To read our full disclaimer, click here.

It started in Soho in the early hours of 1 September 1854.

Over the next ten days, more than five hundred people within 250 yards of a single street corner died of cholera. On the first day alone there were 143 fatal attacks. Within a week, three-quarters of the people in the worst-hit streets had packed up and left.

John Snow, a London doctor, believed cholera spread through water, and he suspected the public pump on Broad Street.

He got the list of deaths from the General Register Office, walked the streets himself, and found nearly all of them close to that pump. On the evening of 7 September he put his evidence to the parish Board of Guardians.

The next day the pump handle was removed.

That’s the story most people will be familiar with. Pump handle removed, cholera ended.

Snow’s book tells a slightly different story.

By the time the handle was removed, fresh attacks had dropped by more than 90% from their peak. He wrote that he didn’t know if the well was even still infected.

He knew where the disease was coming from. Just not when it would strike, or when it would go.

I’ve spent a while with his account of 1854 lately. Not for any medical reason.

“Be fearful when others are greedy” is probably the most quoted sentence in investing, and it follows straight on from Buffett calling fear and greed diseases.

Very few people mention the lines leading up to it. It usually gets taken as a sign to be greedy.

I’ve read the original 1986 letter, the letters around it, and his 2008 use of the line.

I think we have it mostly the wrong way round.

This is the second post in my Misunderstood series. I take a well-known investing saying back to its source and see what it really says.

Here’s what we’ll cover:

• What the 1986 letter actually says

• Nobody times an epidemic

• The word everyone drops

• A different well

• How the disease travels

• What being fearful costs

• October 2008: the rule without “only”

Let’s get into it…

Subscribe now

What the 1986 Letter Actually Says

Buffett signed the letter on 27 February 1987. The line is under “Marketable Securities”, in a passage about why Berkshire spent 1986 buying bonds he called “mediocre”.

Its insurance companies bought around $700m of tax-exempt bonds that year, most with 8 to 12 years to maturity. “They simply seemed the least objectionable alternative.” On stocks, nothing ticked his boxes: “we currently find no equities that come close to meeting our tests”. That wasn’t a market prediction, he noted.

He then writes:

“What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Read the whole paragraph and the meaning of the sentence changes.

• It’s a disease. Fear and greed strike and go away in their own time.

• There’s no attempt to time it. “We never try to anticipate the arrival or departure of either disease.” Four sentences of humility before we get to the bit we all know.

• It’s a goal. A modest one, at that: “Our goal is more modest: we simply attempt.”

• It’s not equal. Be fearful when others are greedy. Be greedy only when others are fearful.

And he follows that paragraph with:

“As this is written, little fear is visible in Wall Street. Instead, euphoria prevails - and why not? What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves. Unfortunately, however, stocks can’t outperform businesses indefinitely.”

So he was being fearful while others were greedy.

Look at what Berkshire actually owned.

At the end of 1986 it had $1.87bn in common stocks, and 93% of that was in three companies, Capital Cities/ABC, GEICO and The Washington Post, which it expected to own forever. Even if they looked “significantly overpriced”. New money went mostly into bonds and some arbitrage.

Being fearful meant holding on to the companies he wanted to own forever, not adding to anything else, and buying bonds that weren’t very exciting.

Read more

To read our full disclaimer, click here.

Since 2022, the Schwar Capital Research portfolio has lived in desktop tracking software on my laptop.

It did the job, but it was static and only I could see it. You got a screenshot a few times a year, and whatever happened in between stayed with me.

I wanted the portfolio to be more transparent than that, so I’ve moved it to a live tracker.

Prices update with the market, and every trade goes in on the day it happens, at the price it went through at. Paid subscribers can now view it at any time, and the first trade on it is a big one…

How I Moved It Across

Bringing the full history over wasn’t practical. The real portfolio was built across several brokers, with deposits, withdrawals, and hundreds of trades along the way. Rebuilding all of that inside a new tool would have created more errors than it fixed.

So the live portfolio starts from a fixed point:

• Start date: 1 July 2026, the first day of the second half.

• Starting value: £100,000, notional.

• Positions: exactly what the portfolio held on 1 July, at the same weights, bought at that day’s prices. The two Canadian holdings use the 30 June close, as Toronto was shut for Canada Day.

• Trades since: none between 1 July and the move, so nothing needed replaying.

The £100,000 is a round starting number. Every position is scaled up by the same factor, so the weights and the percentage returns match the real portfolio.

The live portfolio is reported in pounds.

The Record So Far

Here’s what the portfolio returned in the old tracker, from the start of 2023 up to the handover:

That’s +78.4% cumulative, or about 18% a year over three and a half years.

The returns are time-weighted, so deposits and withdrawals don’t distort them, and they’re in US dollars, the currency the old tracker reported in.

How Performance Will Be Reported

2026 is split in two.

• First half (1 January to 30 June): tracked in the old software, +6.2%.

• Second half (1 July onwards): tracked live, +6.3% from 1 July to 19 October.

At the end of the year, I’ll combine the two halves into a single 2026 figure in the annual review. From 1 January 2027, the portfolio runs entirely on the live tracker from a clean start.

Where to View It

Paid subscribers can view the live portfolio at any time from the Perks page.

View the Portfolio

The First Trade

The first trade through the new tracker is a sell, and a significant one at that.

It halves the largest position in the portfolio, and it went through two days before a deadline that will decide what happens to the rest of it.

Read more

To read our full disclaimer, click here.

At 4:14pm on Wednesday 23 September, Ashtead Technology (AIM: AT.) confirmed it had received a takeover proposal.

615p a share, in cash, from Ember Infrastructure, a New York private equity firm.

The shares had closed at 340p the day before. They finished that Wednesday at 545p, almost all of the move coming in the last few minutes of trading. As I write, they’re at 555p, about 11% below Ember’s proposal.

Full disclosure: Ashtead is the largest position in the Schwar Capital Research portfolio. I’m planning to trim it before Ember’s deadline. It’s how I manage size and risk, and it doesn’t change how I see the business. The reasoning is further down.

Since the bid, one shareholder has gone public urging the board to reject it, and the board’s own behaviour has given me something new to think about.

Subscribe now

What the Announcement Actually Says

This is Ember’s fourth approach. The board “unequivocally rejected” the first two. The announcement doesn’t say what happened to the third, but Ember came back again, and this time the board is “considering the proposal with its advisers” and has started giving Ember preliminary due diligence information.

That’s a big shift. A board that has twice said no in the strongest terms available doesn’t open its books to a bidder unless it thinks the price is somewhere close to acceptable.

The proposal is still non-binding. Under the Takeover Code, Ember has until 5pm on 21 October to either make a firm offer or walk away. That deadline can be extended, and often is.

At 615p, Ember would be paying about £498 million for the equity.

How We Got Here

In March, Ashtead reported full-year 2025 results ahead of expectations (I covered them here): revenue up 21% to £203 million, adjusted EPS of 49.4p, and returns on capital above 22%. The shares were around 400p, roughly 8x earnings. By May they had run to around 530p.

Then the conflict in the Middle East arrived.

A July trading update flagged project delays. On 20 August the company warned that 2026 revenue would come in about 5% below expectations and profit about 15% below, as Middle East work was pushed into 2027.

By 1 September, the day of the half-year results, the shares were down to 326p. The results showed revenue up just 1.1%, with margins lower.

I held through all of it.

In my view the business hadn’t broken. Work had been delayed, and delayed work tends to come back in a business like this.

That’s the moment Ember chose. A business with a strong long-term record, its shares down almost 40% from the May high, in the one year its growth had stalled.

At 615p, Ember is offering about 13x consensus 2027 earnings, for a stock that spent most of this year at 7 to 9x. It’s also about 40% above the roughly 440p the shares traded at before the August warning, which is close to a standard takeover premium on the pre-warning price. Ember is pricing the business as if the delays never happened, and adding the usual premium for control on top.

The Shareholder Who Wants the Board to Say No

On 30 September, Sun Mountain Partners, a Boston investment firm that owns about 1.4% of Ashtead’s shares, published a letter it had sent to the board urging it to reject Ember’s proposal.

Its case rests on three points:

Its portfolio manager, Christian Solberg, called selling at 615p “a giveaway of its great future to a private buyer.”

Parts of this go too far for me.

The six-year window starts around 2020, when offshore activity was close to its lows, and a large share of the growth since then came from debt-funded acquisitions.

Projecting 26.6% a year forward from a base that is now several times larger is extrapolating a great past into the future, and the top of that range depends on it.

But the core of the argument is valid.

Ember is buying a high-return business at the bottom of its cycle, on an average multiple of depressed earnings. If the delayed work comes back in 2027, the recovery belongs to Ember.

In my view, Ember is getting a very good deal.

Subscribe now

Why Would a Board Sell at the Bottom?

This board turned Ember down twice, unequivocally.

It is now engaging at a moment when its own share price is close to its low for the year, and on a year of earnings everyone agrees is below the company’s potential.

There are good reasons a board might do that.

An 81% premium to the undisturbed price is hard to turn down on behalf of shareholders, and directors have a duty to take a serious offer seriously.

But there’s another way to read it.

The people with the best view of the order book, the customer conversations and the 2027 pipeline have looked at the same recovery Sun Mountain is describing, and they’ve decided that 615p in cash today is worth engaging with. That may simply be a fair price for certainty. It may also say something about how confident management is in running this business through the next couple of years in public, quarter by quarter, with the market watching.

I don’t know which it is.

It’s the first time in my ownership that the people running Ashtead have signalled a price at which they’d consider handing it over, and I’m weighing that.

What I’m Doing

Read more

To read our full disclaimer, click here.

On the night of 28 December 1879, a storm came down the Firth of Tay.

At around quarter past seven, a train bound for Dundee started across the new Tay Bridge, at the time one of the longest bridges in the world. It never reached the other side. The high girders in the middle of the bridge collapsed into the river, taking the train and everyone on it with them. Fifty-nine victims are known by name. Estimates of the true number run as high as seventy-five.

The bridge had been open for nineteen months. Its engineer, Thomas Bouch, had been knighted for it.

The Court of Inquiry that followed reached a verdict that’s been quoted in engineering schools ever since: the bridge was badly designed, badly constructed and badly maintained.

I’ve been reading about the Tay disaster, and the engineering that came after it, for a reason that has nothing to do with railways.

The most famous idea in investing, Benjamin Graham’s margin of safety, is borrowed from engineering.

Every value investor quotes it. Most define it the same way:

Buy a stock for less than it’s worth, and the bigger the discount, the safer you are.

That definition isn’t wrong.

But having spent the last few weeks with Graham’s original chapter, Seth Klarman’s book on the subject, and a surprising amount of Victorian engineering history, I’m convinced it’s only a third of the idea. Engineers don’t just ask “is there a margin?” They have a precise way of deciding how much margin is enough, where it needs to sit, and what it costs. Graham’s original version is much closer to that than the one we repeat today.

This is the first post in a new series, Misunderstood, where I take one of investing’s most quoted ideas back to its original source and set out what it actually says. Margin of safety was the only place to start.

Here’s what we’ll cover:

• How engineers size a margin of safety

• What Graham actually wrote

• The problem with a discount to a number you made up

• Graham’s margin was a rate, not a snapshot

• Designed, built, maintained: the three ways a margin fails

• The Forth Bridge problem: what safety costs

• One bridge or many

Let’s get into it…

Subscribe now

How engineers size a margin of safety

Engineers call it the factor of safety: the ratio between the load a structure can actually bear and the load it’s expected to carry.

Warren Buffett made the same comparison in 1984, in his famous talk The Superinvestors of Graham-and-Doddsville:

“When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And that same principle works in investing.”

That bridge has a factor of three.

Engineers don’t pick this number out of the air, and they certainly don’t use the same number for everything.

Commercial aircraft are designed to a factor of safety of 1.5. It’s written into the US aviation regulations (FAR 25.303): the structure must withstand one and a half times the heaviest load it’s ever expected to meet. Lift cables, by contrast, are built with factors many times higher. After the Tay disaster, the Board of Trade told British bridge engineers to design for a wind pressure of 56 pounds per square foot, with a factor of safety of four on top.

Why would an aircraft, of all things, get less margin than a lift or a railway bridge?

Because the factor of safety is a judgement about three things:

1. How well you understand the loads. Aircraft loads have been measured, modelled and flight-tested to an extraordinary degree. The wind on a Scottish estuary in 1879 had not. The less you know about what a structure will face, the more margin it needs.

2. How bad failure would be. The more catastrophic and irreversible the failure, the more margin you demand.

3. What the margin costs. Every extra kilogram on an aircraft is weight it has to carry for its whole working life, paid for in fuel, range and payload. On a lift, extra steel is cheap.

An engineer never asks “is there a margin?” They ask how uncertain the loads are, how bad failure would be, and what the extra strength costs. The answers set the size of the margin.

Investing has exactly the same three questions. The popular version of margin of safety only answers the first.

Subscribe now

What Graham actually wrote

Chapter 20 of The Intelligent Investor is titled “’Margin of Safety’ as the Central Concept of Investment”. It opens with one of the most famous lines in investing. Asked to distill the secret of sound investment into three words, Graham’s answer is:

Margin of safety.

What follows is far less famous, and it’s where all the interesting parts are.

He starts with bonds, not stocks. For a bond, the margin of safety was the gap between what a company earned and what it owed in interest. For a railroad bond, he wanted earnings of better than five times fixed charges. That excess was the cushion: profits could fall a very long way before the interest was in danger.

This is an engineer’s factor of safety in all but name. Capacity (earnings) divided by load (interest). A factor of five.

Then he turns to stocks:

“Assume in a typical case that the earning power is 9% on the price and that the bond rate is 4%; then the stockbuyer will have an average annual margin of 5% accruing in his favor.”

There’s no discounted cash flow in that. There’s no intrinsic value estimate with a percentage knocked off. Graham’s margin of safety for a stock was the difference between two yields: what the business earns on the price you pay, and what you could earn safely elsewhere. Over a decade, he reckoned that excess could add up to something like half the price paid.

Two more lines from the chapter matter for everything that follows. The first is what the margin is for:

“The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.”

The second is what it does:

“The margin of safety guarantees only that he has a better chance for profit than for loss—not that loss is impossible.”

The problem with a discount to a number you made up

Take a simple business earning £1 a share and paying all of it out to shareholders. I assume earnings grow 12% a year for ten years, discount the cash flows at 10%, and put fifteen times earnings on the business at the end of year ten.

The model says it’s worth about £29 a share.

The stock trades at £20. That’s a 31% discount to my estimate: by the popular definition, a healthy margin of safety.

Now change one input. Earnings grow at 6% a year instead of 12%. That’s hardly a disaster; plenty of perfectly decent businesses grow at 6%. Same model, same discount rate, same exit multiple.

The value falls to about £18.50.

The margin didn’t shrink. It disappeared, and the stock is now above what it’s worth. Nothing about the price protected me, because the whole cushion was sitting inside one assumption, and that assumption was the one that turned out to be wrong.

A valuation also rarely rests on one assumption.

Say my £29 needs four things to hold:

1. The growth rate

2. The margins

3. The exit multiple

4. Management not doing anything silly with the cash.

I’m 80% confident in each. The chance that all four hold is 0.8 × 0.8 × 0.8 × 0.8, which is 41%.

My “31% margin of safety” rests on something less likely than a coin toss.

The Tay failed the same way.

Bouch’s design made no special allowance for wind pressure; the figure he had leaned on implied something like 10 pounds per square foot. By the standards of the calculation in front of him, the bridge was safe. The margin sat on top of an assumption about the load, and the load was the thing he’d got wrong. When the Board of Trade rewrote the rules, the wind allowance went up more than fivefold before a factor of safety of four was applied to it.

A factor of safety protects you from being wrong about how strong the structure is. It does very little if you’re wrong about the load.

That’s Graham’s line, “rendering unnecessary an accurate estimate of the future”, seen from the other side.

A true margin of safety doesn’t need the forecast to come true. A discount to a forecast is the forecast, with a reassuring label attached.

This is why Graham anchored the margin on demonstrated earning power (what a business had already shown it could earn) rather than what he expected it to earn.

He wasn’t against growth. But he was explicit that growth-stock buyers tend to swap expected earnings for the past record when they calculate their margin, and that the market has a habit of pricing growth at levels a conservative projection won’t protect.

Graham’s margin was a rate, not a snapshot

Go back to the 9% versus 4% passage and look at one word: accruing.

In Graham’s version, the margin of safety isn’t a gap you lock in on the day you buy. It builds, year after year, for as long as the business keeps earning more on your price than the safe alternative would pay. Five percent a year in your favour, for ten years, is a great deal of room to be wrong. But it only builds under two conditions.

The first is time.

An accruing margin needs the earning power to last. A business earning 9% on my purchase price for a decade builds a thick cushion. A business earning 9% on my price for one excellent year, then 3%, builds almost nothing, however cheap it looked on the day I bought.

This is why Graham wrote that the chief losses to investors come from the “purchase of low-quality securities at times of favorable business conditions.”

It’s the trap waiting for anyone who treats a low price-to-earnings ratio as a margin of safety.

A cyclical business at the top of its cycle almost always looks cheap, because the earnings in the ratio are the best it’s going to see. The multiple looks like a cushion. In reality, it’s a snapshot of a rate that’s about to fall.

The second is the comparator.

Graham didn’t measure the margin against zero. He measured it against the bond rate. The same business on the same 6% earnings yield carries a very different margin of safety when government bonds pay 1% than when they pay 4.5%. The business hasn’t changed at all. The margin has.

The “discount to intrinsic value” framing hides this completely. A 30% discount looks identical whatever interest rates are doing. Graham’s version doesn’t.

Subscribe now

Designed, built, maintained: the three ways a margin fails

Go back to the Court of Inquiry’s verdict on the Tay: badly designed, badly constructed and badly maintained.

Those are three different failures.

• Design: the engineer’s calculations didn’t allow for the loads the bridge would face.

• Construction: the materials weren’t what the design assumed. The cast-iron lugs that held the cross-bracing to the columns were cast integrally with the columns. When they were tested after the disaster, they failed at loads far below what had been expected.

• Maintenance: once the bridge was open, loosening ties weren’t properly reported or dealt with.

Any one of those can bring a bridge down, and a larger factor of safety on the drawings does nothing about the other two.

Seth Klarman, who wrote the book named after the idea, explains why investors need a margin of safety in a single sentence:

“A margin of safety is necessary because valuation is an imprecise art, the future is unpredictable, and investors are human and do make mistakes.”

I’d read that line many times before I noticed it describes three different errors, and that they line up almost perfectly with the Tay’s three failures. Each needs its own kind of buffer.

Valuation is an imprecise art → design → the buffer is price.

This is the part everyone knows: pay less than the business is worth. As we’ve just seen, though, it needs to be less than the conservative case, not the central one. A wide valuation range forces a lower price. A narrow one is usually a sign you’re fooling yourself.

The future is unpredictable → construction → the buffer is the business and the balance sheet.

Most investors underweight this buffer.

Net cash, low leverage, recurring revenue, pricing power, a product customers can’t easily do without. None of these make your forecast more accurate. What they do is buy time to be wrong without the business being forced into a bad decision. They are the quality of the steel, not the calculation.

Take two businesses, each with an enterprise value of £100m. One has no debt. The other has £50m of debt and £50m of equity. Something goes wrong and the underlying business value falls by 20% in both.

The first company’s shareholders lose 20%. The second company’s shareholders lose 40%. The debt doesn’t shrink, so every pound of the fall lands on the equity. Same business, same fall, twice the damage. And that’s before the lenders start setting the timetable.

A cheap share price on a stretched balance sheet is a bridge with a generous factor of safety on the drawings and weak lugs on the columns.

Investors are human → maintenance → the buffer is process.

This buffer has nothing to do with the company. It’s position size. For me, the size of a position should reflect how likely a permanent loss is, not how exciting the upside looks. A margin of safety applied to me rather than the stock.

It’s also deciding in advance what would change my mind, and writing it down before I buy, while I’m still objective, rather than after the price has fallen and I’m defending an idea I’ve grown attached to. Loosening ties are easy to spot on a bridge you’re inspecting every week. They’re very hard to see on one you’re emotionally invested in.

Klarman’s first error is the engineer’s first question: how well do you understand the loads? His second and third errors decide the engineer’s second question: how bad would failure be? Leverage, an oversized position, or a thesis you can’t let go of all turn a manageable mistake into an irreversible one.

The engineer’s third question, what the margin costs, is the one investors almost never ask.

The Forth Bridge problem: what safety costs

Bouch had also designed a suspension bridge to carry the railway across the Firth of Forth. After the Tay, that design was abandoned.

What replaced it was Sir John Fowler and Benjamin Baker’s great cantilever bridge, which opened in March 1890. It was designed for the new wind rules, it used around 53,000 tonnes of steel, and it cost about £3 million, an enormous sum at the time. It is one of the most recognisable structures in the world, still carrying trains more than 130 years later.

It’s also routinely described as one of the most over-engineered.

The Forth Bridge is the right answer to the Tay disaster. It’s also a reminder that margin of safety is never free.

For an engineer, the cost is weight, steel and money. For an investor, the cost is the great businesses you never own because they never got cheap enough, and the years spent in cash waiting for a price that never comes.

Those costs are real.

They just never show up on a statement. An investor who demands a 50% discount on everything will rarely lose money on the shares they buy. They’ll also rarely notice the compounders they passed on, because the mistake of not buying leaves no trace in a portfolio.

The error of omission is the most expensive mistake that nobody records.

After the Tay collapsed, the pendulum swung hard towards caution, and the next bridge was built to survive almost anything. Investors do the same after a crash.

The margin of safety they demand balloons at exactly the moment prices are offering the most of it. Engineers can afford an over-correction; the Forth Bridge still stands. An investor who over-corrects can miss the whole recovery.

So what about the truly exceptional business that never trades at fifty pence on the pound?

The aircraft engineers have the answer. When weight is expensive, they don’t abandon safety.

They move it.

The safety comes from understanding the loads better than anyone else does, from redundancy across many components, and from inspection regimes that catch cracks before they matter. The factor of safety on any one part is lower because the safety has been built somewhere else.

For a truly durable business, the margin can sit less in the price and more in the business itself: how predictable its demand is, how little capital it needs to grow, and how strong its balance sheet is.

Graham’s own framing allows for this. His margin was earning power relative to price, so a business that will reliably earn more, for longer, keeps building that accruing margin whether or not it looked cheap on day one.

But the catch is the same one the Tay teaches.

A lower factor of safety is only justified when you really understand the loads.

Subscribe now

One bridge or many

Straight after saying the margin only guarantees a better chance of profit than loss, Graham adds:

“But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses.”

For Graham, margin of safety and diversification belonged together. Each position has a better-than-even chance of working out. Put enough of them together and the law of large numbers does the rest.

His margin was a property of the portfolio as much as of any single stock.

Engineers think this way too.

A structure with many redundant members can lose one without falling down. A structure that depends on a single member can’t afford for that member to fail.

This has an uncomfortable implication for concentrated investors, and I count myself as one.

With eight or ten positions, there aren’t enough bets for the averages to rescue a thin margin. Each position has to carry its own buffer. For a concentrated investor, the margin on any single name needs to be wider than Graham’s diversified version, not narrower. Fewer repetitions means less room for the odds to play out.

The Takeaway

Graham’s three-word motto has lasted because it’s so easy to repeat.

What it actually contains is a lot more demanding.

Engineers size their margins by how well they understand the loads, how bad failure would be, and what the extra strength costs. Graham built his from earning power rather than forecasts, measured it against the safe alternative, let it accrue over time, and relied on many positions to finish the job. And the Tay is a reminder that a generous calculation on paper protects nothing if the load was misjudged, the materials were weak, or no one was watching the ties.

These four questions sit in our own checklist whenever we think a position has a margin of safety:

1. If my key assumption is wrong in the most likely direction, is the price still below value? If not, I’m holding a forecast, not a margin.

2. Is the margin accruing? Is the business earning well above the safe alternative on my price, and will that last, or am I buying one good year at a low multiple?

3. Which of the three failures has no buffer? Price covers the design. The business and balance sheet cover the materials. Sizing and a written plan cover the maintenance. A position protected in only one of the three is far less safe than its discount suggests.

4. What is the margin costing me? If I’m demanding a margin so wide that nothing ever qualifies, that’s a cost too, even if it never appears in the returns.

The Tay Bridge was, by the calculations in front of its engineer, perfectly safe. A margin of safety is only ever as good as your understanding of what it’s protecting against.

Next time in Misunderstood: “be fearful when others are greedy”. It’s one of the most repeated lines Buffett ever wrote, and the 1986 letter it comes from says something far more modest, and far more useful, than the version on every dip-buyer’s lips.

Have a great week ahead,

Dom
Schwar Capital Research

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. You can see our full disclaimer here.

To read our full disclaimer, click here.

Perma-Pipe International Holdings reported second quarter fiscal 2026 results on 9 September, for the quarter ended 31 July.

The headline: the underlying business grew faster than the reported numbers suggest.

• Net sales grew 24.4% to $59.6 million.

• Gross profit grew 20.7% to $17.4 million.

• Adjusted income before tax grew 70% to $8.3 million.

• GAAP diluted EPS grew to $0.31 from $0.10, after absorbing a $3.9 million receivable write-off.

• Backlog reached $142.3 million, up from $121.6 million at year-end and $136.5 million at the end of Q1.

• $67.8 million of new orders were booked in the quarter.

• Net debt fell to $4.3 million from $13.8 million at year-end, with $13.3 million of operating cash flow in the first half against a $1.3 million outflow a year ago.

Then, on 25 August, the company closed a new global credit facility with JPMorgan Chase: a $75 million revolver, a $14 million term loan, up to $50 million of incremental capacity and $30 million of letter-of-credit availability. Around $90 million of committed capital at closing, against a previous facility of $18 million.

This is also the first quarter Perma-Pipe has hosted an earnings call. Management said it will now be a regular quarterly event, and they have appointed an IR agency. For a company that until recently communicated almost entirely through press releases, that is a change in posture worth noting.

In the rest of this post, I cover:

• The quarterly numbers and what the $3.9 million charge does and does not tell us

• Margins, and why they are sitting below the 30%+ level management is targeting

• The backlog, the $67.8 million of new orders, and what management said about third-quarter conversion

• The JPMorgan facility and what it changes about the projects Perma-Pipe can bid on

• The Jordan joint venture with Welspun, the Aramco qualification, and the data center comments

• What I am watching from here

Read more

To read our full disclaimer, click here.

This post is not a victory lap.

It is the exercise I try to do whenever a position moves a long way in a short time.

On June 19 I wrote up a US-listed rare disease company and initiated a 5% position at $30.70.

The stock trades at around $61 today.

That is a gain of roughly 100% in 76 days. The position has doubled.

This post goes through the June thesis pillar by pillar, what the run-up has and has not changed, the eight risks I listed then and where each stands now, and what I am doing with the position.

Read more

To read our full disclaimer, click here.

Greg Abel wrote the 2025 letter.

That is the first time in sixty years the annual letter has arrived without Buffett’s name on it, and it turns a running commentary into something closer to a finished text.

You can now read the whole thing end to end and see which ideas he held from 1977 to the finish, which ones he changed his mind about, and which ones he admitted, in print, that he got badly wrong.

The performance table at the front of that 2025 letter still reads: 19.7% compounded annually since 1965, against 10.5% for the S&P 500. Sixty years of a nine-point gap.

I’ve picked ten lessons from the letters.

Not the ten most quoted - the ten that actually change what I do on a Tuesday morning when I’m looking at a company.

Most of them cost Buffett money to learn.

Subscribe now

1. Time is the friend of the wonderful business and the enemy of the mediocre

This is the one everything else hangs off, and the proof is the company whose name is on the letterhead.

Buffett bought Berkshire Hathaway because it was cheap. A failing New England textile mill, available below what he thought it was worth, on the assumption that some temporary improvement would let him sell it on at a profit.

By 1989 he was calling it his first big mistake as an investor. By 2010 he had upgraded that to his biggest mistake ever, estimating that buying the textile business rather than putting the money directly into insurance had cost roughly $200 billion over the following forty-five years.

The mechanism is simple and most investors underrate it.

A mediocre business doesn’t sit still while you wait for the re-rating. It consumes capital, earns below its cost of capital, and every month you hold it your money is compounding at the business’s rate rather than yours.

A great business does the opposite. Time is doing work for you or against you the entire time you own something - there is no neutral setting.

“In both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.”

2. Cheap is not a thesis

The clearest example of this in the letters is Waumbec Mills, a New Hampshire textile business Buffett bought in the mid-1970s.

The price was below the working capital of the business. He acquired, as he put it in the 1979 letter, “very substantial amounts of machinery and real estate for less than nothing.” On a spreadsheet it was free money.

It didn’t work.

The textile industry was going into a structural downturn and nothing he or anyone else did could arrest it.

From the 1985 letter:

“In the end nothing worked and I should be faulted for not quitting sooner. A recent Business Week article stated that 250 textile mills have closed since 1980. Their owners were not privy to any information that was unknown to me; they simply processed it more objectively.”

That last sentence is the useful one. He had the same facts as everyone who left the industry earlier. The discount was doing his thinking for him.

The conclusion he drew, in the 2014 letter, is the version worth writing down:

“It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone.”

3. Growth and value are joined at the hip

Buffett spent decades being claimed by people who think value means low multiples.

He rejected the whole framing in the 1992 letter, and he included himself in the criticism:

“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago)… Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.”

Note the last clause, because it’s the half nobody quotes.

Growth can be negative to value. A business growing quickly at returns below its cost of capital is destroying value faster the faster it grows.

His own formulation of value investing is “finding an outstanding company at a sensible price” rather than a mediocre company at a cheap one.

Those are different activities requiring different skills, and the second is much more crowded than it looks.

Subscribe now

4. The assets that matter often aren’t on the balance sheet

Buffett was trained by Graham to trust tangible assets and distrust goodwill. He says plainly in the 1983 letter that this cost him:

“I was taught to favor tangible assets and to shun businesses whose value depended largely upon economic Goodwill. This bias caused me to make many important business mistakes of omission, although relatively few of commission.”

What changed his mind was See’s Candy.

In the early 1970s See’s produced about $2M a year after tax on $8M of net tangible assets - around 25% after tax on tangible capital, which is not a candy-shop number. By 1982 it was $13M after tax on $20M of net tangible assets, roughly 65%.

There was no plant, no patent, no scale advantage.

The source of the returns was what Buffett called “a pervasive favorable reputation with consumers based upon countless pleasant experiences they have had with both product and personnel.”

The second-order point is about inflation, and it’s the reason this lesson has aged well.

Asset-heavy businesses have to keep funding replacement capital at higher and higher prices just to stand still.

Asset-light businesses with real pricing power don’t.

“During inflation,” he concludes, “Goodwill is the gift that keeps giving.”

5. Judge management by the incentive, not the CV

When Berkshire bought H. H. Brown Shoe in 1991, Buffett wrote that the compensation plan “warms my heart.”

Managers took $7,800 a year in salary - a token - plus a share of profits after those profits had been reduced by a charge for the capital employed.

That is the whole of capital allocation discipline written into one payslip. A manager who wants a bigger bonus by expanding working capital or building a facility has to clear the cost of that capital first. There is no way to look busy and get paid.

Compare it to what he describes as the norm.

In the 2005 letter, on how comp committees actually work:

“Three or so directors - not chosen by chance - are bombarded for a few hours before a board meeting with pay statistics that perpetually ratchet upwards. Additionally, the committee is told about new perks that other managers are receiving. In this manner, outlandish ‘goodies’ are showered upon CEOs simply because of a corporate version of the argument we all used when children: ‘But, Mom, all the other kids have one.’”

And on options, from the 2018 letter:

“Managements sometimes assert that their company’s stock-based compensation shouldn’t be counted as an expense. What else could it be - a gift from shareholders?”

Reading the remuneration report before the strategy section is not cynicism. It’s the fastest available read on what the business is actually optimising for.

6. A company’s own shares are a currency, and management has to price it

Two lessons in the letters point at the same underlying skill, from opposite directions.

1. Buying. Buffett is more enthusiastic about buybacks than most value investors, but only under one condition: the shares have to be below intrinsic value. From the 1999 letter: “Buying dollar bills for $1.10 is not good business for those who stick around.” He is explicit that a board announcing it will repurchase a fixed number of shares over a fixed period, regardless of price, is doing something he’d consider foolish in a retail investor. It’s “buy when it’s cheap,” never “buy just because.”

2. Issuing. The other side of that is his worst deal, and he says so himself. Berkshire acquired Dexter Shoe in 1993 for what looked like $400M - except he paid in Berkshire stock rather than cash. The competitive advantage he thought he’d bought vanished within a few years as cheap imports arrived. The business went to roughly zero.

“By using Berkshire stock, I compounded this error hugely. That move made the cost to Berkshire shareholders not $400 million, but rather $3.5 billion. In essence, I gave away 1.6% of a wonderful business - one now valued at $220 billion - to buy a worthless business.”

He later added:

“Today, I would rather prep for a colonoscopy than issue Berkshire shares.”

For anyone who owns serial acquirers, this is the single most important test.

The acquisition multiple matters less than the currency it’s paid in.

• Cash or cheap debt buying a good business at a fair price compounds.

• Undervalued equity buying anything at all is a permanent transfer from you to the seller.

💡 Finding this valuable? Share it with someone who’d benefit.

Share

7. If you can’t underwrite the durability, you don’t own it

The version of this lesson people repeat is “stay in your circle of competence,” which is vague enough to be useless.

The letters are more precise: the thing you have to be able to predict is not the industry’s growth, it’s the durability of one company’s advantage.

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”

His example is the automobile.

If you had foreseen in 1900 exactly how big cars would become, you would have thought you’d found the road to riches. At one point there were around 2,000 separate car brands in the United States. By the 1990s there were three American car companies left. Aviation was worse - by 1992 the entire US airline industry had produced, cumulatively, no profit at all.

The same instinct shows up in what he refuses to hold.

When Berkshire bought General Re in 1998 it inherited a derivatives book of 23,218 contracts with 884 counterparties. It took five years and more than $400M to unwind.

His comment: he could have hired fifteen of the smartest maths PhDs available and given them free rein to build any reporting system they liked, and he still wouldn’t have been able to see his own exposure.

If the disclosure can’t tell you what you own, the position size is the only risk control you have left.

8. Inactivity is a position, not an absence of one

From the 2005 letter, on Isaac Newton losing a fortune in the South Sea Bubble:

“If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

The gap this describes is real and measurable.

Over 1997 to 2016, the average active stock investor earned roughly 4% a year while the S&P 500 returned about 10%. Almost all of that gap is behaviour, not analysis.

The specific behaviour he singles out is trimming winners because they’ve become large:

“To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.”

I’d add one honest caveat that Buffett doesn’t, because he’s had a permanent capital base and most of us haven’t.

Trimming for risk management is sometimes correct and it usually costs you money. Both things are true. What’s not defensible is trimming because a position “feels rich” while the business is doing exactly what you underwrote it to do.

His summary, from 1990:

“Lethargy bordering on sloth remains the cornerstone of our investment style.”

9. Never own stocks with borrowed money

Buffett has been unusually blunt about this, and he supports it with the one table that makes the argument better than any paragraph could.

Berkshire - a business that has compounded at nearly 20% for sixty years, run conservatively, with no existential threat to its solvency at any point - has seen its own shares fall by 37% or more on four separate occasions:

• March 1973 – January 1975: 93 to 38

• October 1987: 4,250 to 2,675

• June 1998 – March 2000: 80,900 to 41,300

• September 2008 – March 2009: 147,000 to 72,400

“There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”

The second sentence is the real risk.

Leverage doesn’t only threaten you with a margin call - it degrades your judgement at precisely the moment good judgement is worth the most.

“We believe it is insane to risk what you have and need in order to obtain what you don’t need.”

He’ll borrow at modest rates when credit is cheap, so that the money is already in hand when it isn’t.

The objection is specifically to borrowing against a mark-to-market portfolio you don’t control.

Subscribe now

10. Save in peacetime so you can spend in war

In 1973 the Washington Post was widely thought to be worth somewhere between $400M and $500M. The market was pricing it at about $100M.

Buffett put in roughly $10M for more than 1.7 million shares.

Then it kept falling.

By the end of 1974 the position was down - his $10.6M of value had become $8M - in the middle of a bear market that took the Dow from 1020 at the start of 1973 to 616 by the end of 1974.

By the time Jeff Bezos bought the paper in 2013, the stake was worth around $1.01B.

The reason the story is instructive isn’t the multiple.

It’s that the opportunity and the capacity to act on it arrived at the same moment, and the capacity had to be built beforehand. From the 2016 letter:

“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”

The Takeaway

What strikes me most, reading forty years of letters as one document, is how much of the value is in the admissions.

The textile mill. Waumbec. Dexter. General Re. The bias against goodwill that cost him decades of good businesses he could have owned.

Each of those has a lesson attached that he could not have written without first paying for it.

The letters give you the wrong turn, the cost, and the reasoning that changed - which is the part you can use, because your own mistakes will look nothing like the conclusions and quite a lot like the wrong turns.

The letters are free. All of them, at berkshirehathaway.com, going back to 1977.

Have a great week ahead,

Dom

Schwar Capital

Share

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.

To read our full disclaimer, click here.

Christopher Nolan has just put Homer’s Odyssey on the big screen, and everyone is suddenly talking about a 3,000-year-old story about a very long journey home.

Which makes this the perfect time to revisit a talk Chuck Akre gave in Omaha in May 2011, at the 8th Annual Value Investor Conference, the day before Berkshire’s annual meeting.

He called it “An Investor’s Odyssey: The Search for Outstanding Investments.”

The title wasn’t an accident.

Akre started in the investment business in 1968 with a degree in English literature and, by his own account, no idea what he was doing.

It took him decades of wrong turns, strange encounters, and hard-won lessons to arrive at the framework that built one of the great long-term track records in American investing.

Odysseus took ten years to get home. Akre took about twenty.

The lessons he brought back are worth your time…

Subscribe now

The Destination: Compounding

Every odyssey needs a destination. Akre is unusually clear about his.

He opens the talk with a question he says he puts to friends: which would you rather have - $750,000 today, or the outcome of a penny doubling every day for 30 days?

Most people say the penny, because they sense a trick. Almost nobody can say what the penny is actually worth: a little over $10.7 million.

That gap - between knowing compounding matters and understanding what it actually does - is, in Akre’s telling, where most investors live.

His firm’s entire stated goal is to compound clients’ capital at an above-average rate while incurring a below-average level of risk. Everything else in the talk hangs off that.

Two things sharpened his thinking early:

• In 1972 he read “100 to 1 in the Stock Market” by Thomas Phelps, an analysis of stocks that had turned $1 into $100, and the characteristics they shared.

• In 1977 he bought his first Berkshire Hathaway shares, at around $120. By the time of this talk they were a thousand-bagger.

Then he offers the hypothesis that quietly organises his whole approach:

One’s return from an asset will, over time, approximate the ROE, given the absence of any distributions and given a constant valuation.

Common stocks have returned roughly 10% a year across the 20th century.

The real return on the owner’s capital across American business, adjusted for what Akre calls “the accounting garbage”, sits in the low teens. He doesn’t think that’s a coincidence.

Over long periods, your return converges on the economics of the business you own.

So if the market averages 10% because the average business earns low-teens returns on capital, the way to beat it isn’t cleverness with entry and exit points. It’s owning businesses that earn far more than that - and holding on.

Which raises the obvious question: how do you find them?

The Three-Legged Stool

Akre’s answer is a visual construct his firm had used for years: an early 20th-century three-legged milking stool.

Why three legs? Because three legs are sturdier than four, and they sit steady on uneven ground. Each leg is a test, and he has a story about what happens when one of them fails.

Leg one: the business model

What is producing the high returns on capital? A patent, scale, low-cost production, lack of competition? In his office the question was always: “How wide and how long is the runway?”

The point of the leg is that the source of the returns is often not obvious.

Akre gave an intern a box of clippings, and the intern came back excited about Bandag - a Muscatine, Iowa company earning 20% returns on capital in truck-tyre recapping. Every other tyre company earned single digits. So Bandag couldn’t really be in the tyre business, whatever it said on the door.

The real answer turned out to be a network of fiercely loyal independent dealers, cemented by how generously the company had treated them during the 1973-74 oil embargo.

When that loyalty structure lost its underpinnings, Akre sold. Profitable investment, not a great compounder - because the thing causing the good returns didn’t last.

His second example cuts the other way: in the early days, Bill Gates and Paul Allen tried to sell Microsoft to IBM and were turned down.

Akre’s conclusion is that neither party understood what was actually valuable about Microsoft - which went on to become, in his words, the most valuable toll road in modern business history.

If the people running the company can’t always see the source of the strength, an outside investor should expect to work hard for it.

Leg two: the people

Akre borrows a line from his friend Tom Gayner: do the managers have equal parts skill and integrity? And he adds a rule from his own experience:

Once someone puts his hand in your pocket, he will do so again.

The story here is Charlotte Motor Speedway. Akre owned a tiny stake when the controlling shareholder - a man previously barred by the SEC from association with the company - tendered for the minority shares at a price Akre considered far below fair value. He joined the litigation, which eventually settled at several times the going-private price.

He won the case. He never again owned anything that man controlled. When you run a concentrated portfolio, there is simply no room for managers you have real questions about.

Leg three: reinvestment

This is the leg people miss, and Akre calls the reinvestment question “perhaps the single most important issue facing any CEO.”

A high-return business run by honest people still isn’t a compounding machine unless it can redeploy the cash it generates at those same high rates.

His cautionary tale is a company called American List, which sold data on high-school seniors to razor-blade marketers. 50% net margins. A genuinely wonderful business. And no way to reinvest a dollar of it - so the CEO paid everything out as dividends. One wonderful business, two intact legs, and no third leg. It never compounded.

His favourite question for CEOs follows directly: “How do you measure the ways in which you are successful in running a business?”

Very few give the answer he wants - growth in real economic value per share.

The opening pages of the Berkshire annual report showed that number growing about 20% a year for 40 years. That, in his view, is the whole game.

Subscribe now

The Sirens

Homer’s hero had to be tied to the mast to survive the sirens. Akre’s version of the sirens is the temptation to trade a great business because the price has moved.

His confession is one of the most useful passages in the talk:

If I sell a stock at $30 because it’s too rich, and I set in my mind that I’m going to buy it back at $23, inevitably it trades to $23 and an eighth... and I never get back. And the next time I look, instead of being $30, it’s $300.

The really great compounders are, in his words, too hard to find and too hard to replace.

So while valuation discipline matters on the way in - he’s “very stingy” and simply won’t pay too much - the discipline on the way out is mostly to do nothing while the three legs remain intact.

The flip side is what he does when prices collapse.

Akre defines risk as permanent loss of capital, and treats volatility as an opportunity generator.

American Tower is his proof.

His firm had accumulated shares at an average cost of $5; by late 2002 the market, fixated on more than 16 times debt-to-EBITDA and a looming convertible maturity, had taken the stock to 71 cents. Akre flew to Boston, satisfied himself the business model was intact - more towers, more tenants per tower, more rent per tenant, with tower-level margins around 90% - and took a large position at 80 cents.

The business went on to earn roughly 30% returns on invested capital over the 1998-2010 period, and from the October 2002 bottom the shares compounded at about 66% a year. A high-return business bought at a depressed valuation gives you both the business return and the re-rating on top. Akre calls it the Davis double play. The same shares bought in February 1998 compounded at 11%. Same company, same machine - the starting price has everything to do with your compound return.

What This Means for How We Invest

Asked at the end for his biggest mistake, Akre doesn’t name a losing stock. His answer: not buying enough of the ones that were really good.

That answer, and the framework behind it, maps closely onto how we run money at Schwar Capital:

1. We anchor on the economics, not the story. Over time, returns converge on the underlying return on capital. That’s why ROIC and reinvestment sit at the centre of our checklist, not revenue growth on its own.

2. We ask all three questions, every time. A moat without honest management, or great management without a reinvestment runway, is two legs of a stool. Our worst candidates historically fail the third leg quietly - good businesses that generate cash they cannot usefully redeploy.

3. We treat integrity as binary. One hand in the pocket is enough. There is no valuation at which we’ll partner with management we don’t trust, because in a concentrated portfolio there’s nowhere to hide.

4. We pre-commit to holding. The $30-to-$300 problem is a biology problem as much as an analytical one, and we’ve written before about building processes for the worst version of yourself. Trimming a compounder because it “feels rich” is exactly the siren song Akre spent forty years learning to resist.

5. We keep capital ready for the American Tower moments. Drawdowns in businesses whose legs are intact are where the double play lives. The analysis is only useful if you can act when the market is offering 80 cents.

Subscribe now

The Takeaway

Fifteen years on, the talk holds up because almost nothing in it depends on 2011. The three-legged stool - business model, people, reinvestment - is a complete test, and each leg fails in a distinctive way: Bandag’s moat quietly eroded, Charlotte Motor Speedway’s owner put his hand in Akre’s pocket, and American List had nowhere to put the money.

Odysseus’s journey was only worth telling because he knew where home was.

Akre knew too: a small number of businesses that can compound the owner’s capital at high rates for a very long time, bought at sensible prices, and then - the hardest part - left alone.

The search is the odyssey. The compounding is home.

Have a great weekend,

Dom
Schwar Capital

Leave a comment

📌 PS - If you found this post valuable, please consider sharing it with someone who might benefit from reading. 🙏

Thanks for reading Schwar Capital! Subscribe for more content like this.

Share

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.

To read our full disclaimer, click here.

Gore-Tex. Dyneema. 3M Scotchgard.

The most valuable companies in industrial materials don’t sell finished products.

They sell ingredients.

They embed their branded, patented material inside somebody else’s premium product, then collect margin every time that product sells.

Today’s company is attempting to become the next of these.

On June 12th, I bought it into the Schwar Capital portfolio at $3.18 CAD - a 2.6% weight. The position is up roughly 13% as of writing.

And on June 24th - twelve days after I bought - the company reported the strongest quarter in its public history.

The updated numbers are worth paying attention to:

• Revenue of $3.06M in the most recent quarter, up 94% year-over-year - a record

• First-half revenue up 90% to $5.39M

• Gross margin of 44% - the sixth consecutive quarter inside the 40-45% target range

• Material delivered to 12 new customers in a single quarter

• Pack & Bag - the newest vertical - now 19% of quarterly revenue, up from 3% a year ago

• Patent protection on the core process running through mid-2037

• $13.7M of cash on the balance sheet, against a related-party loan repaid in full

• The lease for a new facility just signed, funding a ~10x manufacturing capacity expansion

• ~34% insider ownership; the former President of the world’s leading competing fiber technology sits on the board

Today’s company is...

Read more

To read our full disclaimer, click here.

Most hardware microcaps look the same on a screener.

Lumpy quarters. Thin margins. A P&L that never quite compounds.

Every once in a while, one of them has been quietly building a second business behind the first - a recurring revenue line under every unit that ships, growing patiently for years.

Then the recurring line covers the entire cost base. Every next sale drops through at high margin. The whole business is a different animal to what it was two quarters ago.

That is what just happened here.

Last month I initiated a 2.5% position in the Schwar Capital portfolio.

Today’s company is…

Read more

To read our full disclaimer, click here.

Every investor has a handful of books that genuinely changed how they see the world.

Not the ones that sit pretty on a shelf to impress visitors.

The dog-eared ones. The ones with margins full of scribbles and pages folded at the corners.

These are mine.

I’ve tried to organise them into categories, though the best books tend to bleed across boundaries.

Some taught me how to value businesses. Others taught me how to think. A few did both.

Subscribe now

The Taleb Trilogy

These three books rewired my brain. If I could only recommend one author to any investor, it would be Nassim Taleb.

Fooled by Randomness - The book that made me realise most of what I thought was skill was probably luck, and most of what looked like luck was probably skill going unrecognised.

The Black Swan - Taught me that the events we dismiss as impossible are often the only ones that truly matter.

Antifragile - The concept that some things gain from disorder changed everything about how I construct portfolios and think about risk.

Value Investing Foundations

The classics exist for a reason. I return to these constantly.

The Intelligent Investor - Graham’s margin of safety concept is the bedrock everything else builds upon. Chapter 8 and Chapter 20 alone are worth the price of admission.

Essays of Warren Buffett - Buffett’s shareholder letters organised by theme. Pure, unfiltered wisdom on capital allocation, management, and business quality.

Poor Charlie’s Almanack - Munger’s mental models framework fundamentally changed how I approach problems. The inversion principle alone is worth hundreds of hours of saved mistakes.

One Up on Wall Street - Peter Lynch made investing feel accessible. His emphasis on understanding what a company actually does before buying remains underrated.

University of Berkshire Hathaway - Decades of annual meeting Q&As distilled into one book. The closest thing to sitting in Omaha without buying the plane ticket.

The Most Important Thing Illuminated - Howard Marks explains why being right isn’t enough; being different and right is what matters.

The Dhandho Investor - Mohnish Pabrai distilled the essence of low-risk, high-reward investing into something anyone can understand. Heads I win, tails I don’t lose much.

The Multi-Bagger Playbook

100 Baggers - Chris Mayer’s masterpiece on what it actually takes to hold a stock long enough to see it multiply 100 times.

100 to 1 in the Stock Market - Thomas Phelps wrote this in 1972 and somehow it’s still the best study of what makes a company compound for decades.

The Outsiders - William Thorndike profiles eight CEOs who massively outperformed by thinking differently about capital allocation. I try and look for these traits in every management team.

Learning from the Masters

No amount of theory replaces studying those who’ve actually done it.

The Snowball - The definitive Buffett biography. Understanding how he evolved as an investor - from cigar butts to quality compounders - is essential.

The Alchemy of Finance - Soros’s reflexivity framework is uncomfortable because it’s probably right. Markets aren’t just discounting machines; they’re participants in the outcomes they’re supposedly predicting.

Investing for Growth - Terry Smith’s approach is deceptively simple: buy good companies, don’t overpay, do nothing. The execution is where most fail.

Decision Making & Mental Models

Investing is applied decision-making under uncertainty. These books made me better at it.

Thinking, Fast and Slow - Kahneman maps the systematic errors wired into human cognition. Once seen, they’re everywhere. Especially in markets.

Thinking in Bets - Annie Duke’s poker-trained framework for making decisions when the information is incomplete and the feedback is noisy.

Seeking Wisdom - The closest thing to a thinking toolkit. I keep it within arm’s reach.

More Than You Know - Michael Mauboussin connects investing to fields most ignore: biology, psychology, complexity science. Always makes me think differently.

Timeless Wisdom

Scale - Geoffrey West reveals the mathematical laws that govern growth, from cities to companies. Changed how I think about sustainable growth rates.

Against the Gods - Peter Bernstein’s history of risk. Understanding where our tools came from makes clear where they might fail.

The Success Equation - Mauboussin again, this time unpacking the skill-luck continuum. Essential for knowing when results are meaningful.

Same as Ever - Morgan Housel’s meditation on what never changes. In a world obsessed with predicting the future, focusing on constants is a genuine edge.

Financial Intelligence - Shows that accounting is less science than language, and like any language, it can be used to clarify or obscure.

Final Thoughts

Reading these books have shaped how I think about uncertainty, value, and decision-making in ways that compound over time.

The best investment books aren’t really about investing at all.

They’re about understanding the world clearly and acting accordingly. Everything else follows from that.

I’ll keep adding to this list as new books earn their place. In the meantime, if there’s one category to start with, it’s Taleb. Understand randomness and fragility first. Everything else will make more sense after.

Dom
Schwar Capital

Leave a comment

📌 PS - If you found this post valuable, please consider sharing it with someone who might benefit from thinking differently about cash and opportunity. 🙏

Thanks for reading Schwar Capital! Subscribe for more content like this.

Share

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.

To read our full disclaimer, click here.

Every so often a small-cap operator quietly raises their long-term ambition by an order of magnitude.

Most of the time the market dismisses it as bravado. Sometimes, looking at the execution that came before it, the new ambition deserves to be taken seriously.

This one, I think, deserves to be taken seriously.

Subscribe now

A US-listed small-cap with structural moats at the product level. A high-margin model. A management team that under-promises and over-delivers. A string of catalysts already hit and another string still queued.

In the last six months alone:

• Their biggest pipeline asset received regulatory approval, with a meaningfully better outcome than the consensus had modelled

• Gross margins expanded to 73%

• The company turned GAAP profitable for the first time

• The product portfolio grew through a disciplined, cash-funded acquisition with no dilution and no debt

• Long-term targets were raised twice

• Last month, management laid out a 10-year vision that, if even half-delivered, repositions the entire investment case

Last week I initiated a 5% position in the Schwar Capital portfolio.

Today’s company is…

Read more

To read our full disclaimer, click here.

There’s a question every concentrated investor eventually gets asked: if you believe in concentration, why do your new positions start so small?

It looks like a contradiction. It isn’t. And resolving it is the single most important idea in how I now build a portfolio:

Concentration is the end state, not the starting position. Size is earned, not assigned.

This post walks through the whole framework - the tiers, how positions move between them, and why that movement is really just “cut your losses, let your winners run” built into the structure instead of left to willpower. Then, for paid subscribers, I’ll show you exactly what my own pyramid looks like right now, name by name, and why I’m running a more concentrated version than the textbook.

Subscribe now

Why structure matters more than stock-picking

Microcap returns don’t arrive evenly.

They follow power laws: over any meaningful period, a small handful of positions drives nearly all of the return, a larger group does roughly nothing, and a few lose money.

The uncomfortable truth is that you can’t reliably know in advance which position belongs to which group.

Research improves your odds - that’s the job - but certainty isn’t on offer at the moment you buy.

So the portfolio has to be built as a discovery machine rather than a set of finished convictions.

Many small bets at the bottom. Capital flowing toward whichever ones prove themselves. Mistakes dying cheaply before they can do real damage.

The structure does as much work as the stock selection.

Here’s the shape I’m aiming for:

The three tiers

• Toeholds (2–5% each): Auditions. A new idea enters here no matter how excited I am, because excitement at the point of purchase is the least reliable signal in investing. The position is small enough that a total thesis failure - down 40%, idea dead - costs the portfolio one or two percent. Every toehold gets written promotion criteria on day one: the specific, dated milestones that would justify buying more.

• Scaling positions (6–10% each): A toehold gets promoted here when the business - not the share price - confirms the thesis. Contracts land, margins progress, management does what it said. This is where averaging up happens, often at prices above the original entry, which feels wrong and is right. Paying more for a company that has removed uncertainty is a better trade than paying less for one that hasn’t.

• Core positions (12–20% each): The earned weights. Nothing arrives here by purchase alone - positions reach the core through years of execution compounded with appreciation. In a healthy book the top three to five names might be 60% of the portfolio, and the honest answer to “isn’t that risky?” is that the market built that concentration by rewarding the positions that deserved it.

• Cash (5–10%): Dry powder. Its job is funding promotions and buying drawdowns - the moments when having capital available is worth far more than the drag of holding it.

How positions move - and why the movement is the philosophy

Everyone repeats the old line:

Cut your losses, let your winners run.

Almost nobody builds it into their portfolio’s actual mechanics. The pyramid does, in both directions.

Cutting losses happens at the bottom, where it’s cheap.

Lee Freeman-Shor’s research in The Art of Execution found that the investors who underperform aren’t the ones who pick bad stocks - they’re the ones who freeze when a position drops.

His rule: when you’re down, you either buy more with conviction or you sell. Holding and hoping is the one forbidden move.

The pyramid enforces this, because every position below the core is permanently on trial. At each review, everything gets classified as promote, hold, or prune - and “hold” has to be an active choice with a reason, not a default.

When a toehold fails its audition, the loss is capped at audition size. You take many small risks to discover the few worth taking a big one on.

Letting winners run happens at the top, automatically.

When a scaling position doubles, it promotes itself - no buying required.

And here’s the discipline that matters most: I don’t rebalance it away.

To hold a multibagger you have to actually hold it - through the 50% pullbacks, through the quarters where the price goes nowhere while fundamentals backfill, through every urge to bank the gain.

A core position only gets trimmed for two reasons: the valuation has pulled three or four years of future returns into the present, or it fails the pain test - could I hold through a 40% drawdown in this name without it breaking me or the portfolio? “The percentage looks big” is not on the list.

A large winner is the reward for being right, not a problem to tidy away.

Put the two halves together and you get the deepest property of the structure:

The asymmetry of the portfolio mirrors the asymmetry of the individual bets.

Downside capped small at the bottom; upside uncapped at the top. Each position is chosen for limited downside and uncapped upside - and the pyramid applies that same payoff shape to the whole book.

One more rule that follows from all of it: spend twice as much time on maintenance research - the companies you already own - as on hunting new ideas.

What you don’t own can’t hurt you. The promotion decisions are only as good as your ongoing knowledge of the businesses being judged.

Subscribe now

In the Rest of This Post

Behind the paywall, for paid subscribers:

• A chart of my actual portfolio mapped onto the pyramid - every position, every tier

• Why I’m running a more concentrated version than the template, and how that happened

• The one position carrying a core-sized weight it hasn’t fully earned yet

• How a real prune this month proved the structure works as designed

• A link through to where you can read about the companies themselves

Read more

To read our full disclaimer, click here.

It’s been a busy month, and a productive one.

I’ve cleared out a position I no longer wanted to own, followed through on two adds I’d been building toward, and - the part I’m most pleased about - opened three entirely new positions.

Subscribe now

For a while the bottom of this portfolio had gone quiet. No fresh ideas being auditioned, no pipeline of future winners coming through. That’s now fixed, and I’ve rebuilt the lower half of the book with three new names I think have real asymmetry.

Full, dedicated theses on each of them are coming over the next few weeks. But since they’re already in the portfolio, here’s the preview:

Three New Positions

• A US specialty pharma rolling up orphan drugs. The first new name buys assets that big pharma can’t be bothered to commercialise properly - therapies for rare diseases with small patient populations - then monetises them through dedicated rare-disease infrastructure. Ten commercial products, already GAAP profitable, and a dense stack of near-term clinical and regulatory catalysts. This is the largest of the three new positions, because it’s the deepest-researched and the highest-conviction.

• A patented advanced-materials business running the ingredient-brand playbook. The second runs the same model as Gore-Tex or Dyneema: its material gets built into someone else’s premium product, the end brand does the marketing, and the company collects a margin every single metre. The entire thesis hinges on one milestone landing in the next few months. Explicitly speculative, and sized accordingly.

• A profitable, cash-rich communications microcap hiding in plain sight. The third trades like a lumpy hardware business while quietly building a recurring service-revenue tail behind every device it deploys. Consistently profitable, cash-heavy relative to its size, and almost completely off-screen.

Three names, three different risk profiles, all sized as toeholds - small starting positions that have to earn their way up.

More on exactly what that means in my companion piece on portfolio construction, out next Monday.

Upgrade Today!

In the Rest of This Post

Behind the paywall, for paid subscribers:

• The position I closed this month, at a loss - and the simple test that made it an easy decision

• The two positions I added to, where they now sit, and the bar I set for averaging down

• Exactly where all three new names sit in the portfolio, with weights

• The full portfolio table, every position and every weight

• What each position has to do from here to keep its place - including one core holding now on probation

• How I’m thinking about the shape of the book going into a busier month

Read more

To read our full disclaimer, click here.

CeoTronics makes communication systems for environments where comms failure costs lives: military, police, firefighting, aviation, hazardous industry.

Roughly 94% of components are built in-house in Germany, which protects IP, secures the supply chain for defence procurement, and locks in switching costs once systems are embedded in a force’s helmets and radios.

The thesis in one line: this has quietly shifted from a lumpy, cyclical hardware maker into a largely contracted business with multi-year framework deals, right as Europe enters a decade-long rearmament cycle. The recurring base sits just above two thirds of revenue, the order book is at record highs, and the market still prices it like an old-school defence contractor.

On June 1, the company released preliminary figures for fiscal year 2025/2026 (ended May 31, 2026).

The rest of this update is for paid subscribers. Below, I break down the three records, the flat revenue caveat that needs context, the margin question I want answered, and what it all means for the thesis.

Read more

To read our full disclaimer, click here.

Here’s a statistic that should trouble every investor: Long-Term Capital Management employed 16 PhDs, two Nobel laureates, and some of the most sophisticated quantitative models ever built. They blew up in 1998.

Meanwhile, Warren Buffett - who famously uses a calculator and reads annual reports - has compounded at roughly 20% annually for six decades.

The difference? Simplicity.

I’ve spent considerable time studying the works of Nassim Nicholas Taleb and Benoit Mandelbrot. Their insights have fundamentally shaped how I think about portfolio construction, risk management, and the very nature of markets themselves. In my view, their combined wisdom points toward one uncomfortable truth: complexity in investing is usually just hidden fragility.

This post distils what I believe are the most important principles from their work - and how I apply them at Schwar Capital.

Subscribe now

The Problem with Complexity

Most investors believe sophistication equals edge. More data. More models. More variables.

In my experience, the opposite is true.

Mandelbrot demonstrated something profound in his study of cotton prices, stock markets, and turbulent flows: markets are wild.

They don’t follow the neat bell curves that finance textbooks assume. Extreme moves - the kind that wipe out portfolios overnight - occur far more frequently than Gaussian models predict.

The 1987 crash. The 2008 financial crisis. March 2020.

These weren’t once-in-a-millennium events.

They were features, not bugs.

Complexity hides exposure to these fat tails. Think derivatives on derivatives. Think correlation assumptions that work beautifully until they don’t. Think models that optimise for a world that exists only in spreadsheets.

Simplicity, by contrast, keeps tail risk visible and tractable.

I can understand a concentrated portfolio of businesses I know well. I cannot understand a web of synthetic instruments whose interdependencies require a PhD to map.

Five Principles of Simplicity

Drawing from both Taleb and Mandelbrot, I’ve distilled what I believe are the core principles that should guide any investor serious about long-term survival.

1. Simplicity Protects Against the Unknown

Taleb’s central insight is this: the world is dominated by rare, unpredictable events - Black Swans.

The 2008 crisis wasn’t predicted by the models that said it couldn’t happen. COVID-19 wasn’t in anyone’s DCF.

Simple systems break less often because there are fewer moving parts to fail. A portfolio with five deeply-researched positions, clear theses, and no leverage has far fewer failure modes than a portfolio with fifty positions, various hedges, and borrowed money.

I don’t try to predict Black Swans. I try to ensure they won’t destroy me.

2. Simple Heuristics Beat Fragile Optimisation

Both thinkers reject over-fitted models. Taleb argues that optimisation leads to fragility - when conditions change even slightly, optimised systems shatter. Mandelbrot showed that markets are simply too wild for precise calculation.

3. Simplicity Preserves Optionality

Optionality is the ability to benefit from volatility rather than be destroyed by it. It’s having the capacity to act when others can’t.

Taleb’s insight here is elegant: simple structures - a cash buffer plus a few asymmetric bets - maximise upside without committing to predictive complexity. Complexity usually locks capital in. It creates obligations, covenants, margin requirements.

When markets crashed in March 2020, investors with simple, unleveraged portfolios and cash reserves could buy world-class businesses at decade-low prices. Those with complex, levered structures were forced sellers.

Simplicity is dry powder waiting for opportunity.

4. Via Negativa: Improvement by Removal

Taleb calls this the Via Negativa - the negative way. True simplicity isn’t naive minimalism. It’s the rigorous removal of everything that doesn’t meaningfully change outcomes.

In practice, this means asking different questions. Not “what should I add to my portfolio?” but “what should I remove?” Not “what new indicator should I track?” but “what noise am I mistaking for signal?”

Most investment research is addition - more data, more metrics, more complexity. The better approach is subtraction. Strip away everything until only what matters remains.

In my own process, I’ve found that a simple checklist - management ownership, return on capital, competitive moat, valuation - outperforms any elaborate scoring system.

5. Accept Markets as They Are, Not as Models Wish

Mandelbrot spent decades showing that markets follow fractal patterns - rough, irregular, and unbounded by our statistical assumptions. Volatility clusters. Returns have fat tails. Dependence structures shift.

The comforting Gaussian bell curve is a lie. It allows precise calculations but describes a market that doesn’t exist.

Simplicity means using models that reflect reality - wild randomness - rather than comforting illusions. It means acknowledging that precise predictions are impossible and positioning accordingly.

What This Means for Investment Philosophy

These principles translate into specific beliefs about how to construct and manage a portfolio.

Focus on Robustness, Not Prediction

Markets are fundamentally unpredictable. Taleb puts it bluntly: “Invest in preparedness, not forecasts.”

I don’t try to predict earnings beats, macro shifts, or market timing. I try to own businesses that will be worth more in five years under most reasonable scenarios. The focus is survival first, returns second.

Prediction is optional. Survival is not.

Respect the Power of Extremes

Mandelbrot’s fractal markets reveal an uncomfortable truth: large moves dominate long-term returns. A handful of days - often the worst and the best - determine decades of performance.

Portfolio survival therefore equals the ability to withstand, or benefit from, these extremes. This is why leverage is so dangerous: it turns survivable drawdowns into terminal ones.

In a world of fat tails, the few events that matter decide everything.

Barbell Thinking Beats Average Thinking

The barbell strategy is simplicity at its finest: most capital in extremely safe assets, a small portion in high-upside convex opportunities, and nothing in the middle.

The middle ground - the “moderate risk” investments - often provides the worst of both worlds. Not safe enough to protect, not explosive enough to transform.

Separate safety from speculation. Don’t blend them into mediocrity.

Prefer Businesses with Convexity

Convexity means limited downside with large potential upside. It’s the mathematical essence of asymmetric investing.

Simple filters for convexity (recurring revenue, network effects, no terminal fragility, strong balance sheets) beat complex models every time. A business with 90% recurring revenue and zero debt has structural convexity. A business with cyclical revenue and heavy leverage has structural concavity.

This is why at Schwar Capital I obsess over business model quality before ever looking at valuation.

How I Apply This at Schwar Capital

These aren’t abstract principles. They inform every aspect of how I manage the portfolio.

• Concentrated positions: I hold few positions that I understand deeply, rather than many positions I barely know. Complexity through diversification is still complexity.

• Clear theses: Every investment must have a thesis that can be stated in two sentences. If it requires a spreadsheet to explain, it’s probably too complex.

• No leverage: The portfolio is never leveraged. Full stop.

• Cash buffer: I maintain optionality through liquidity, ready to act when markets offer asymmetric opportunities.

• Asymmetric focus: Every position targets at least 3:1 upside versus downside. This is convexity in practice.

• Minimal trading: Fewer decisions means fewer errors. Activity is not progress.

Conclusion

The irony of markets is this: the more certain someone sounds, the more likely they’re wrong. The most sophisticated models often hide the most fragility. The cleverest strategies often precede the most spectacular blowups.

Taleb and Mandelbrot both point toward the same conclusion.

Simplicity isn’t a lack of sophistication - it’s an edge against uncertainty. Fragile portfolios are built by addition; robust ones are built by subtraction. Complexity hides risk; simplicity exposes it.

In a world where extreme events drive long-term returns, where markets are wilder than any model assumes, and where prediction is largely theatre, simplicity isn’t just preferable.

It’s necessary.

Dom
Schwar Capital Research

Leave a comment

📌 PS - If you found this post valuable, please consider sharing it with someone who might benefit from thinking differently about cash and opportunity. 🙏

Thanks for reading Schwar Capital! Subscribe for more content like this.

Share

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. To read our full disclaimer, click here.

To read our full disclaimer, click here.

Every once in a while you come across a company where the screen and the human read the same filing and come away with two completely different pictures.

A screen looks at it and sees a small profitable Canadian microcap with a going-concern footnote and a thin cash balance.

Skip.

A human, looking at what is actually being built, sees the early stages of something else entirely:

• A capital-allocation vehicle.

• Run by an operator with a documented 200-bagger to his name.

• Sitting on top of a recurring, cash-generative core business that funds its own working capital.

• Acquiring small profitable operators at a pace that has now produced two outright control deals inside six months, plus a quietly-growing book of convertible-debt positions in other operators on the side.

If he keeps doing this for the next seven to ten years, the market should eventually stop valuing this as its boring core business and starts valuing it as a holding company.

That is the entire setup.

Subscribe now

This is a speculative idea. It is small, illiquid, carries a going-concern footnote, and the entire thesis depends on one person continuing to allocate capital well.

None of that disqualifies it. It does mean it sits in the speculative bucket - high asymmetry, real risk of permanent capital loss, sized accordingly.

It is also a name I am seriously considering adding to the portfolio.

You don’t want to miss this one. Let’s dig in…

Read more

To read our full disclaimer, click here.

Quick update on Spectra Systems ($SPSY.L).

On 22 May, the company announced an additional sensor order beyond the original $39.6M contract from June 2024. The new order is worth $1.3M, with deliveries scheduled between 2026 and Q2 2027.

More importantly, management flagged that another order from a separate affiliated organization is expected later this year, along with an additional service contract.

Subscribe now

In the March update, I laid out that the bull case rested on the $42M of potential follow-on sensor systems beginning to convert, plus the maintenance annuity continuing to compound.

This announcement is the first concrete proof point that the follow-on pipeline is real and active.

The headline dollar figure is small. The signal is not in my opinion.

Three things matter here:

• The customer is coming back. The original deployment is not yet complete, and the customer is already extending the technology to affiliated organisations. That is exactly the dynamic the central-bank-infrastructure thesis depends on - once the sensors are embedded, the system expands rather than gets re-tendered.

• More is explicitly guided. Management has now put on the record that a second affiliated-organisation order is expected this year, plus another service contract. The maintenance annuity through 2030 keeps growing.

• It directly offsets the 2026 sensor build roll-off. Every incremental order softens the optical step-down from $42.7M in Authentication revenue and lifts the floor on what 2026 actually looks like.

Watching for the next order and the service contract to land in H2.

Subscribe now

Thanks for reading,

Dom
Schwar Capital

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. You can see our full disclaimer here.

To read our full disclaimer, click here.

TruFin announced on Thursday morning that it has conditionally agreed to sell its 84.5% interest in Playstack to VantageCo Limited (a wholly owned subsidiary of Integrated Media Company, IMC) for an enterprise value of £125 million on a debt-free, cash-free basis.

I’ve been writing for the better part of a year that “the endgame” (a Playstack sale, a take-private, or a re-rating) was the obvious direction of travel.

But the reason I owned TruFin has now happened, and what’s left isn’t my kind of bet.

Let me walk through why the tape is flat, why the price is fair-not-thrilling, what the proceeds actually translate to per share, and why my move here is to take the gain.

Subscribe now

Read more

To read our full disclaimer, click here.

If I had to throw out every investing book on my shelf and keep the work of one author, it would be Nassim Nicholas Taleb.

Not because he gives stock tips - he doesn’t. Not because he predicts markets - he refuses to. But because he answers a question almost no one else in finance even asks:

How do you survive a world you cannot predict?

Over the years I’ve come back to his ideas more than any others. They’ve shaped how I size positions, how I think about leverage, how I read research, and - perhaps most importantly - whose advice I take seriously.

This post is a distillation. The five Taleb lessons that, more than any others, sit underneath how I run Schwar Capital.

Subscribe now

1. Antifragility

The opposite of fragile is not robust. It is antifragile.

This is Taleb’s most original idea, and the one most of the industry has failed to absorb. Robust things merely survive stress. Antifragile things actually gain from it.

Your muscles get stronger from strain. Your immune system gets better from exposure. Ideas get sharper under attack. None of these things are simply surviving disorder - they are improving because of it.

Markets are full of fragility dressed up as sophistication. Leverage. Tightly coupled portfolios. Hedging strategies that work until correlations break. Optimised allocations that depend on the next five years looking like the last five. All of them quietly fall apart in the conditions where it matters most to hold together.

The right question is not “will this survive a crisis?” The right question is “will this benefit from one?”

In practice, antifragility means owning things that gain from volatility rather than just endure it. A cash buffer becomes more valuable when markets crash, not less. A concentrated portfolio of high-quality businesses bought at fair prices benefits from sell-offs, because they let you add to them. A simple structure with low costs and no leverage compounds quietly while complex ones spend every crisis defending themselves.

Fragile portfolios fear volatility. Robust portfolios tolerate it. Antifragile portfolios feed on it.

The goal at Schwar Capital is the third.

2. The Barbell Strategy

Most people try to find the “sensible middle.” Taleb argues that middle is where the fragile live - and die.

The barbell is one of the most counter-intuitive ideas in modern finance, and one of the most powerful. Instead of taking moderate risk across a portfolio, you split it into two extremes:

• The vast majority - cash, short-duration treasuries, the safest assets you can find.

• A small minority - highly asymmetric bets where the upside is uncapped and the downside is capped at what you put in.

You hold nothing in the middle.

The mathematics are quietly devastating. A portfolio of “moderate risk” investments looks reasonable on a spreadsheet but tends to lose a great deal in a crisis and gain modestly the rest of the time. A barbell loses almost nothing on the safe side, and the speculative side - precisely because each position is small - cannot ruin you, but any one of them can transform you.

This is why I obsess over downside before upside. The safe side of the barbell is what allows the asymmetric side to exist. Without preservation, there is no aggression - only ruin.

Subscribe now

3. Via Negativa

Most investing improvement comes from removal, not addition.

Taleb borrows the term Via Negativa from theology, but its application in markets is almost embarrassingly direct: you don’t get rich by chasing returns; you get rich by avoiding ruin.

What separates good investors from great ones is almost never something they did. It’s something they refused to do.

They refused to use leverage. They refused to buy the obvious bubble. They refused to invest in things they didn’t understand. They refused to add a position because they were bored. They refused to act on a forecast they had no business making.

This is harder than it sounds. Every part of the industry is pointed in the opposite direction. More ideas. More data. More trades. More indicators. Activity is mistaken for skill; complexity is mistaken for sophistication.

My own checklist is shorter every year, not longer. Quality of business, ownership, balance sheet, valuation, fragility. If a thesis cannot survive contact with five questions, no twentieth question is going to save it.

The hardest word to say in markets is no. It is also the most profitable.

💡 Finding this valuable? Share it with someone who’d benefit.

Share

4. The Lindy Effect

For things that don’t age - ideas, books, technologies, businesses - the best predictor of how long something will last is how long it has already lasted.

A book that has been read for two thousand years will probably be read for another two thousand. A book published last Tuesday probably will not. A business model that has survived multiple recessions, technology shifts, and regulatory regimes is telling you something a five-year-old startup simply cannot.

Time is the only honest critic, and it cannot be faked.

This shapes how I evaluate businesses. I have a strong bias toward what has already worked - durable demand, repeat purchase, products that customers have been buying for decades without thinking. The boring industries that have outlasted every wave of disruption are usually boring for the same reason they’re durable: they meet a need that was real fifty years ago and will be real fifty years from now.

It also shapes how I read. I would rather re-read Graham, Buffett’s letters, Marks, Taleb, and Munger than chase the latest book of the month. The signal density is higher. The ideas have already been tested by something more rigorous than any peer review: time.

If an idea has not been around long enough to fail, it has not been around long enough to be trusted.

Subscribe now

5. The Turkey Problem

The greatest risks are never in the data. They are in the assumption that the data is all there is.

Taleb tells a parable. Every day for a thousand days, a turkey is fed by the farmer. With each passing day the turkey’s confidence in the farmer’s benevolence grows. The data is unambiguous. The trend is up and to the right. The model fits beautifully.

On day 1,001 - the day before Thanksgiving - the turkey’s confidence in his model is at its highest, and his model has never been more wrong.

Every financial crisis I have studied has a turkey in it. Housing prices have never fallen nationally. Volatility is structurally lower now. This bank is too big to fail. Rates can’t go higher than 1%. The longer something has been true, the more confident the consensus, the more dangerous the eventual reversal.

The defence is not to predict the day of reckoning. No one can. The defence is to never let your portfolio be a turkey - to never construct a strategy that requires the past pattern to keep holding in order to survive.

This is why I refuse leverage, why I keep a cash buffer, why I prefer businesses that have already survived a downturn, and why I distrust any model whose track record is short and whose conditions have been benign.

Survival first. Returns second. Always.

Conclusion

If you read Taleb long enough, a single theme emerges underneath all of his work. It is not that markets are dangerous - though they are. It is not that experts are often wrong - though they are. It is something deeper:

The world is fundamentally more uncertain than the people running it want you to believe.

Most of finance is a sophisticated machine for ignoring this fact. Models, forecasts, ratings, projections - all designed to give the appearance of control over something that has none.

The five lessons above are, in different ways, the same lesson:

Stop trying to predict the world. Start trying to survive it. The compounding will take care of itself.

That belief sits underneath every position in the Schwar Capital portfolio, every research note I write, and every investment decision I make.

Dom Schwar Capital

Dom
Schwar Capital

Disclaimer: The content provided in this newsletter is for informational purposes only and does not constitute financial, investment, or other professional advice. The opinions expressed here are those of the author and do not necessarily reflect the views of Schwar Capital. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. The author may or may not hold positions in the stocks or other financial instruments mentioned. Always do your own research or consult with a qualified financial advisor before making any investment decisions. You can see our full disclaimer here.