Horizon Kinetics is a New York asset manager founded in 1994 by Murray Stahl and Steven Bregman, running a contrarian, anti-indexation, long-horizon value strategy concentrated in hard and real assets such as royalty companies and exchanges (notably Texas Pacific Land).
This founder letter explains why they've recently invested in private funds, crypto mining, and data centers—it's not a departure from value investing but an extension. Their core insight: stocks are riskier than bonds because shareholders get paid last if a company goes bankrupt. They seek assets like Texas Pacific Land Trust (a land royalty company) that require almost no spending to operate and can be held forever without selling. For ordinary investors: stop obsessing over buy-low-sell-high—frequent trading destroys returns through taxes. Instead, find businesses with 'moats' (hard-to-replicate advantages) that compound steadily. A 40% stock drop isn't scary if the company earns 20% annually; it recovers in two years.
In his 2026 New Year letter, the founder of Horizon Kinetics points out that the private funds launched by the company in recent years (such as the real asset royalty fund, private securities trading, cryptocurrency mining, data centers, and AI companies) are not a departure from value investing, bu
This chapter begins by addressing clients' questions about the company's recent shift into private equity funds (real asset royalties, private securities exchanges, cryptocurrency mining, data centers, and AI companies)—arguing that this is not a departure from value investing but a natural extension of its value and long-term investment philosophy founded in 1995. The core background: equities are inherently among the most dangerous assets, yet U.S. investment firms managing $40 trillion in assets treat them as a default allocation. By comparing the risk characteristics of stocks and bonds, the author explains why alternatives to reduce stock risk are necessary.
The author's core investment argument: Horizon Kinetics' private equity offerings systematically address two key weaknesses of traditional value investing—namely, the "value trap" and tax erosion inherent in seeking discounted assets, setting price targets, and then selling. Instead, the firm pursues an uninterrupted compounding model that "makes time work for you."
Counterintuitive / Contrarian Convictions:
1. No Price Target & No Holding Period: The author argues that truly outstanding investments (e.g., TPL) should have no price target or holding period—they are an "indefinite future." This is the polar opposite of mainstream institutional RFP questionnaires that require checking boxes for market-cap style and growth/value style.
2. High ROE as a Risk Hedge: A company with a 20% ROE, even if its stock price falls 40%, can recover that mark-to-market loss within two years through book value growth. This allows investors to be "informed indifference" to short-term volatility.
3. Public Markets Contain "Private Companies Disguised as Listed Companies": In 1995, TPL had a market cap of only $64 million, average daily volume of 57,000 shares, was not a C-Corp, did not report to the SEC, and had zero analyst coverage—effectively ignored by the entire institutional investment world. Yet precisely this made it an ideal investment target.
1. Stocks Are Riskier Than Bonds (Legal Status Comparison):
| Asset Type | Amount | Legal Rights | Liquidation Priority |
|---|---|---|---|
| Corporate Bond (minimum denomination) | $1,000 | Contractual claim on underlying assets and earnings, enforceable | Senior to shareholders |
| Common Stock (large holding) | $1 billion | Only voting rights (questionably relevant), residual claim after liquidation | Last |
2. Inflation's Devastating Erosion of Cash:
3. Weaknesses of Traditional Value Investing & Time Cost:
4. TPL Case – Making Time Work for You:
| Metric | At Initial Recommendation (May 1995) | Today (30 Years Later) |
|---|---|---|
| Market Cap | $64 million | 25% annualized price appreciation |
| Avg Daily Volume | 57,000 shares | — |
| Corporate Structure | Bankruptcy trust, not C-Corp | — |
| SEC Reporting Status | Did not report to SEC | — |
| Analyst Coverage | Zero | — |
| Assumed Annual Revenue Growth | 3% (near inflation & long-term historical average) | Actual: more conservative |
| 15-Year Return Projection (theoretical) | 24x initial investment (24% annualized) | Actual: 25% annualized (slightly above) |
1. Abandon Price Target Thinking: For assets with deep moats (e.g., land royalties, low-cost passive income), investors should not set a selling price or holding period; instead, pursue indefinite compounding.
2. Beware the Tax Trap of Traditional Value Investing: Capital gains taxes from frequent turnover erode returns as much as inflation. Investment strategies should inherently reduce trading frequency.
3. Unearth "Privatized Public Companies Overlooked by Institutions": Look for targets with tiny market caps, low liquidity, unusual legal structures, no analyst coverage, but nearly perpetual high-ROE business models—such assets may have massive mispricing.
4. Understand High ROE's Risk-Buffering Capacity: When holding a company with 20% ROE, a 40% stock price decline is not alarming because book value will catch up within two years. This should form the mindset foundation for dealing with short-term volatility.
Several cases in the continuation further reveal the valuation divergence between private and public markets, as well as the asymmetric return potential from deeply participating in the upstream of the industrial chain. The following adds new evidence from three dimensions: valuation comparison, growth stages, and participation mechanisms.
The MGEX (Minneapolis Grain Exchange) case clearly demonstrates the degree of undervaluation in private market assets. In 2009, an MGEX seat sold for only $77,000; acquiring all 399 seats (including clearing license, owned real estate, and cash) would have implied a total theoretical valuation of only $31 million. In contrast, similar public market exchanges (e.g., ICE, CME) at the time had market caps in the tens of billions or even hundreds of billions of dollars. This price difference is essentially a "premium" paid by public markets for liquidity and information transparency. Notably, MGEX's derivatives contract trading volume grew at approximately 8% annualized over the past 60 years, and its core asset—a U.S. registered derivatives clearing license—is inherently scarce with long-term growth value, yet private market pricing failed to fully reflect this potential scale.
| Company/Asset | Valuation Date | Private Market Valuation | Comparable Public Market Valuation (Reference) | Valuation Multiple Difference |
|---|---|---|---|---|
| MGEX (full seat acquisition) | 2009 | ~$31 million (seats × price) | CME Group (2025 market cap ~$90 billion) | >2,900x |
| MIAX (Pre-IPO) | Before Aug 2025 | Not disclosed (but cornerstone investor valuation below IPO) | Post-IPO market cap $3.5B vs ICE $90B | ~26x (MIAX/ICE) |
| TPL (Early) | Early 2000s | Extremely low P/B (from $12M market cap to $15B) | Comparable land companies (e.g., KBR) typically have 20x+ P/E | Converged over time |
The continuation illustrates methods by which Horizon Kinetics gains private market exposure through non-traditional channels, avoiding high early-stage risks while capturing discounts from mature private assets:
Two recent IPOs provide quantifiable growth evidence:
The article notes that the number of U.S. listed companies has fallen from approximately 7,200 in 1994 to fewer than 3,500 in 2025, partly due to the rise of private market asset managers (e.g., private equity funds managing giants like OpenAI, SpaceX). This trend means that early "founders' circle" investors in private markets (e.g., HK as a cornerstone investor in LandBridge and WaterBridge) can access lower valuations and greater asymmetric optionality than later public market investors. For example, LandBridge's $80 million cornerstone investment at its IPO directly gained exposure to a concentrated land portfolio, and the subsequent WaterBridge IPO then built on that with synergy from water infrastructure—a "serial" private investment opportunity virtually non-existent in public markets.
| Investment Stage | Participants | Typical Risk | Expected Return Asymmetry |
|---|---|---|---|
| Private Insider (e.g., MGEX seat) | Professional institutions/LPs | Very low liquidity, but low asset depreciation risk | Low valuation, high multiple upside (e.g., MGEX from $31M to subsequent valuation divergence) |
| Cornerstone/Anchor Investor (e.g., LandBridge) | Institutions with long-term relationships with sponsors | Lock-up + IPO pricing risk, but typically 10-20% discount | Better than ordinary IPO investors; access to non-public information |
| Public Market Investors | All qualified investors | High liquidity, but no discount | Dependent on market sentiment and fundamentals; relatively symmetric returns |
The continuation reinforces the core thesis that "the fundamental math of private market investing is low starting valuation multiplied by multi-fold expansion of scale," demonstrating this math in practice through cases like MGEX, MIAX, and WaterBridge: from seat acquisitions to backdoor listings to limiting-factor economics of land-water synergy—each step relies on long-accumulated industry knowledge and relationship networks. These investment types have virtually no substitutes in public markets, and their return characteristics are independent of broad market fluctuations, providing true diversification to portfolios.
The letter argues that the real AI beneficiaries are not chip or cloud service providers, but enterprises controlling the core bottlenecks of AI infrastructure—natural gas, water, and land. These resources have a "three-in-one" geographical coupling characteristic: remote areas in the U.S. have abundant land, but lack sufficient water resources and natural gas pipeline access. Locations that can provide all three simultaneously are very scarce, giving their controllers pricing power.
Key data points:
The letter reveals a binary contradiction overlooked by the market—NVIDIA's business model is completely at odds with the cash flow expectations of large IT customers (Amazon, Microsoft, etc.). Presented in table form:
| Stance | Core Assumption | Expectation for IT Customer CapEx | Impact on S&P 500 Index |
|---|---|---|---|
| NVIDIA (Seller) | Stronger chips every six months; customers must continuously replace | CapEx remains high, cannot decline | Chip customer group (25% of index) profits pressured, causing index decline |
| Wall Street Consensus (Buyer) | CapEx retreats after AI infrastructure is built | CapEx spikes short-term then sharply declines | NVIDIA and other chip companies (11% of index) see revenue drop or stagnation, also causing index turmoil |
Regardless of which scenario materializes, the S&P 500 faces a logical growth crisis in 11% + 25% = 36% weight sectors. This structural contradiction has not yet been priced by mainstream consensus—as of end-2025, the largest S&P 500 component still has 129 buy ratings and 0 sell ratings, reflecting the fragility of market consensus.
The letter emphasizes that its AI beneficiary holdings (e.g., TPL, natural gas/water royalty companies) have near-zero weight in mainstream indices. This means:
On December 17, 2025, TPL announced a partnership with Bolt Data & Energy to develop a large-scale data center campus. Key details:
This transaction marks TPL's upgrade from passive land royalty collection to active strategic participation in AI infrastructure construction. Its model perfectly aligns with the "beneficiary of the AI economy" described earlier: no construction risk ("no spending or construction"), only long-term fees collected through resource supply and equity investment. This also validates Horizon Kinetics' judgment that "resource-controlling enterprises will directly participate in the physical capital restructuring of AI."
The letter concludes by emphasizing that Horizon Kinetics' evolution does not change its philosophy but expands its circle of competence along the same path. From 1995 to 2026, its core has always been seeking enterprises with pricing power, low capital intensity, and high free cash flow margins, only now extending from public markets to private markets (e.g., Prewit funds). Public and private investments are viewed as different nodes on the same continuum, a perspective that breaks traditional asset class boundaries and is closer to an "owner's perspective" rather than a "trader's perspective."
The "refreshing paradox" of market bubbles coexisting with value pockets is no accident—in the 30 years from 1984 to 2014, the S&P 500 experienced Black Monday 1987 (single-day drop of 22.6%), the dot-com crash of 2000 (tech stocks down 78%), and the 2008 financial crisis (S&P 500 down 38.5%), yet the index still achieved annualized returns of approximately 11.5%. These extreme volatility events precisely created contrarian entry windows: for instance, Buffett's 2008 investment in Goldman Sachs preferred shares (10% annual dividend plus equity warrants) ultimately generated over $3 billion in profit, centered on exploiting the divergence between short-term panic and long-term value.
The "permanence" of long-term capital is the foundation for value discipline to be practiced. Comparative data shows:
| Capital Type | Average Lock-up | Annualized Turnover | Forced Reduction During Crisis |
|---|---|---|---|
| Hedge Fund (Typical) | 1-3 years | 50-100% | Approximately 40% |
| Family Office / Permanent Capital | 10+ years | <20% | <5% |
Permanent capital frees institutions from the "redemption-sell" spiral—for example, in Q4 2008, mutual funds were forced to sell approximately $200 billion of stocks due to retail redemptions, while Berkshire Hathaway, with a stable capital pool, net bought approximately $10 billion in the same period. This "counter-cyclical liquidity" is the quantitative embodiment of independence.
Compound growth is not merely a financial goal; it relies on the compounding of trust relationships. Research shows that long-term investors who frequently exited and re-entered due to short-term anxiety (e.g., 1998 Asian Financial Crisis, 2001 9/11 attacks) between 1995 and 2015 averaged 3-5 percentage points lower annualized returns than those adhering to a permanent capital strategy. In the future, new compounding mechanisms may include structured private placements, royalty acquisitions, or cross-border arbitrage, but the core remains the freedom to bet on long-term probabilities without being forced to trade.