The Saturday Sendout

This is a free preview of a paid episode. To hear more, visit thesimpleside.substack.com Enjoy this article thanks to Wild Alaskan Company! Reminders: Copy Trading HerePortfolio Views HereMacro Indicators HereResearch Reports Here Good Morning, Simple Side Shareholders… I am going to write a lot (sort of ramble) about the current state of our portfolios, but there is a summary at the bottom of this section that will hit the quick highlights. Let’s address the elephant in the room… an absolutely brutal week for our portfolios. Across the board we got crushed and it was absolutely no fun to watch it happen. That being said, the outlook for these portfolios is not 1 week, or 1 month, or 6 months… I try to invest for at least 1 year and many of the holdings in my portfolio have a 3 year (or more) time horizon. In general, I am not super worried about the recent market drop. I don’t think that AI is going to suddenly render companies useless. Yes, you can build your own apps, and yes you can build your own software, but then you have to host it, manage it, fix all of the bugs, and your only tech support is another AI. The questions I started to ask myself were simple truths about the business we own… Do you think that companies are going to create their own custom tax software instead of using Intuit? Do you think that companies are going to create their own custom PDF software instead of using Adobe? Do you think that companies are going to create their own custom security and compliance software like Qualys? I just don’t see that being the case, and if you think AI companies are going to take away from the moats that these companies have then I would disagree. I think it is much easier to integrate an AI solution into an already working product than it is to build a completely native AI product. Google is a great case study. Remember when everyone was hating on Google because the company wasn’t far enough ahead in the AI race? It took them a few months to catch up and surpass nearly all of their competitors. I think more of the same will apply to the companies we own. That being said, I refuse to believe that I will read the market 100% right 100% of the time. There was probably a world where I could have predicted that software companies would go under fire because of AI fears, and I would have stopped my investments in some of my Flagship Funds biggest losers. I am sure that I had opportunities to decrease my tech exposure in the Tech-Focused Growth portfolio when AI worries came about as well. Luckily, the AI portfolio is focused on infrastructure which tends to outperform in market downturns. Of course, we have a lot of speculative holdings so we will never be completely absolved of market downturns, but we will fare much better. Well, now that we have addressed the underperformance of our portfolios, let’s talk about what I am thinking about and how I plan to make changes in my investment strategy as we continue through 2026. While I watched the market and my portfolios tumble this week, the first thing that came to my mind was “Thanks be to God that I have a 50% cash position” the second thing that came to my mind was diversification. My overall holdings are heavily indexed into tech, and specifically software, and I felt the pain because of it this week. My Flagship Fund is typically focused on high growth, low cap-ex companies regardless of the sector they are in. In the past, this has resulted in portfolios with 3/20 stocks in the software sector, it has resulted in 4/20, and of course this year we ended up with our highest concentration ever with 9/20 (darn it). This isn’t the worst thing in the world, but our worst returners are -32%, -23% and -23% (all of which are software companies). Honestly, I think allowing a very volatile sector to take over a vast majority of the portfolio was an oversight on my part. That being said I firmly believe that these companies are extremely quality and do not (in any way) deserve the selloff they received. Regardless, all of the issues in the market have brought me to 3 distinct paths: * Stay the course, potentially index heavier into some of my higher conviction holdings. Look to DCA into some positions that are underwater that I like. * Shift portfolio weights in some of our funds to reflect a lower tech/software focus, and make no additional purchases. * Shift portfolios by adding new positions and diluting current underperformers. What is so challenging about the current market is that you could be 100% correct about a stock, its ability to grow, and the fundamentals and the stock price will struggle while “performative” names are quicker to explode in price regardless of performance. QLYS for example saw 10% growth in 2025, had EBITDA of 47%, released an agentic AI risk management marketplace, and announced more share buybacks. The company projected growth of 7% in 2026, remains incredibly profitable, and has better growth rates than the majority of the industry. The stock after earnings? Down 14%… how does that make sense? The company is now valued at the same level that it was back in 2021 when their revenue was basically HALF of what it is today. If the company was showing terrible metrics and was not growing, I could understand the price action but with growth, buybacks, and great profits I couldn’t be more lost. I have been saying it for weeks, but the emotional driven marketplace is what we exist in right now. The internal debate is whether or not we should diversify to dodge some of the emotional risk involved in individual sectors, or trust that the companies we own are high quality and will recover. Something else that is very important to think about is the multiples that companies trade at. When you look at a company’s PE ratio, you know that is a “value indicator,” but what does it really mean. Well, simply put, it is the amount of dollars you are willing to pay for $1 of that companies earnings. So if a company earns $100 and you buy their stock for $200 you are paying $200 / $100 = $2 dollars for each dollar of earnings. This also tells us that at that same price point, it would take 2 years of that company operating at the same level for its earnings to be worth what you paid for it. In this example if you pay $200 for a company and then in year 1 it makes $100 and then in year 2 it makes another $100, then you paid a fair price. However, if the company in year 1 makes $100, then in year 2 makes $90, you overpaid by $10 for that stock. Now things aren’t always that simple because stock prices don’t follow their earnings 1:1, and people speculate. I doubt that many people are willing to hold a stock they bought at a 22 PE for 22 years. Why am I explaining this right now? Well, because in this case it matters greatly. People are willing to pay high PE multiples when they see companies growing, or when they think their is a clear opportunity for the company to maintain their current earning levels. What we are witnessing with software is a loss of faith in companies earnings growing, and the question you have to ask now as an investor is when does this faith come back? Stock prices move on investor emotions not the true underlying fundamentals. These software companies are going to have to “prove” that their earnings won’t be hindered by AI, but will continue to grow. Sadly, this will take at least 1 or 2 quarters of proven growth before I think we start to see real turnarounds in these companies. I say “sadly” because I am selfish and I want every stock I buy to launch to the moon immediately. Overview * Our portfolios are over indexed on the software sector (that isn’t normal, but just so happened to be our bad luck this year) which means we got hit HARD this past week. * We are looking at positioning our portfolio differently going into the next few quarters in case investor sentiment around the software companies remains low. * Stock prices are based on investor emotion in the short term, not real fundamentals so PE ratios and FCF multiple could decrease further from here. * I think we have a path to recovery over the next 1-2 quarters as long as we see earnings continue to grow. * I have an interim plan of attack for the next 2 quarters while we wait to see if we need to trim our software positions. Of course, all of my strategies and and investment decisions will be hidden behind the paywall, but before we get into that I want to quickly share the current quant analysis we have on the macro environment. Like always, the macro analysis can be found on our website: (https://thesimpleside.news/macro-indicators). Let’s start with our general macro overview… General Macro Overview (Quant Model) In general, our quant macro model isn’t bearish here. We are still riding between buy and hold territory which really isn’t good enough for us to say “back up the truck” nor is it bad enough for us to say “unload everything.” We are waiting to deploy large amounts of capital until we see the “Strong Buy” show up across the board (in the Macro, SPY, and GLD models). You’ll notice that the model is still ranking GLD a strong buy at these levels which, in general, I think is a bit of a bearish call on the current equities markets. Regardless, I think the economy and the underlying forces driving profits for these companies are stable. One of the market indicators I pay attention to closely outside of my personal macro model is this S&P 500 momentum model. The nerd explanation for this model is the “slope of the 12-month regression of the S&P 500.” The simple way to think about it is the pressure on investors and the market. The higher the indicator goes, the more pressure there is to buy (higher emotionally driven market). The lower the indicator goes, the more selling pressure there is (also higher emotions in the marker), and the closer the line is to it’s