Patient Capital Management is a Baltimore asset manager founded in 2020 by Samantha McLemore, CFA — Bill Miller's long-time co-manager (working together since 2002, running the flagship Opportunity Equity strategy since 2014). Continuing the Miller-school contrarian tradition, it practices "time arbitrage": exploiting behavioral mispricing to concentrate in controversial growth names (tech, healthcare, Bitcoin-related) at deep discounts to intrinsic value. Its site preserves Bill Miller's complete 1995-2022 market letters, alongside ongoing quarterly letters and webinars.
This is a fund manager's quarterly letter. He thinks the market is in the late stage of a bull run: it can still go up, but 'buy the dip' has become groupthink and speculation is hot, so he is cautiously optimistic. He highlights three stocks: RPRX rose 46.5% in the first half, his strongest healthcare holding; QXO, down 50% from its high, was topped up because he expects roughly 30% annual growth; and Global Payments is a new position after the stock fell to multi-year lows, as he believes the business is better than the market thinks.
The author believes the market is in the late stage of a bull market, with a stance of "cautiously optimistic": the path of least resistance is still upward, but "the best returns appear in the final stage of a bull market"; meanwhile, warning that "buying the dip" has become consensus, speculative indicators are heating up across the board, and AI cost pressures are emerging, requiring reliance on high volatility in individual stocks to capture expectation gaps.
Net return was 17.3% for the quarter, beating the S&P 500's 15.2% by about 2.1 percentage points; first-half net return was 10.4%, flat with the benchmark on a net basis (gross return of 11.0% outperformed by 0.6 percentage points).
Performance comparison: In his review, the author said the market erased its first-quarter decline, semiconductors surged on AI-driven shortages, the S&P 500 rose 15.2% in the quarter, and the strategy returned 17.3% net. First-half strategy net return was 10.4%; the author said it "outperformed the benchmark," but in the table the net basis is the same 10.4% as the S&P 500, and the outperformance appears only on a gross basis (11.0%). Also note: on a five-year horizon, the strategy's net return was 5.0%, far behind the index's 13.4%, which the original text did not explain.
| Period | Strategy (Gross) | Strategy (Net) | S&P 500 | S&P 500 Value |
|---|---|---|---|---|
| This quarter | 17.6% | 17.3% | 15.2% | 8.0% |
| Year to date | 11.0% | 10.4% | 10.4% | 8.0% |
| 1 year | 35.9% | 34.5% | 22.3% | 18.4% |
| 3 years | 27.0% | 25.7% | 20.6% | 14.4% |
| 5 years | 6.0% | 5.0% | 13.4% | 11.3% |
| 10 years | 16.2% | 15.0% | 15.5% | 11.9% |
| Since inception (1999/12/30) | 9.8% | 8.7% | 8.3% | 7.4% |
Tech stocks contributed 82% of the market's first-half gain, while the strategy's tech exposure was limited, and its only holding, Nvidia (NVDA $202.78), also lagged the market—the author admitted this was "a bad judgment."
In the first half, the Philadelphia Semiconductor Index surged 101.7%. The author judged that without exposure to beneficiaries of AI spending, it would be difficult to outperform. The strategy's only tech holding, Nvidia (NVDA, $202.78), rose less than the market and was a net drag on the portfolio. Technology overall accounted for 82% of the market's first-half gain, while the strategy's tech exposure was modest. The author admitted that underweighting technology—the market's main driver—for over a decade had been a bad judgment, yet he still managed to outperform. This sets up the healthcare contribution discussed later.
Healthcare positions were the main performance driver: six of the seven companies rose more than 20% in the first half, contributing a combined 935 basis points, with RPRX up 46.5% leading the group and TEM down 1.9% the only decliner.
The author noted that the sector as a whole underperformed the market in the first half, but the individual holdings in the portfolio significantly outperformed the sector. Returns by position:
The author regards this positioning as a typical example of his process: a few years ago, healthcare valuations hit 50-year relative lows. He built positions during weakness when the market was not reflecting long-term fundamentals, and it took the market a long time to validate his view—"patience paid off" (a self-narrative by the position holder). The author judges that high single-stock volatility, combined with the market's short-termism about next-quarter/half-year results, continues to create significant opportunities for contrarian, patient investors.
The author judges the market is in the late stage of a bull market: although the path of least resistance remains upward, "some of the best returns occur during the latest stages of a bull market"—he believes this is exactly that stage, with a stance of [cautiously optimistic], clearly at odds with the consensus of "buying the dip."
The author's exact words were: "Market prospects are best when moods are sour, though some of the best returns occur during the latest stages of a bull market." Meaning: "When sentiment is depressed, market prospects are best, yet some of the best returns appear precisely in the final stage of a bull market." He immediately said the market is currently in that stage.
At a macro conference in June, a moderator from a major bank mentioned during a hedging discussion that his hedge fund clients had been unable to profit from their hedges during the March selloff because the market rebounded before they could cash in. The attendees concluded that "the best hedge is being ready to buy the dip." The audience nodded in agreement, and at lunch someone listed that phrase as the biggest takeaway. The author considers this a typical product of bull-market optimism and expressed unease to his partner, Bill Miller; Miller reminded him that few people actually practice the principles they preach.
Background: after 17 years of 15% annualized returns for the S&P 500, complacency is unsurprising—buying the dip has been rewarded for decades, and investors now see opportunity. The author uses 2010 as a contrast: after hedge funds had significantly underperformed, Parker Global Strategies CIO Virginia Parker's public view was that "hedge fund managers are much more conservative than at the start of 2008, and super-opportunities like the subprime ones of 2007-08 no longer exist." Today the market is nearly six times higher and valuations are 55% higher, yet investors instead see abundant opportunity. The author points out the irony: the best opportunities are born of low prices and depressed sentiment, but people's perception of opportunity always tracks the returns of the recent past.
Speculative indicators are heating up across the board: SpaceX (SPCX $152.16) completed the largest IPO in history, raising $86B, more than twice the previous record (Saudi Aramco); retail buying that day set a single-day record, margin debt is at record highs, leveraged ETFs have surged, and first-half M&A also set records.
SpaceX (not specified; mentioned only as a market event) set a new IPO record with $86B raised, surpassing the record held by Saudi Aramco. The author also mentioned that a 1999 Ameritrade ad drew laughter when shown at a Harvard behavioral finance seminar, and he believes the current retail-trading environment echoes the late 1990s. But the author explicitly said this does not mean the bull market is destined to end: the degree of froth is still below the peak of the "innovation disruption" bubble in Q2 2021, and far below the late 1990s.
The author uses three sets of comparisons to argue "there is a bubble, but it is not extreme": 2021 was more extreme, the late 1990s were more extreme, current valuations match earnings better, and an interest-rate shock is unlikely to recur.
| Metric | Current | Comparison period |
|---|---|---|
| S&P 500 past 12-month gain | 22% | 41% (mid-2021) |
| Hottest segment 12-month gain | Philadelphia Semiconductor +159% | ARKK +86% (mid-2021) |
| Citi Panic-Euphoria Index | euphoric | More extreme in 2021 |
| S&P 500 forward 12-month P/E | 20.0x | 24.6x (March 2000 peak) |
| Tech sector forward P/E | 24.8x | 61.0x (March 2000 peak) |
| Cumulative gain of the major rally (S&P / Tech) | +93% / +187% (since ChatGPT launch) | +195% / +564% (since Netscape IPO) |
| Semiconductor gain over the interval | +535% | +589% |
| Citi bear-market checklist warnings (out of 18) | 11.5 | 17.5 (March 2000 peak) |
The 2022 selloff was caused by the sharp rise in rates (SPX -18.2%, ARK Innovation ETF (ARKK) -67.1%); the author judges that a similar increase will not repeat from current levels because the federal funds rate is already above core inflation. In mid-2021, the S&P 500 was up 41% over the trailing 12 months (now 22%), and the hottest ARKK rose 86%. Although the current hottest segment, semiconductors, has risen far more than that year (12-month +159%), other indicators are better: current S&P valuations are lower and earnings growth is higher. Compared with the late 1990s: at the March 2000 peak, the S&P's forward P/E was 24.6x vs 20.0x now; the tech sector was 61.0x then vs 24.8x now. The author emphasized that, unlike the late 1990s, stock prices today have risen in tandem with earnings and valuation multiples have not expanded, so the foundation is more solid. (Citi's Panic-Euphoria Index and bear-market checklist are the main data sources for the above comparisons.)
The author believes the primary determinant of market prospects remains the AI revolution, but worrying signs have appeared in AI: a shift from "tokenmaxxing" (maxing out AI/token usage) to rationality, and costs are beginning to be squeezed. Stance: [cautious/observing].
AI already accounts for a large share of economic growth, with surging demand and supply constraints pushing up prices and profits. But signals of cost pressure are emerging: Uber and Microsoft have managed skyrocketing costs by setting usage thresholds; some companies have switched to cheaper Chinese open-source models to save money; a startup the author interviewed cut its token usage to one-third of its quota after streamlining its agent prompts. They have not yet cut procurement because of shortages and potential new use cases, but that possibility still exists. Readers should note that the author's positioning direction is underweight tech, holding only Nvidia, and his emphasis on AI cost pressure is consistent with his own positioning narrative.
Conclusion: The author uses calculations from two xAI compute contracts to rebut doubts about "model commoditization and insufficient capital returns," arguing that AI data center ROIC is as high as approximately 30%-40%. The report cites a Substack article from Journal of a Golfing Investor calculating that two compute contracts—those between xAI (the original report lists SpaceX in parentheses alongside) and Google (GOOGL $358.89, i.e., Alphabet) and Anthropic—delivered after-tax ROIC of approximately 32%-35%, which the author calls "phenomenal" returns.
| Item | Google Contract | Anthropic Contract |
|---|---|---|
| Annual contract revenue | $11.0B | $15.0B |
| Less operating costs | -$0.7B | -$1.25B |
| Cash operating profit | $10.3B | $13.75B |
| Less depreciation (based on 4-year life) | -$3.75B | -$5.25B |
| Operating profit | $6.55B | $8.50B |
| Capital employed | $15B | $21B |
| Pre-tax ROIC | ~44% | ~40% |
| After-tax ROIC (at 21% tax rate) | ~35% | ~32% |
Note: This calculation comes from a third-party article cited by the author, not the fund's independent due diligence. The author personally holds AI beneficiaries such as Alphabet and Meta, so this argument reflects the perspective of a position holder.
Conclusion: The author judges that the macro environment remains favorable—AI is at a very early stage, public market valuations are reasonable, and AWS price increases suggest demand exceeds supply—but explicitly states a preference for pessimism over optimism, relying on high single-stock volatility to capture expectation gaps.
The author said: "Overall, we think the environment continues to be favorable. We remain extraordinarily early in the AI evolution, and transformation potential is enormous." In other words: "Overall, we believe the environment remains favorable. We are still in the very early stages of AI evolution, and the transformation potential is enormous."
Conclusion: This quarter, the author added to QXO, Adobe, Bitcoin, Coinbase, and Meta on dips, with QXO listed as one of the top current ideas and discussed in detail.
Conclusion: The author believes payment companies' fundamentals are better than market prices reflect, and has initiated new positions in Global Payments and Adyen—one being a deal-driven acquirer that has been re-rated downward, the other being the most advanced player in digital payment infrastructure. The sector-wide decline is set against a backdrop of slower long-term growth from the digitization of cash, competitive concerns, and blockchain/stablecoin threats.
The author said: "We think business fundamentals are better than market prices suggest." In other words: "We believe business fundamentals are better than what current stock prices reflect."
Note: Both are newly initiated positions. The bullish thesis comes from a buyer's perspective, and the valuation assumptions rely on the author's own earnings and buyback expectations.
Conclusion: The author believes market concerns about Meta's aggressive AI spending are overblown, and added to the position while it became a laggard among the Mag 7, betting it will replicate Alphabet's stock performance after its investments began to pay off.
Conclusion: The author maintains confidence in core holdings such as Precigen, Royalty Pharma, Citigroup, Alphabet, UnitedHealth Group, and Amazon. The original text does not disclose any new buying or selling actions in these names. The author admits the biggest challenge is balancing "letting winners run" against "deploying capital into new ideas," and says he will carefully balance both.
| Security | Direction | Author's stance in one sentence | Key Data |
|---|---|---|---|
| QXO | Add | One of the highest-conviction ideas; short-sighted selling offers an attractive entry. Expects ~30% annualized compound growth over the next 3–5 years, with profit up 2–3x by 2030 | QXO $14.58, down 50% from highs |
| Meta | Add | Market concerns over AI spending are overdone; bets on replicating Alphabet's share-price performance after its investment paid off | META $631.48, down 14% over the past year |
| Global Payments | New position | Fundamentals are better than the price reflects; oversold valuation plus improving competitiveness. Expects ~$10 per share FCF next year (13% yield) | GPN $74.38, stock at 5-year low, down ~2/3 from 2021 highs |
| Adyen | New position | Most advanced digital-payments infrastructure; maintains mid-teens revenue growth. Expected return in the high-teens to low-20% range | ADYEN €834.50, recent low down nearly 60% from 2025 high |
| Adobe | Add | Discussed last quarter; still attractive | ADBE $222.65 |
| Bitcoin | Add | Still attractive | $63,263.81 |
| Coinbase | Add | Still attractive | COIN $158.44 |
| Royalty Pharma | Hold/Watch | Main contributor to performance; strongest of the seven healthcare stocks | RPRX $57.96, up 46.5% in H1, primary contributor of 935 bps |
| Precigen | Hold/Watch | Healthcare holding; maintains confidence | PGEN $5.53, up 36.4% in H1 |
| Illumina | Hold/Watch | Healthcare holding; maintains confidence | ILMN up 34.1% in H1 |
| CVS Health | Hold/Watch | Healthcare holding; maintains confidence | CVS up 32.5% in H1 |
| UnitedHealth Group | Hold/Watch | Healthcare holding; maintains confidence | UNH $431.68, up 27.6% in H1 |
| Biogen | Hold/Watch | Healthcare holding; maintains confidence | BIIB up 22.8% in H1 |
| Tempus AI | Hold/Watch | Only one of the seven healthcare stocks to decline; maintains confidence | TEM down 1.9% in H1 |
| Citigroup | Hold/Watch | Core holding; maintains confidence | C $139.57 |
| Alphabet | Hold/Watch | Core holding; maintains confidence, echoing the xAI compute-contract discussion | GOOGL $358.89 |
| Amazon | Hold/Watch | Core holding; maintains confidence | AMZN $247.04 |
| Nvidia | Hold/Watch | Only tech holding; admits underallocating to tech was "poor judgment," weighing on the portfolio | NVDA $202.78 |
| SpaceX | Not specified | Mentioned only as a market event; the largest IPO in history signals rising speculative sentiment | SPCX $152.16, IPO raised $86B |
| xAI | Not specified | Two compute contracts imply ROIC of 32%–35%; author calls it "phenomenal" (data from third-party article) | After-tax ROIC ~35%/32% (Google/Anthropic contracts) |
| Saudi Aramco | Not specified | Used only for IPO record comparison | Previous IPO record, surpassed by SpaceX by more than 2x |
| ARK Innovation ETF | Not specified | Used only for bubble comparison (2021) | ARKK up 86% in 12 months as of mid-2021 |