This Quarter Underperformed the Market, but the Author Believes It Resembles 2000 Rather Than 2022
Performance Comparison: This quarter's return was -9.24%, and year-to-date is -13.89%, significantly underperforming the Russell 2000 (-7.23%/-13.71%) and the Russell 2000 Value (-4.91%/-16.96%). The author attributes this to the fact that, despite short-term poor performance, the growth in value per share far exceeds the stock price performance, similar to the market environment of 2000, rather than the 2022 scenario requiring a strategy adjustment. The author's original words: "we believe that we are on the right track even if not all of our investments this year have had sufficient value per share growth." Key data: The fund's current P/V ratio is in the low 50% range, and several investments in the portfolio have begun to realize value (some publicly, some privately).
Holdings Divided into Two Groups: Short-Term Pressure Group and Value Growth Group
Itemized Commentary:
- Mattel (Hold/Observe): The author believes the company's ill-conceived earnings reset earlier this year was "self-inflicted," but with increased acquisition possibilities, the true value may be higher than at the start of the year. The author's original words: "Mattel shot themselves in the foot earlier this year with an ill-conceived earnings reset."
- Becle (Hold/Observe): A company with over 250 years of history, experiencing a one-time distributor reset this year (causing earnings pain in 2026) to pave the way for long-term growth. Despite recent headwinds in the industry, transactions still occur at 3-5 times revenue, while Becle trades at only 1-2 times.
- Empire State Realty Trust, Gruma, Rayonier (Hold/Observe): All have experienced earnings declines due to temporary factors, but the author believes they are high-quality assets for long-term value growth.
- TripAdvisor (Hold/Observe): Value may be impaired due to poor execution, but the company is clearly willing to realize value. Recent EPS and stock price declines exaggerate the pain.
- CNX, Graham Holdings, White Mountains (Hold/Observe): Long-term investments with a CAGR in value per share of 15-20% over the past five-plus years, and this is sustainable.
- Shenandoah Telecom, Liberty Capital (Hold/Observe): New telecom investments, both with strong track records, poised to increase shareholder returns: Shenandoah will release substantial FCF after fiber construction is completed; Liberty Capital's situation was described in a recent research perspective.
- Alexander's, Atlanta Braves (Hold/Observe): New investment (Alexander's) and a veteran of value growth (Braves) are performing steadily.
The Performance Contribution of the Two Groups Shows a Stark Contrast
Performance Comparison: For the first group (short-term earnings disappointments), consensus sell-side earnings estimates for 2026 have cumulatively declined by about 20%, with stock prices performing even worse. However, the author estimates their long-term earnings potential is nearly flat. For the second group (value growth stocks), 2026 earnings are about 5-10% higher than sell-side estimates at the start of the year, but stock prices have fallen by about 5% overall. The author calculates: the first group should drag the portfolio by a few hundred basis points (rather than the -1250bps priced by the market), and the second group should contribute about 1000 basis points positively (rather than a full-year decline). Combined, the potential performance should be in the mid-single-digit positive range, which the author describes as "one of the largest gaps between perception and reality in memory."
Position Moves and Performance Attribution: A Mix of Gains and Losses This Quarter, with Some Stocks Under Pressure from Industry Competition and Macro Headwinds
Performance Comparison: This quarter, Clearwater Paper, Liberty Capital, and Shenandoah Telecommunications were contributors, while Empire State Realty, TripAdvisor, Gruma, Rayonier, and Mattel were detractors. The author notes that the portfolio's earnings multiples have compressed by a further 10-20% from an already attractive base, while the risk to earnings themselves has decreased, creating opportunities for the future.
Itemized Position Moves and Rationale:
- Clearwater Paper (Contributor): The packaging board industry successfully pushed through a $60/ton price increase and plans a second increase of similar magnitude to recover price losses from late 2025 and cost inflation from the Iran war. Each $1/ton price change corresponds to approximately $1 million in EBITDA, while the company's expected EBITDA this year is $20 million. The company also completed a debt refinancing, extending maturities to 2031 and improving the balance sheet.
- Liberty Capital (Contributor): Normal performance this quarter, with limited consumer broadband subscriber losses, alleviating excessive concerns about Starlink. The outlook for the Alaska LNG project has worsened due to legislative issues but may advance after the 2027 election. The author mentioned insider buying and improved capital allocation in a recent research report.
- Empire State Realty (Detractor): The Empire State Building Observatory's performance declined, primarily due to a drop in international tourists (affected by US immigration policy), increased competition (five observatories competing), and the impact of a K-shaped economy. The Observatory accounts for less than 15% of ESRT's value but impacts earnings and sentiment. The company's office market is healthy, and it completed a high-quality asset sale. The stock price has dramatically overshot a 9% decline in expected FFO per share. An activist investor emerged at the end of the quarter.
- TripAdvisor (Detractor): Its Viator business underperformed, with Q2 revenue growing only 3% and margins declining year-over-year. The company's explanations regarding weather, macro conditions, and Google search changes were insufficient. The author believes competitive and AI concerns may be overblown, but operational execution is lacking. Proceeds from the TheFork sale (over 2/3 of market cap) have not yet been factored into current declining earnings expectations. The stock's weight in the portfolio was reduced at the end of the quarter.
- Shenandoah Telecommunications (Contributor then Detractor): Fundamentals changed little; the company continues to reduce residential fiber capex and connect new customers. Industry sentiment worsened due to SpaceX and Meta's Muse AI agent. The author believes its unique coverage makes it difficult for satellite and fixed wireless to compete, and its most mature fiber market has just over 40% penetration, with overall residential fiber penetration just over 20% and a Net Promoter Score of 60 (traditional telecoms are near 0). More insider buying occurred this quarter.
- Gruma (Detractor): US anti-immigration policies have reduced demand from some of its customer segments, slowing growth in the US market (about 70% of company value) by a few percentage points. Growth outside North America is strong, and the company has increased share buybacks, becoming one of the largest repurchasers by float in Q2.
- Rayonier (Detractor): No major company news this quarter; results were in line with expectations. The company continues to buy back shares and pay dividends. The stock price is short-term influenced by interest rates and timber prices. The author believes its valuation gap relative to peer Weyerhaeuser has narrowed, consistent with expectations at the start of the year.
- Mattel (Detractor): Management indicated in mid-September that 2026 guidance would be more back-end loaded, causing the stock to fall. Subsequently, CEO Ynon Kriez departed and was replaced by Roger Lynch. On October 1, the Wall Street Journal reported that Authentic Brands was interested in acquiring Mattel for over $20 per share, leading to a stock rebound. October also saw reports of shareholder pressure or acquisition interest from Ariel and Zuru.
Key Stock Analysis: ESRT Observatory Faces Structural Challenges, TRIP Operational Execution Lacking
Empire State Realty (ESRT)
- Thesis: Bearish (short-term), but believes the stock price is an overreaction.
- Evidence: The Observatory experienced its first decline in NOI/visitor numbers since 2020, due to: reduced international tourists from US immigration policy, increased competition (five observatories), and the K-shaped economy. The author's original words: "The Observatory had built its business on international budget travelers. In a world with a growing middle class of people who want to/can come to the USA, that worked. While it’s likely that world returns, that’s not the world we are living in now."
- Risk: The Observatory accounts for less than 15% of ESRT's value but impacts earnings and sentiment. The company's office market is healthy, and its debt structure is sound. The stock price has dramatically overshot a 9% decline in expected FFO per share. An activist investor emerged at the end of the quarter.
TripAdvisor (TRIP)
- Thesis: Bearish (short-term), but believes asset value is undervalued.
- Evidence: Viator's growth slowed, with Q2 revenue growing only 3% and margins declining year-over-year. The author's original words: "The company could’ve done a better job detailing how weather/macro plus Google Search changes explain the deceleration." The author believes competitive and AI concerns may be overblown, but operational execution is lacking.
- Risk: Proceeds from the TheFork sale (over 2/3 of market cap) have not yet been factored into current declining earnings expectations. The author likes the openness to asset monetization, but operational execution needs improvement. The stock's weight in the portfolio was reduced at the end of the quarter.
Outlook and Risk Reminders: Macro Headwinds and Industry Competition Persist, but Portfolio Valuation Has Become More Attractive
- Macro Judgment: The author believes the portfolio's earnings multiples have compressed by 10-20%, while earnings risk has decreased, creating opportunities. However, interest rates are a headwind for ESRT, US anti-immigration policies affect Gruma's demand, and industry competition (e.g., Starlink, AI agents) pressures SHEN and TRIP.
- Risk Reminder: The author acknowledges poor short-term absolute returns but emphasizes long-term asset value (e.g., Rayonier's irreplaceability) and the portfolio's attractiveness. For ESRT, the author notes, "The stock price this year has dramatically overshot a 9% decline in FFO per share estimates." For TRIP, the author believes, "TRIP has some legitimate competitive and AI-related worries, even if both are likely overblown."
Position Moves
| Ticker |
Direction |
Author's One-Sentence View |
Key Data |
| Clearwater Paper |
Hold & Watch |
Packaging board price hikes succeeded, debt refinancing improved the balance sheet; a contributor this quarter |
$60/ton price increase, planning a second round of similar magnitude; each $/ton change corresponds to ~$1M in EBITDA, expected EBITDA of $20M this year |
| Liberty Capital |
Hold & Watch |
Performance normal, consumer broadband subscriber churn limited, insider buying; a contributor this quarter |
Alaska LNG project outlook worsened due to legislative issues, likely to advance only after the 2027 election |
| Shenandoah Telecommunications |
Hold & Watch |
Fundamentals largely unchanged; industry sentiment deteriorated due to SpaceX and AI agents, but unique coverage is hard to compete with; more insider buying this quarter |
Most mature fiber market penetration only slightly above 40%, overall residential fiber penetration in the low 20% range, net promoter score of 60 |
| Empire State Realty Trust |
Hold & Watch |
Observatory faces structural challenges (fewer international tourists, increased competition, K-shaped economy), but the stock overreacted to a 9% decline in FFO expectations; activist investor emerged at quarter-end |
Observatory accounts for less than 15% of value, office market healthy, completed one quality asset sale |
| TripAdvisor |
Reduce |
Viator business growth slowed, operational execution lacking; proceeds from TheFork sale (over 2/3 of market cap) not yet offsetting declining earnings expectations; weight reduced at quarter-end |
Q2 revenue grew only 3%, margins declined year-over-year |
| Gruma |
Hold & Watch |
U.S. anti-immigration policies reduced demand from certain customer segments; strong growth outside North America; stepped up share buybacks |
U.S. market accounts for ~70% of company value, growth slowed by a few percentage points; one of the largest buyback participants in Q2 by float-adjusted shares |
| Rayonier |
Hold & Watch |
Results in line with expectations; continued share buybacks and dividends; valuation gap versus peer Weyerhaeuser narrowed |
Stock price affected short-term by interest rates and lumber prices |
| Mattel |
Hold & Watch |
Management's back-end-loaded 2026 guidance caused a stock decline; CEO departure; acquisition likelihood increased (Authentic Brands interested in acquiring above $20/share) |
Wall Street Journal reported acquisition interest on October 1, stock rebounded |
| Becle |
Hold & Watch |
Over 250 years of history; one-time distributor reset paves the way for long-term growth; valuation far below peers |
Trades at 1-2x revenue, peers at 3-5x |
| CNX Resources |
Hold & Watch |
Long-term investment; per-share value CAGR of 15-20% over the past 5+ years, and sustainable |
No specific data |
| Graham Holdings |
Hold & Watch |
Long-term investment; per-share value CAGR of 15-20% over the past 5+ years, and sustainable |
No specific data |
| White Mountains Insurance |
Hold & Watch |
Long-term investment; per-share value CAGR of 15-20% over the past 5+ years, and sustainable |
No specific data |
| Alexander's |
Hold & Watch |
New investment; performance steady |
No specific data |
| Atlanta Braves |
Hold & Watch |
Veteran value grower; performance steady |
No specific data |