares at 1800 (when the stock was down 5%). It couldn’t be more clear the company is saying “we like our stock where it is currently trading”.

“Reading the Tea Leaves”

On Friday, the company announced it is exercising its put option to sell the water utility stake back to the majority owner for $70.4 Million, a tiny premium to what it was held on the balance sheet at. This is nearly 6% of net asset value being converted into cold hard cash, and lends credence to the argument that the company is laser focused on doing what’s right for shareholders, rather than throwing in good money after bad. Pay attention to the last line:

“The cash proceeds… are earmarked for its planned 360-degree capital management framework”

The company is clearly telling you that the funds will be used to finance further buybacks and narrow the discount to NAV.

Based on back-of-the-envelope math, the company is likely to report Net Asset Value per Share of 34.00 GBP in Q2, which represents 78% upside to where the stock was trading at on Friday.

CGEO pretty clearly meets my Business Quality, Management Quality, Capital Allocation, and “Tea Leaves” Criteria, now, we need to ask ourselves what are we missing?

Georgia is an emerging market with close proximity to Russia. Geopolitical risk and economic instability pose a sizeable left-tail threat to an investment. You don’t want to wake up one day and find out your investment is worth zero. Because of this, Institutional Ownership will likely remain muted. For Institutional Investors, it’s way easier to explain losing money on Apple than getting zeroed on a Georgian investment conglomerate.

On the other hand, with that kind of logic, a good chunk of world equities are uninvestable; Taiwan Semiconductor, Middle East Equities, etc. There is a price for everything.

At just 0.6x Tangible Book (really 0.55x after adjusting for the increase in BGEO), an excellent management team, robust capital allocation that not only stabilizes the stock at the current price by repurchasing 30% of the daily volume, but is also likely to be reinforced by $70 Million USD after the sale of the water utility later this summer, I think you can make a very strong argument that CGEO is compelling at the current price.

What’s a fair price?

There should also be some discount to tangible book for emerging market investment holding companies, so if you settle on 25% we get to around 2,475, and at 33%, 2,200. Both “targets” are significantly above the current price, which is why I have been adding here.

Even assuming a lower Q2 Net Asset Value of 3,300, the upside to tangible book is favorable at 1900 (74%), and even more so if the price returns to 1700 - 1800.

Given the geopolitical risks present, I initially sized CGEO at a small weight, and have carefully added to my position in the 1775 - 1825 range to bring it into the 0.5% - 1% range. I still have some Market-If-Touched orders in the low 1800s; the company has been repurchasing heavily in that range which I think that favorably skews the risk-to-reward.

You never want to enter a new position too quickly. If this is a name you are interested in, it makes sense to add a starter position and leave yourself additional flexibility to add at much more favorable risk-to-reward levels (1700 - 1800), should the opportunity arise. On the other hand, if the price flies away to 2,200, it’s still a win. Given the left tail risk present with anything with geopolitical exposure risk, you never want to size too heavily on a name, but even a small 0.5% position can add “torque” to your portfolio given the extremely attractive valuation Georgia Capital is trading at.

Be mindful that the lower the price remains, the more favorable share repurchases are. Every share repurchased at 1900 generates about $19.18 USD of additional Tangible Book Value for the remaining shareholders (14 GBP x 1.37 GBPUSD), and so the best case scenario for long term value creation is for the company to continue repurchasing 10,000 - 30,000 shares a day in the present 1900 - 2000 range. You should note that a 0.5% “Stamp Tax” is levied on all LSE Equity Trades, so this is not a candidate for a quick trade, but a long term hold (unless you have access to tax exempt CFDs).

Hopefully, you’ve enjoyed this piece and gotten insight into my basic framework to discern value trades from value traps. I am planning on getting out a detailed piece on the Japanese equities I’ve been adding to recently, and sharing some fresh ideas shortly.

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