Something Has Gone Terribly Wrong

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Welcome everyone.

It seems as though something has gone terribly wrong.

When I look at my portfolio and I switch over to the year-to-date, my performance so far

is only plus 1.3%.

That's not a mistake.

That is the actual time-weighted return this year, or I've only made $17,000.

Now, I'm not losing money per se.

We're still making a little bit of money, but this feels pretty wrong when you compare

it against the S&P 500.

Year-to-date, the S&P 500 is up a staggering 13.2%.

With my portfolio only up 1%, and the index up 13%, it looks like something's gone wrong

this year.

We're going to be looking over my portfolio and over the S&P 500 index and try to figure

out what's going on, what's causing this big discrepancy and performance this year.

We'll try to see if there's something going on that's terribly wrong and if we need

to change strategies.

This is going to be an in-depth look in this episode.

Now, of course, we have a lot of other news to get to.

We have news that Microsoft is becoming suddenly more transparent with their reporting.

They're going to report Azure as a breakout line, which is really, really cool.

We have S&P Global rumored to be selling off capital IQ as a big holder of S&P Global.

What does that mean?

We have Google avoiding a big breakup in their company once again, Google's 2 for 2.

And then we have the fail of the week, which in this case is a teleprompter operator for

the White House.

Unfortunately, he got in a little bit of trouble for betting on what Trump would say in advance.

So we have a ton to get to in this episode.

Now, if you like talking about stocks and seeing in-depth research, you should try out

Qualtrum.com.

It's a community that I built.

It's an entire investment analysis platform that I've hand tailored made.

It's also a discord community and we have exclusive content as well.

For example, later this week, I'm going to release an hour plus long portfolio update that

goes over every single position, every single update for all of these companies.

My buy prices, my valuations for them, where I'd invest my money today and so on.

That's going to be later this week.

So if you want to try that out, you can do so at no risk.

It comes with a free trial.

Now, let's go ahead and jump in because when I look at my portfolio, I notice something

here.

Overall, the portfolio has been doing great.

This has treated me really well for the past three years.

In fact, since 2022, this portfolio has outperformed the S&P 500 every single year.

So it's outperformed in 2022.

It's outperformed in 2023.

Outperformed in 2024.

Outperformed in 2025.

But then we get to 2026 and no longer is this portfolio outperforming.

In fact, we're up currently 0.81% year to date.

My portfolio has been sitting flat for basically all of 2026.

It's just been taken a rest.

It seems like it was tired of the past four years of winning and now it decided I need

to take a breather.

In 2026 is the year that it decided to take a breather.

Meanwhile, the S&P 500 is racing upwards.

It's up 12%.

The QQQ is up even more.

So it's easy to conclude that in 2026, looking at this portfolio, be flat for basically the

entire year or in September now, while the S&P 500 is racing away, it's easy to look

at this and say, wow, something has gone terribly wrong.

I am making a mistake.

There's something bad happening.

I think it's important to observe those type of thoughts and really look at what's

going on.

The important question I believe for investors is what is causing this market to go up?

Why is the S&P 500 and the QQQ doing so well in 2026?

That could answer the question of what's happening with my portfolio or similar ones

that aren't seeing much of a upswing this year.

And one of the best explanations of what's driving this market is a concentration of

investors in toy-specific sector.

This is something that Bill Acman himself highlighted in his most recent earnings report.

He outlines that the markets gains this year have been driven by a small subset of sectors.

While the S&P 500 index has approximately increased by 10% through the first six months

of the year, nearly the entirety of the gains has come from two sectors that provide the

picks and shovels for AI infrastructure, just two of the S&P 500's 24 sectors.

The S&P 500 has 24 sectors.

Two of them are causing all the gains in 2026.

S&P 500's and tech hardware and equipment, just those two sectors, contributed nearly

85% of the S&P 500's year-to-date gains.

So the vast overwhelming majority of the gains year-to-date, the reason that the markets

are moving up, are because of semi-conductors and hardware and equipment.

So basically, semiconductor companies and semiconductor related or adjacent companies.

That's 85% of the gains.

Basically, that's where all the gains are happening.

That's where all the magic is happening.

If you're in semiconductors, you've had a great year.

If not, well, it's likely been a bit of a struggle.

It's been a lot more difficult.

As a result, more than 90% of the companies in the S&P 500 have collectively contributed

less than 2% of the overall return in the index.

So another way of saying this is the breadth of the market is incredibly slim.

There's only a couple companies really carrying this market upwards.

And the huge majority of companies are doing nothing.

In fact, to put numbers behind this, right now, the S&P 500 is up around 10 to 12%.

40% of the companies in the S&P 500 are in the red year-to-date.

So 40% are in the red, and 90% of the companies have done almost nothing this year, up only 2%.

Meaning that that 8 to 10% of companies are doing all the lifting.

It's the whole reason the market's in the green.

Now, this is an unusually concentrated market, even by historical terms.

You can compare this to past years where big tech led or other companies did really well.

And there is a level of concentration where only a few companies are doing a lot of the lifting,

but the breadth of the market, the number of companies that contribute is much larger in historical terms.

What we are seeing today is a level of concentration that we just have not seen before.

This is a highly specific concentrated market into these picks and shovels companies.

Now, the outcome of this, of course, is that it makes the job of a stock picker incredibly difficult

unless you're in these companies specifically.

For example, Goldman Sachs recently just said that hedge funds have suffered their worst underperformance

versus the S&P 500 in July in more than 20 years.

Why are hedge funds suffering?

Because they don't own that sliver of stocks that are doing the performance this year.

They own companies in the other 90%.

Another factor in making this year, especially difficult for the stock picker,

is the type of companies that are going up are in most cases highly unpredictable gains.

Or ones that are very difficult to foresee.

These aren't companies that have continually expanding business models.

In a lot of cases, these are very specific niche companies that people didn't look at before.

For example, let's go ahead and take a look at a list of the top 10 performing stocks of this year.

We'll start with number 10.

It's called UMC, United Microelectronic Corporation.

It's the 10th highest performing stock in the S&P 500.

And if we look at the performance, it's up 151% year to date.

Well, of course, UMC is a pure play semiconductor foundry whose economic engine is manufacturing

specialty in mature, mature node, wafer and power magnetic ICs.

Microcontrollers, sensors, connectivity, display, automated and consumer chips.

These are the type of stocks that are going nuts.

We have Western Digital.

You know the company that makes the hard drive, you probably bought one or two of them on Amazon?

Yeah, you should have known that this hard drive maker would be the ninth best performing

stock in 2026.

It's up a nice 135%.

And number eight, of course, we have RVMD, Revolution Medicines, up a clean 166% in 2026.

Now what does this company actually do?

They're an oncology company.

And they have a once daily oral, I'm not even going to try to pronounce that, a drug approved

for metastatic, pink, reatic, endro something.

How many investors have I heard invest in this one?

Well, not a single one because unless you're a specific pharmaceutical expert that is also

a one oncologist, you likely have no clue that this drug was going to be successful or

not.

But hey, at least that's one company that's not a semi conductor stock.

We have Bloom Energy Corporation.

This is number seven.

It actually changes a lot.

So it was number seven, just like a month ago.

Now it's only up 171%.

What does Bloom Energy do?

Well, the company has installation and long term services of solid oxide fuel cell systems.

Then I believe we get to number six here.

This is Corsept Therapeutics Incorporated.

Unlikely that you're going to have an expertise in this or have any level of predictability

in it.

Now we get to more familiar names.

These are likely ones that you've heard of.

We have the fourth best performing stock in the market, one that has heavily lifted the

entire industry.

It's one of the biggest companies in the world, which is micron technologies.

This is now a $1.07 trillion market cap company.

It's up 200% year to date.

Microns numbers are truly astonishing.

There are numbers that we've never seen before.

The company became one of the most profitable companies seemingly overnight.

We get to the third best performing stock in the S&P 500 this year and we have Dell

technologies.

Now, I looked at Dell as an old computer company.

They sold the really old desktop computers at an old Dell when I was a kid.

Big old tower.

It had like a floppy disk.

That's how I envision Dell.

The old desktop computer company and here Dell is a $342 billion market cap company.

The stock is up 300%.

Now I don't personally see Dell desktop computers that often anymore, but luckily the company

pivoted into a much more lucrative Dell sells enterprise infrastructure through its infrastructure

solutions group power edge servers AI factory systems networking.

All of this is AI server offerings.

The second highest gainer year to date in the S&P 500 is Moderna.

Of course, this is a behemoth that has a lot of the immunizations, the vaccines, they're

constantly developing new ones.

And then finally, we get to number one, the best performing stock in the S&P 500 this

year and we have Sandisk, another memory company.

It's now 227 billion dollars.

It's up 457 percent.

Sandisk is another memory company.

Again, this is the type of thing where you buy a little solid state drive on Amazon.

You probably view it as just a consumer company, but Sandisk had the right technology, the

right manufacturing, and they're in the right place at the right time.

And these are the type of companies that are making the big gains this year.

So out of these 10 companies, we have three random pharmaceutical companies that have had

massive breakthroughs.

And then we have seven companies that are in the semiconductor industry.

These are the best performers in the market today.

They're the ones lifting the markets in 2026.

When I compare to my portfolio again, that is just flat this year.

I'm not trying to make excuses.

I own the performance of my portfolio.

I don't blame anybody else.

I'm not trying to blame the market for it being flat.

That's on me.

I pick to own these stocks.

But I do believe it's good to give explanation of why a portfolio like this is flat and all

these companies are going up like crazy.

It's important to put this all in context because this can be very tricky for investors.

When you look at companies like this that are up so much year to date, I think the best

exercise is just to zoom out 10 years and look for any type of anomaly.

This stock is one that has been flat for five plus years.

It had a big bump in 2020.

Then it gave up a lot of the returns.

And then for about five years, this company just remained flat and then it had a sudden

bursting gains practically all the gains in just the past year.

We look at Western digital corporation and you see a very similar trend.

We zoom out 10 years and this company has been literally flat for nine years straight.

Until we get into late 2025 and then 2026 where it had its epic boom.

Revolution medicine shows very similar type of story.

You zoom out to 10 years, completely flat for 10 years and then all of a sudden gains

in the past year and a half.

Seagate technology.

We look at the exact same type of thing.

Zoom out to 10 years, completely flat for an entire decade until the past year and a

half.

This energy company, we zoom out and we see the exact same thing.

It has been bouncing around the same price for nine years except for the past year and

a half.

Courses up therapeutics.

This is another one we look past 10 years.

We see that it is basically flat for eight and a half years.

It had a bump.

Then another downfall then another big bump.

Micron technology.

And it's literally flat for eight and a half of the years.

It made no gains until the past year and a half alone.

Now to Dell's credit, it did make some gains leading up into 2026.

So at least there was some progress.

It wasn't completely flat.

With Moderna, this one is all over the place.

It did have a big jump year to date.

We zoom out to 10 years and it actually, it was up a lot higher.

It went back down and then it had a sudden spike.

It is entirely unpredictable what the stock is going to do.

We look at Sandisk and this one's a little bit misleading because we zoom out to 10 years.

And this one actually starts in 2025.

So this one very similarly had no gains.

It wasn't really a big company at all until just 2025 to 2026.

So we noticed a trend looking at these companies that are doing really well this year.

They are very unpredictable.

Their companies at the better part of a decade did nothing.

Investors had to just sit there and hope the situation would change.

You compare this to other companies.

For example, I look at Costco over the past 10 years.

My first buy of Costco was in 2017.

My first buy was about $160.

Give or take.

And this stock does not have eight years of no gains and then a sudden burst of gains

in a year and a half.

It's far more gradual.

We can look at Texas Roadhouse.

This is another one that you can see it's a gradual growth.

It gets to new highs over time.

It's not perfectly linear.

No stock is going to trade in a straight line.

But this one shows a more organic growth over the past decade.

We look over the past 10 years at MasterCard.

Both Visa and MasterCard are examples of companies that grow at a very consistent basis.

Even their stock price grows at the same pace.

Over the past 10 years, the gains have been incredible.

It's been up 500% not counting dividends.

We look at this in.

It's a very linear growth from MasterCard.

Every stock is going to have some level of dips.

What we don't see is 10 years of being flat and then suddenly a spike up a year and a half

go.

It's starting to make sense of why this small subset of companies are doing so well this

year and why so many people have missed these types of stocks.

It's really difficult to pick a stock that's going to do well that hasn't done well for

eight years or 10 years.

That's just difficult to do.

Most people aren't going to predict that micron or that sand is going to be the stock

to buy three years ago.

If you missed it, they've already been reprised.

Meanwhile, these type of companies, these ones that are growing organically every single

day, they're growing more and more every single year on a consistent basis, they're simply

not being rewarded today.

There's no capital chasing these companies.

While we sit year to date being mostly flat, we have the market going up.

You may say that's discouraging because you want to outperform every single year and you

may think that you need to own the index so you can get any type of random stock that does

well.

I don't think that's necessarily a case.

I don't think investors should be discouraged if they're underperforming those type of companies

this year because we can look at what drives long-term stock out performance.

This chart here, I believe, illustrates it better than most charts.

It shows on the one year, the three year, the five and ten year, what factors in a company

led to total outperformance.

We have light blue.

That's the revenue growth.

We have green, which is the margins of the company.

We have yellow, which is the multiple it trades at, so the valuation of it, and then we

have blue, which is the free cash low.

These are all what's the breakdown of the stock's returns over time.

You'll notice that in the one year, you can see what makes up

the biggest difference.

It is the multiple.

This yellow part makes up 46% of your returns.

So basically in the short term, in a one year time frame, multiple is everything.

The price people are willing to pay.

Revenue plays a part, all the other stuff plays a part, but around 50% of it is simply

the multiple.

But you'll notice when we only go three years out, so when we just widen the timeline

a little bit, the multiple goes from 46% down to 19% of an impact of the overall returns.

At a 10 year time period, the revenue growth determines 74% of the total return of a company

you invest in.

It is by far the dominant factor in whether or not you're going to have good returns.

Now profits make up a pretty big chunk as well, 15%.

The multiple you paid, 5%, barely a factor after a decade.

So there's a couple takeaways from this.

In the short term, the multiples that companies trade at are the most important, but the long

term performance is going to be driven by revenue growth.

So even though my stocks are flat this year, I like to look at what they're doing intrinsically,

and especially how fast the revenue is growing.

And this is where I believe things are really encouraging.

I ran an analysis that looks at the overall weighted revenue growth in my portfolio over

the trailing 12 months and the projected revenue growth over the next 12 months.

And I compare that against the S&P 500.

The S&P 500's revenue growth over the trailing 12 months is 8.3%.

That's good.

It's a nice year for the S&P 500.

It's about average.

In the trailing 12 months, my portfolio has grown about 2.1 times faster than the S&P 500

in revenue growth.

And on a forward growth outlook, it's going to grow 15.8% compared to the S&P 500's

11%.

So when I look overall at what's going on behind the scenes, how my companies are actually

performing, the most important factor that my portfolio's long term outperformance, which

will be the overall revenue growth, is actually going along quite nicely.

It's growing two times as fast as the S&P 500 and projected to grow dramatically faster,

about 80% faster next year.

So even after looking at this terrible situation that we have ourselves in, this flat year

to date, I've decided to stay put with my strategy and hold through as long as these companies

continue to grow.

Now moving on, we get to some important news here, specifically that Microsoft is now

deciding to be a little bit more transparent.

Before Microsoft was very sneaky, they're very opaque, they would not tell us how much money

Azure is really making.

But with this report, it looks like they're changing their mind.

It says here that Microsoft will start disclosing quarterly revenue for its Azure cloud business

for the first time, providing investors with a clear picture of its business that competes

with Amazon's web service or Google's cloud platform.

The change announced in a presentation on Wednesday is part of a broader shift in

Microsoft's reporting structure as the company trims its operating segments from three

to two.

The prior structure has been in place since 2015.

Now if we look at the prior structure or what exists today, this is what it looks like.

We have the revenue by segment.

This is a KPI that we keep track of.

And it's broken into these three different segments, business, productivity and business

process, intelligent cloud and personal computing, Azure's hidden inside of intelligent cloud,

and it's jumbled in with a bunch of other businesses.

So you really have no clue what Azure itself is actually doing.

And that has been the complaint for a while.

I was just complaining about this a week ago, and here we are getting news that Microsoft

is like, all right, we'll fix it, we'll become more transparent and we'll break out Azure

specifically.

And this is great.

And it's great for a couple of different reasons.

First of all, investors deserve to know what Azure is doing specifically.

Microsoft is no longer just a corporate cloud software company.

Azure is a massive part of Microsoft.

Investors should know how much revenue Azure is making.

That should be a very basic thing to break out.

Another thing is that when we look at the reporting and we try to run analysis, for example,

if I try to do a stacked bar chart, which we can do in Qualtrium, I could stack Google

Cloud against AWS and I could see those stacked bars against each other and see kind of which

one's bigger than which and I can directly compare them.

But with Microsoft, I can't because I can only stack up intelligent cloud, which really

isn't Azure.

And this will make it much easier to compare these three different business lines together

of Azure, Google Cloud and AWS.

We'll be able to make these stacked bar charts and growth rates and direct comparisons

that will help out investors.

So overall, I'm in complete favor of this.

I'm glad they're doing it.

The way that this is going to be reported is in Qualtrium, we'll have the historical

data stay put, but then we'll break this off into two segments as they do the new reporting.

Now, the next bit of news we got is a rumor.

It's from Bloomberg.

They say that S&P Global is considering spinning out its flagship data and research platform

Capital IQ Pro and a move that could create a standalone firm worth billions of dollars.

Now, nothing is for certain here, but this would be a big move for S&P Global.

And I think one that's actually warranted.

For example, if we look at what Capital IQ Pro actually is, it is a desktop application

that is primarily a user interface to interact with all the data from S&P Global.

S&P Global would keep the data, all of their proprietary data, and they'd sell off this

desktop application and the user interface.

A way of looking at it is S&P Global doesn't want to be Spotify.

They want to be the music labels.

They want to be the ones that own the actual data.

They don't really care about the user interface or how people look at the data or consume

the data.

They're not really invested in fighting with other user interfaces.

Capital IQ Pro does have a little bit of data that it harvests itself and that it contains

itself that's proprietary, but the huge majority of data from Capital IQ Pro comes from S&P Global.

So S&P Global would keep its market intel business, it would keep its proprietary data,

but it would just get rid of this interface.

I believe that this makes sense and it's consistent with S&P Global's past moves.

S&P Global has been making it increasingly clear that they want to be agnostic to user

interfaces.

They simply want to be a data and industry company.

S&P Global would prefer to house and monetize a huge warehouse of data of which you can find

that data in any way that you want.

You can use Chatch Bt, you can use Claude, you can use any type of plug and you want MCPs,

you can use interfaces, or you can use Capital IQ.

They don't care which way you access their data as long as you're using their data.

S&P Global is moving towards the higher margin data business that I believe is less competitive,

than overall the battle between all the user interfaces that they have to sell to the end

user.

And even if they were to spin off Capital IQ, S&P Global would likely remain a massive

client of Capital IQ.

So overall, I think this is a good move and it makes sense with their strategy.

Next up we got some good news if you're a Google investor.

They just avoided a big break up of their ad business.

A federal judge rejected the request from the Department of Justice to break up their advertising

business.

The second time the court has denied government efforts to break up this company, after it

was found liable for engaging in illegal monopoly tactics.

So Google was found to be a big bad monopoly, but they didn't have to break off Chrome.

That was the major win.

If Google had to break off Chrome, that would have been really bad.

So they avoided that.

Then there was a decision of whether or not they had to break up a segment of their advertising

business.

The decision is a historical marker that effectively closes the book on a nearly two-decade US

antitrust risk for Google.

This is also another severe blow to the anti-monopoly political movement that has been embraced

by both parties and has grown over the past few years.

Even with all this political incentive, even with the Department of Justice going after

them, judges, however, have proved deeply resistant to splitting up the companies, believing

that the remedy is too drastic.

So the people hoping for a downfall in Google, that the company will be broken up, split

in the pieces, and sold at a garage sale, well, they're going to be very disappointed,

because it's not happening any time soon.

Now moving on, we get to the fail of the week, which in this case is the teleprompter operator

that worked for the White House.

The commodity futures trading commissioners said the operator, Gabriel Perez, must pay back

$107,000 he made from unlawful trading, plus a civil penalty of $65,000.

The prediction market company cow she disclosed in July that Mr. Perez had used dispositions

to enter around $100,000.

By placing bets about what Mr. Trump would say in his speeches.

Mr. Perez had access to presidential speeches before they were delivered.

He then placed wagers on common words that would appear in the remarks, such as a country

name or economic terms, the company said.

After the allegations became public, Carolyn Levitt, the White House press secretary, said

that she had talked to Mr. Trump about the reports that his teleprompter operator had

been making money off of his speeches on prediction markets, and that he called it a disgrace.

Okay, come on.

He made some money on the side.

And sure, what this teleprompter operator did?

He was deceiving.

He was betting ahead of the market.

He knew what he did.

He knew what he did was cheating, right?

So what he did was wrong.

But we have Trump here saying it's at his grace, it's at his grace, folks.

At the same time, Trump is charging $100,000 to access an API for his advanced words.

So it seems as though if you have the money to pay Trump, then you, then you can benefit

from advanced words.

But if you're one of the poor folks that can't afford that $100,000 per month API to get

Trump's advanced words, then you're out of luck.

No betting in advance for you.

And overall, this once again just highlights the problem with prediction markets, turning

every single thing into a gamble is not good for society.

We're going to see more and more of this over time.

That's it for this episode.

Hope you enjoyed.

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