Schwar Capital Research

NEW POSITION: A Rare Disease Compounder

Schwar Capital Research — Fri, 19 Jun 2026 11:38:28 GMT

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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.

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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…

The Pyramid: How I Actually Build a Portfolio

Schwar Capital Research — Mon, 15 Jun 2026 11:15:05 GMT

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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.

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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.

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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

June Portfolio Update: One Out, Three In

Schwar Capital Research — Fri, 12 Jun 2026 10:31:24 GMT

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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.

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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.

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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

CeoTronics Update: Three Records, One Caveat

Schwar Capital Research — Mon, 08 Jun 2026 15:08:59 GMT

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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.

The Case for Simplicity: What Taleb and Mandelbrot Taught Me About Surviving Markets

Schwar Capital Research — Fri, 05 Jun 2026 15:01:07 GMT

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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.

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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

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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.

A Speculative Bet I'm Seriously Considering

Schwar Capital Research — Mon, 01 Jun 2026 14:00:20 GMT

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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.

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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…

Spectra Systems: First Follow-On Sensor Order Lands

Schwar Capital Research — Thu, 28 May 2026 14:03:27 GMT

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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.

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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.

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Thanks for reading,

Dom
Schwar Capital

TruFin Sells Playstack: The Catalyst Fired, and Why I'm Selling (TRU.L)

Schwar Capital Research — Mon, 25 May 2026 11:39:06 GMT

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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.

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The Five Taleb Lessons That Shape Schwar Capital

Schwar Capital Research — Mon, 18 May 2026 12:39:19 GMT

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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.

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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.

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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.

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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.

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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

KFS Q1 2026: The J-Curve Has Turned.

Schwar Capital Research — Fri, 15 May 2026 12:51:36 GMT

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Kingsway just reported Q1 2026 earnings. The headline numbers:

Consolidated revenue of $39.0 million, up 37.4% year-on-year
KSX revenue of $21.1 million, up 80.7%
Extended Warranty revenue of $17.9 million, up 7.2%; Extended Warranty cash sales up 11.8%
Consolidated adjusted EBITDA of $2.4 million, up from $1.4 million
KSX adjusted EBITDA of $3.5 million, up 82% - a record quarter for the segment
Extended Warranty adjusted EBITDA of $0.4 million, down from $0.9 million
Consolidated net loss of $2.2 million, narrowed from a $3.1 million loss
Portfolio LTM EBITDA of $22.0 to $23.0 million
Total net debt of $63.9 million, up from $62.4 million at year-end

When I wrote the Q4 update in March, the title was “The J-Curve Is Turning.”

The argument was that the margin compression which ran through 2025 was a predictable feature of the acquisition model, not a structural problem, and that there was now real, granular evidence the recovery had begun.

This quarter confirms it.

The company still printed a GAAP net loss. Net debt ticked up rather than down. Extended Warranty adjusted EBITDA was lower year-on-year. None of those are nothing. But every one of them is explainable, and the underlying trajectory across the portfolio is no longer ambiguous.

The following is my personal take and what I am doing with my position.

ACFN Q1 2026: A Lackluster Quarter, A More Interesting AIO

Schwar Capital Research — Mon, 11 May 2026 15:04:32 GMT

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Acorn Energy just reported Q1 2026 earnings. The headline numbers:

Total revenue of $2.23 million, down 28.1% year-on-year
Monitoring revenue of $1.42 million, up 11.7%
Hardware revenue of $810,000, down 55.7%
Gross margin of 80.2%, up from 75.1% in Q1 2025
OmniMetrix segment operating income of $395,000
Consolidated net loss of $77,000, or $(0.03) per share
Cash of $4.26 million, zero debt

Let’s be straight about this: Q1 was a lackluster quarter.

However, the reasons are explainable.

The material cellphone provider contributed $876,000 of hardware revenue in Q1 2025 and just $93,000 in Q1 2026 as initial shipments wound down. Q1 is seasonally Acorn’s lowest-revenue quarter to begin with. And the consolidated net loss is largely a function of $197,000 of non-cash stock-based compensation. Strip those out and the underlying operating business - OmniMetrix - generated $395,000 of segment operating income, even after carrying $50,000 of pre-revenue Infrastructure Solutions cost.

But explainable is not the same as good. Q2 2026 hardware comparisons will look bad for the same mechanical reason Q1 did. Management was upfront about that on the call. The shape of 2026 is back-end weighted, and there is no way to dress up the fact that the front half of the year will not be exciting on the printed numbers.

That is the near-term picture. The longer-term picture is where this gets more interesting.

The following is my personal take and what I am doing with my position…

April Portfolio Update

Schwar Capital Research — Tue, 05 May 2026 11:50:50 GMT

To read our full disclaimer, click here.

The SCR portfolio is up 12.5% year-to-date.

The S&P 500? 5.3%.

That’s roughly a 7% spread since the start of the year.

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Discipline Through the Round Trip

Last month I wrote about the importance of not freezing in a sell-off. About leaning on Lee Freeman-Shor’s framework from The Art of Execution - that when you have conviction in a business and the price drops, you have to be willing to act.

I followed through this month.

The position I’d flagged last month for an add got the add. The price had moved against me, the thesis hadn’t, and there was no fundamental reason behind the drawdown to justify standing still.

So I sized up.

A New Research Portal for Paid Subscribers

The bigger announcement this month: I’m launching a new research portal for all paid subscribers later this month.

Everything in one place - every write-up, every watchlist, the full portfolio, and a clearer way to follow each thesis as it develops.

No more digging back through the archive to find the original write-up on a position.

It will all be there, organised, searchable, and updated alongside each new post.

This has been on my list for a while.

Building this out properly takes the research from “a series of posts” into something closer to a research platform - one place to track the entire process, end-to-end.

If you’ve been thinking about upgrading, this is the moment.

Pricing will increase later this year, so existing subscribers and anyone who upgrades before launch will lock in the current rate.

Upgrade Today!

In the Rest of This Post

A position I closed this month, and why I no longer like the setup
The details on this month’s add, and where the position now sits
The earnings calendar for the next two weeks
The new ideas I’m tracking - including one I’ve recently published research on
How I’m thinking about portfolio construction from here

The Biology of Bad Decisions

Schwar Capital Research — Fri, 01 May 2026 15:16:53 GMT

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There’s a French expression for twilight: l’heure entre chien et loup.

The hour between dog and wolf.

It describes the moment at dusk when the light fails and you can no longer tell if the shape moving toward you is a familiar dog or a dangerous wolf.

Friend or threat. Safe or fatal.

Former Wall Street trader turned Cambridge neuroscientist John Coates borrowed the phrase as the title of one of the most interesting books I’ve ever read on investing.

And here’s why it matters: most investors think their biggest enemy is the market. It isn’t.

It’s their own biology…

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The Body Trades Before the Mind

Coates spent years measuring the hormones of traders on a London trading floor. Cortisol in the morning. Testosterone before lunch. Cortisol again after the close.

What he discovered should change how every investor thinks about risk:

Decisions we believe are rational and considered are, in fact, downstream of physiological states we never even notice.

By the time the conscious mind weighs an investment, the body has already reacted. Heart rate has shifted. Hormones have surged. Risk appetite has been set.

Coates puts it bluntly:

“Risk is not just an idea. It is a bodily sensation.”

Investing, in other words, is not purely an intellectual exercise. It’s a physiological one.

And the markets pay people who don’t realise this.

The Winner Effect: Why Bull Markets Make Us Stupid

Coates’ most provocative finding involves a phenomenon he calls the winner effect.

When a trader wins, testosterone rises. With elevated testosterone comes greater confidence, greater appetite for risk, and a willingness to take on larger positions.

Win again, and testosterone climbs higher. Risk appetite expands further.

It is, on paper, a useful adaptation - confidence backed by results. But in markets, this feedback loop becomes a trap.

The trader who has been right ten times in a row is not ten times smarter than the trader who has been right five times.

They are, however, biochemically primed to take on dramatically more risk.

This is how bull markets end. Not with a sudden change of mind, but with a gradual chemical drift toward overconfidence among the people moving capital.

As Howard Marks has noted:

“The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high.”

And we pay prices that are too high precisely when we feel most certain. Which is precisely when our biology is least trustworthy.

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The Cortisol Crash: Why Drawdowns Cripple Judgment

If testosterone is the hormone of bull markets, cortisol is the hormone of bear markets.

Cortisol is released in response to stress and uncertainty. In small doses, it sharpens us. In large or sustained doses, it does something far worse:

It rewires the brain to avoid risk at almost any cost.

Coates documented that cortisol levels in traders rose by over 68% during periods of market volatility.

Sustained at those levels, cortisol impairs memory, narrows attention, and triggers a learned helplessness that turns thoughtful investors into panicked sellers.

This is why drawdowns feel different when you’re in them.

The same investor who confidently bought a business at 50 pounds cannot bring themselves to buy more at 30 pounds - not because the thesis has changed, but because their body has changed.

The opportunity is right there. The biology is in the way.

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Why Markets Bubble and Crash

Put these two hormones together and you have an explanation for market cycles that no behavioural finance textbook can match.

Bull markets are not just stories about earnings or innovation.

They are also, at the level of the people involved, stories about collectively rising testosterone - confidence breeding confidence, risk appetite breeding more risk appetite, until the people deploying capital are biochemically incapable of restraint.

Crashes are not just stories about debt or fraud.

They are stories about collectively rising cortisol - fear breeding fear, paralysis breeding paralysis, until the people who should be buying are biochemically incapable of acting.

This is why the same patterns repeat in every cycle, with different protagonists and different technologies. The hormones don’t change. The humans don’t change.

Charlie Munger captured the essence of it:

“The world is full of foolish gamblers, and they will not do as well as the patient investor.”

The patient investor wins because they have done the harder work - they have learned to act despite their biology, not because of it.

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What This Means for How We Invest

Coates’ work is not academic curiosity. It has direct, practical implications for how serious investors should structure their process.

Five lessons stand out:

Treat winning streaks as warning signs, not vindication. The longer you’ve been right, the more your biology is working against you. Recheck your assumptions hardest when you feel most certain.
Build your process for the worst version of yourself. Write your investment theses down when you are calm. Make your buying decisions in advance of drawdowns, not during them. The you that is stressed cannot be trusted to do the work of the you that is rested.
Respect physical state. Sleep, exercise, and time away from screens are not luxuries. They are inputs to your decision quality. A tired investor is a different investor.
Use checklists. Checklists impose process when biology wants to improvise. Every great investor I’ve studied - from Buffett to Klarman to Marks - relies on some form of pre-commitment to overrule in-the-moment instinct.
Lengthen your time horizon. The longer you hold, the less the daily hormonal weather matters. Compounding rewards those who can wait. Biology punishes those who can’t.

The Takeaway

If you remember one thing from this post, make it this:

Your biggest enemy as an investor isn’t the market. It’s the body that’s reading the market. Every bull market top and every panic bottom is, at the level of the people involved, a hormonal event before it is a financial one.

That’s the central lesson of The Hour Between Dog and Wolf. And it connects directly to how we invest at Schwar Capital.

We treat winning streaks as warning signs, not vindication. We write our theses down when we are calm, so the stressed version of us has something to follow. We use checklists to overrule instinct. We size and pace our positions for a long horizon, so the daily hormonal weather doesn’t run our portfolio.

The market doesn’t reward the people with the highest IQ. It rewards the people who can keep behaving rationally when their biology is begging them not to - and who have built a process that holds when their willpower won’t.

That’s how the edge survives. And over time, the edge compounds.

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Thanks for reading,

Dom
Schwar Capital

10 Stocks I'm Looking at Right Now

Schwar Capital Research — Wed, 29 Apr 2026 12:57:15 GMT

To read our full disclaimer, click here.

I like keeping my watchlist concise.

Only the names I’m really interested in following.

These are the names I’ll do write-ups on in the coming months. Obviously, some may drop off and some may become part of the portfolio. But here’s a look at the 10 items currently on it.

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The 10 Stocks

A 30-year-old subsea offshore specialist quietly growing 40% in a contracting industry - new CEO has flipped losses into profits without needing oil to cooperate.
A boring cash-generating piece of internet plumbing being deliberately rebuilt as an acquisition vehicle by a Canadian capital allocator with a documented 200-bagger to his name.
A two-sided network business where every unit sold becomes a permanent royalty annuity. Royalties up 31%, EBITDA up 112%, fresh 10% buyback, and insiders accumulating in the open market.
A vertically integrated avionics turnaround whose systems sit inside aircraft cockpits for 20–30 years. Q1 was a monster, the stock has already run, and now I’m waiting for the entry.
An orphan-drug roll-up that buys rights nobody else will commercialise. The biggest binary catalyst just resolved in shareholders’ favour - with a label far better than I’d modelled.
A capital-light operator riding a structural healthcare workforce shortage of ~1.9M jobs a year. Fourteen straight quarters of double-digit revenue growth and basically no analyst coverage.
An aspiring ingredient brand trying to become the next Gore-Tex. Patented material already embedded in Arc’teryx, North Face, and Black Diamond - and the capacity is about to expand 10x.
A famous compounder cut down 36% on AI fears that probably don’t apply to its actual customer base. Operating income +29%, free cash flow +153%, and the playbook is one of the most respected in capital allocation.
The European cousin of #8 - same playbook, same sell-off, same misunderstanding. Plus a lumpy non-cash accounting charge that scared investors out of a perfectly healthy operating business.
A best-in-class insurance broker compounder hit by a P&C pricing cycle. Stock down ~45%, organic growth flat, but eight acquisitions in Q1 and a $1.15B buyback authorisation say management thinks the cycle is the whole problem.

Revenue Up 33%, EPS Up 87%, and the Data Center Pivot Is Now Real (NASDAQ: PPIH)

Schwar Capital Research — Fri, 24 Apr 2026 11:48:51 GMT

To read our full disclaimer, click here.

Perma-Pipe International Holdings published its audited fourth quarter and full-year fiscal 2025 results last Thursday.

The headline: record everything.

Revenue grew 33.1% to $210.9 million.
Net income attributable to common stock grew 88.9% to $17.0 million.
GAAP diluted EPS grew 87% to $2.09 from $1.12.
Income before income taxes grew 49% to $27.5 million, or $29.6 million on an adjusted basis.
Operating income grew 45% to $29.4 million.
Gross profit grew 30.6% to $69.5 million at a 33% margin.

Four days later, on Monday, the company disclosed approximately $54 million in new Q1 2026 project awards - including named AI-enabled data center contracts, the National Research Laboratories project, the Marathon project, and major District Heating & Cooling awards in the United Arab Emirates and Saudi Arabia.

PPIH now has roughly $175 million of visible, awarded work on the books - and that is with three quarters of fiscal 2026 still open to new orders.

The business reports a strengthened working capital position, a modernised global capital structure through a new J.P. Morgan credit facility, and a dedicated new US manufacturing facility in Ohio positioned specifically for AI data centers and the Northeast corridor district heating and cooling market.

The stock is trading around $30, implying a market cap of approximately $245 million.

On trailing numbers, that gives you an EV/EBITDA of approximately 7x.

A trailing P/E of around 14x.

For a business growing revenue at 33%, operating profit at 45%, with contracted backlog visibility, named end-market exposure to the AI infrastructure build-out, and two distinct growth vectors firing simultaneously.

In the rest of this post, I cover:

The audited fiscal 2025 numbers and how the operating leverage shows up
Regional performance across MENA and North America
The Ohio facility and what it means for data center exposure
The J.P. Morgan credit facility and capital structure transformation
The backlog and what fiscal 2026 actually looks like
Bear, base, and bull case valuations
Key developments since December and what I am watching from here

Why 30% of Our Portfolio Sits in One Stock...

Schwar Capital Research — Mon, 20 Apr 2026 11:41:08 GMT

To read our full disclaimer, click here.

Ted Williams had a theory. Don’t swing at every pitch.

Divide the strike zone into 77 squares, each the size of a baseball. Wait for the pitch in your sweet spot.

Then crush it.

That’s how he hit .406.

Investing works the same way.

The market throws pitches at us every single day. Most of them are garbage. A few are decent. And once in a while - maybe once or twice a year if you’re paying attention - a fat pitch floats right down the middle.

The problem? Most investors swing at everything.

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The Fat Pitch Rule

Here’s what I believe, and it runs through every position in Schwar Capital:

You don’t get rich by being right about a lot of things. You get rich by being right about a few things - and betting big when you are.

Buffett has said this a hundred different ways.

Munger put it more bluntly:

“The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.”

That’s the game.

So when I find a business I deeply understand, with a runway I can see, a management team I trust, and a price that doesn’t require heroic assumptions - I don’t buy 2%.

I back the truck up.

Enter Ashtead Technology

Ashtead Technology is now 30% of our portfolio.

And it’s up ~65% year-to-date.

People ask me constantly: “Aren’t you going to trim? Lock in some gains? Rebalance?”

No.

Here’s why:

The thesis hasn’t broken. It’s strengthening. Offshore rental day rates are still climbing. The acquisitions (Seatronics, ACE Winches, Hiretech) are integrating better than I modelled. The subsea rental market is structurally short on kit, and Ashtead owns the fleet. They’ve built something that is very hard to replicate - and the market, in my view, still isn’t pricing it as the cash-compounding machine it is.

When a winner is winning, the worst thing you can do is interrupt the compounding.

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Why Trimming Winners Is a Trap

This is the part most investors get backwards.

We’re told to “rebalance.” To “take profits.” To “never let one position get too big.” That advice is perfect - if your goal is to match the index.

If your goal is to beat it, you have to do the opposite.

The whole point of concentration investing is that your best ideas become more of your portfolio over time. That’s the mechanism. That’s the math. If I’d trimmed every position in Schwar Capital back to 5% every time it ran, I’d have a much smoother equity curve - and a much smaller one.

Winners win. Let them.

The risk isn’t that a great business gets too big in your book. The risk is that you find a great business, size it too small, and then sell it too early.

How I Play It

Look - this is what I do. It’s not for everyone, and it’s definitely not advice.

Running 30% in a single name will make plenty of people lose sleep.

Fair enough. Concentration cuts both ways, and if the thesis breaks on a position this size, it hurts.

I know that. I accept it. That’s the trade I’ve chosen to make.

But the framework, for me, is simple:

Wait for the fat pitch.
When it comes, swing hard.
When you’re right, don’t flinch.

That’s how I invest.

Find businesses I understand well enough to size up. Size them up when the price is right. Then hold on - through the noise, the volatility, and the well-meaning advice from people who think a 30% position is reckless.

For me, a 30% position in a business I’ve studied for years isn’t reckless. A 2% position in a business I barely know is.

But that’s me. Your portfolio is yours. Your risk tolerance is yours. Your circle of competence is yours.

Do the work, find your fat pitches, and size them in a way you can live with - in good years and bad.

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Ashtead is one pitch. It’s the biggest one in the book right now, but it’s not the only one. The rest of the portfolio is built on the same principle - a handful of businesses I know cold, sized with conviction, held for the long arc.

If you want to see the full lineup - what’s in there, at what weight, and why - the entire portfolio is laid out here:

Same philosophy. Different pitches.

Thanks for reading,

Dom
Schwar Capital

A Toll-Booth Microcap Hiding in Plain Sight

Schwar Capital Research — Fri, 17 Apr 2026 11:28:54 GMT

To read our full disclaimer, click here.

The company I’m sharing today is a rare case that checks every box on my list:

A genuine toll-booth business. Hardware sold once, royalties collected forever
Revenue up 26%, royalties up 31%, adjusted EBITDA up 112% year-over-year (nine-month YTD)
All interest-bearing debt repaid. CA$16.2M of cash and CA$15.8M of net cash on the balance sheet
Fresh NCIB in place to repurchase up to 10% of the public float
CEO, Chair and CCO all buying on the open market
Reported earnings obscure the real cash-earning power (accounting noise, not operational)
Trading at roughly 12x EV to LTM adjusted EBITDA today, and something closer to 10x on my own forward estimates, despite every operational line moving the right way

I rarely find this many boxes ticked in a single microcap.

Let’s dig in.

Why the Best Decision You Ever Made Might Have Lost You Money (And Why That's Fine)

Schwar Capital Research — Mon, 13 Apr 2026 11:24:38 GMT

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Most investors judge themselves by the wrong scoreboard.

They buy a stock. It goes up. They conclude it was a good decision.

They buy another stock. It goes down. Bad decision.

It feels obvious. Intuitive. Almost unchallengeable.

And it’s completely wrong.

I’ve been reading Thinking in Bets by Annie Duke, a former professional poker player turned decision strategist. The book’s central argument is deceptively simple, but it has profound implications for how we think about investing - and it connects directly to the asymmetric framework we use at Schwar Capital.

The core idea is this: the quality of a decision and the quality of its outcome are not the same thing.

And confusing the two is the most expensive mistake an investor can make.

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The Resulting Problem

Duke calls it “resulting” - the tendency to judge a decision based solely on its outcome.

It happens everywhere. A fund manager buys a speculative biotech stock on a hunch, no real analysis, and it triples because of an unexpected FDA approval. Everyone calls it a brilliant trade. A disciplined investor spends weeks analysing a high-quality business, buys at a reasonable valuation, and then a black swan event tanks the market. Everyone calls it a mistake.

But the first decision was reckless. And the second was sound.

The outcome doesn’t change that. It can’t.

This is the trap.

When we evaluate decisions by outcomes alone, we learn the wrong lessons. We reinforce bad habits that happened to work and abandon good processes that happened not to.

Over time, that feedback loop is lethal.

Every Decision Is a Bet

Here’s where Duke’s framework gets interesting for investors.

She argues that every decision is fundamentally a bet - a wager on an uncertain future with incomplete information. You’re putting something at risk (capital, time, opportunity cost) in exchange for an expected payoff based on your assessment of the probabilities.

Sound familiar?

That’s exactly what investing is. Every position in a portfolio is a bet. You’re staking capital on a thesis about the future, knowing that the future is uncertain and your information is incomplete.

The question isn’t whether you’ll be right every time. You won’t. The question is whether your decision-making process gives you an edge over many repetitions.

This is the same logic that underpins poker, and it’s the same logic that underpins what we do at Schwar Capital. We don’t need to be right on every position. We need our process to produce positive expected value over time.

And that requires separating the quality of the decision from the noise of any single outcome.

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Thinking in Probabilities, Not Certainties

One of the most practical shifts Duke advocates is moving from binary thinking to probabilistic thinking.

Most investors operate in certainties. “This stock is going to double.” “The market is about to crash.” “This company is the next Amazon.”

But the world doesn’t work in certainties. It works in distributions of outcomes with varying probabilities.

When I evaluate a position at Schwar Capital, I’m not asking “will this work?” I’m asking “what’s the range of outcomes, and how do the probabilities weight across that range?”

That’s a fundamentally different question. And it changes everything about how you construct a portfolio.

If there’s a 40% chance a stock triples and a 60% chance it falls 30%, that’s a positive expected value bet - even though you’re more likely to lose than win on any single instance.

The expected value of that bet is positive because the upside in the winning scenario more than compensates for the downside in the losing scenario.

That’s asymmetry expressed through probability.

And it’s why I care far more about the skew of potential outcomes than about whether I think something will “definitely” work.

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The Two Enemies: Hindsight Bias and Motivated Reasoning

Duke identifies two cognitive traps that are particularly destructive for investors.

The first is hindsight bias.

After an outcome occurs, our brains reconstruct the past to make that outcome feel inevitable. “I knew it was going to happen.” No, you didn’t. You assigned some probability to it happening, and it did. But if it hadn’t happened, you’d have reconstructed an equally convincing narrative for why that was obvious too.

Hindsight bias makes us overconfident in our ability to predict the future. It erodes the probabilistic thinking that good investing requires.

The second is motivated reasoning.

We don’t process information objectively. We process it through the lens of what we already believe - and what we want to be true. When we own a stock, we unconsciously weight positive information more heavily and discount negative information. When we’ve sold a stock, we do the reverse.

This is why thesis discipline matters so much. At Schwar Capital, the sell decision is tied to the thesis, not the price. If the business fundamentals have changed in a way that breaks the original investment case, that’s a reason to sell - regardless of whether the stock is up or down. If the thesis is intact and the business is executing, that’s a reason to hold - regardless of what the market is doing in the short term.

Without a clear, pre-defined thesis, motivated reasoning fills the vacuum. And it will always tell you what you want to hear.

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Process Over Outcomes: What This Looks Like in Practice

Here’s how this translates to real portfolio management.

Before entering a position, I try to define the thesis in specific, falsifiable terms. Not “this company is great” but “this company will grow revenue at 15%+ for the next three years because of X, Y, and Z.” That gives me something concrete to evaluate later - a benchmark that isn’t contaminated by the stock price.
When a position goes against me, the question isn’t “how much am I down?” It’s “is the thesis still intact?” A 20% drawdown because of a broad market sell-off is noise. A 20% drawdown because the company lost its largest customer is signal. The response to each should be completely different, even though the P&L looks the same.
When a position works, the discipline is equally important. The temptation is to sell and lock in the gain. But if the thesis is playing out - if the business is executing even better than expected - selling is the wrong decision, no matter how good it feels. You’re cutting off the right tail of the distribution, which is exactly where asymmetric returns come from.
After a position is closed, the review focuses on the process, not the outcome. Did I define the thesis clearly? Did I size the position appropriately for my conviction level? Did I respond to new information rationally, or emotionally? If the process was sound and the outcome was bad, that’s not a failure. That’s variance. If the process was poor and the outcome was good, that’s not a success. That’s luck. And luck runs out.

Why This Is Hard (And Why That’s the Edge)

The reason most investors don’t think this way is because it’s deeply uncomfortable.

It means accepting that you can do everything right and still lose money on a position. It means acknowledging that some of your best returns may have come from flawed decisions that happened to work out. It means resisting the narrative your brain desperately wants to construct after every trade.

Duke uses a concept she calls “the shadow of the future” - the idea that you should make decisions as if you’ll have to explain your reasoning to a group of thoughtful peers, regardless of the outcome. Not justify the result. Explain the process.

The investors who can sustain that mindset - who can stay process-oriented when outcomes are painful, who can resist the pull of resulting, who can think in probabilities rather than certainties - have a structural edge.

Not because they’re smarter. Because they’re more rational. And in a market full of emotional participants, rationality compounds.

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The Takeaway

If you remember one thing from this post, make it this:

A good decision can have a bad outcome, and a bad decision can have a good outcome. What matters is the quality of the process, not the result of any single bet.

That’s the central lesson of Thinking in Bets. And it connects directly to how we invest at Schwar Capital.

We think in probabilities, not certainties. We define our thesis before we buy, and we evaluate against that thesis - not against the stock price. We size positions to reflect our conviction and the skew of potential outcomes. And we judge our decisions by the process, not the result.

The market doesn’t reward the people who are right most often. It rewards the people who think most clearly about risk, probability, and asymmetry - and who have the discipline to act accordingly.

That’s betting with an edge. And over time, the edge compounds.

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Thanks for reading,

Dom
Schwar Capital

Why Your Hit Rate Doesn't Matter (And What Actually Does)

Schwar Capital Research — Fri, 10 Apr 2026 14:39:20 GMT

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Most investors are obsessed with the wrong question.

They want to know: how often are you right?

It sounds logical. If you pick more winners than losers, you should make money. If your hit rate is high enough, the returns will follow.

Except that’s not what the data shows. Not even close.

I’ve been reading Stock Market Maestros by Lee Freeman-Shor and Clare Flynn Levy, which builds on the research from Freeman-Shor’s earlier work The Art of Execution. The findings are striking, and they reinforce something I’ve come to believe sits at the very core of successful investing.

The average hit rate of the eleven elite investors profiled in the book is 51.5%.

Let that sink in. These are some of the best investors in the world. They are right roughly half the time.

The range runs from 43% to 57%. Some of the top performers in the study were wrong more often than they were right.

And yet they all made money. Significant money.

So if being right half the time is enough to generate exceptional returns, what’s actually doing the work?

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The Metric That Matters: Payoff Ratio

The answer is something called the payoff ratio.

It measures how much an investor gains when they’re right relative to how much they lose when they’re wrong. A payoff ratio of 100% means your winners and losers are the same size - you break even before considering hit rate. Anything above 100% means your winners are larger than your losers.

The average payoff ratio across the eleven maestros in the book is 202.5%.

That means when these investors are right, they make roughly twice as much as they lose when they’re wrong. The range is 128% to 288%.

This is the engine. Not stock selection. Not hit rate. The size of the wins relative to the losses.

Think about what that means in practice.

An investor with a 50% hit rate and a 200% payoff ratio makes money - consistently.
An investor with a 70% hit rate and a 50% payoff ratio - right seven times out of ten, but cutting winners early and letting losers run - can still lose money.

The hit rate feels like the important number. The payoff ratio is the one that actually determines outcomes.

Why This Is Really About Asymmetry

This is where the concept connects to something broader.

At Schwar Capital, asymmetry is the lens through which we look at everything.

Every position starts with the question: what’s the downside relative to the upside? If we’re risking £1 for a shot at £5, and we believe the probability favours us, that’s an asymmetric setup.

The payoff ratio is just the portfolio-level expression of the same idea.

When Freeman-Shor studied 1,866 investments across 30,784 trades made by 45 fund managers, what he found was that the behaviour after the buy - how investors managed both winners and losers - was the primary driver of returns.

Not the quality of the initial idea.

Not the analytical framework.

The execution.

The investors who made the most money did two things well. They cut losers relatively quickly, limiting the damage from being wrong. And they let winners run, allowing the right ideas to compound far beyond the initial thesis.

The investors who struggled did the opposite.

They held losers hoping for recovery and sold winners too early to lock in a gain.

That pattern - cutting flowers and watering weeds - is devastatingly common, and it destroys payoff ratios even when the underlying stock picking is sound.

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Asymmetry Beyond Individual Stocks

Here’s what I think gets missed in most discussions about asymmetry: it’s not just a stock-level concept. It applies to the entire way you construct and manage a portfolio.

Position sizing is an asymmetry decision. When you put 15% of your portfolio into your highest-conviction idea and 3% into a speculative position, you’re engineering asymmetry at the portfolio level. If your 15% position doubles, it moves the needle. If your 3% position goes to zero, it’s a rounding error. That’s asymmetry by design.
When you add to winners, you’re compounding asymmetry. Most investors do the opposite - they average down into losers because the price looks cheaper. But adding to a position that’s working, where the thesis is playing out and the business is executing, increases your exposure to something that’s already proving you right. That’s how payoff ratios get above 200%.
Time horizon is an asymmetry lever. The market’s obsession with the next quarter creates a structural advantage for anyone willing to wait. A business that will compound earnings at 20% for a decade but is going through a rough six months is being handed to you at a discount by people who can’t afford to hold it. Your willingness to sit through that is an asymmetric edge.
Even portfolio concentration is an asymmetry choice. Owning 8-12 stocks instead of 50 means your winners have room to genuinely impact your returns. A 5x return on a 10% position transforms your portfolio. A 5x return on a 0.5% position barely registers. The willingness to concentrate is the willingness to let asymmetry work.

The Uncomfortable Truth

The practical implication of all this is that being a good investor feels terrible in real time.

If your hit rate is 50%, you are watching half your positions lose money. That’s not a bug in the system. It’s the system working as designed.

The natural human response to a losing position is to hold on and wait for it to recover.

The natural response to a winning position is to sell it before the gain disappears.

Both instincts feel rational in the moment.

Both destroy your payoff ratio.

Freeman-Shor’s data makes this uncomfortably clear. The difference between good and great investors isn’t the quality of their ideas. It’s the discipline to act against instinct - to cut what isn’t working and let what is working continue to compound.

This is why I’ve written before about the importance of selling based on thesis, not price.

A stock dropping 30% because the market is having a bad week is not the same as a stock dropping 30% because the business model is broken.

One is an opportunity. The other is information.

Being able to tell the difference - and act accordingly - is what builds asymmetric payoff ratios over time.

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How I Think About This in Practice

I’ll be transparent about how this shapes the Schwar Capital portfolio.

When I take a position, I’m already thinking about the payoff structure.

What’s the realistic downside if I’m wrong?

What’s the upside if the thesis plays out?

And - this is the part most people skip - how big could this become if it exceeds expectations?

I want positions where the base case already justifies the investment, but where there are credible scenarios for the business to significantly outperform.

That’s how you build in optionality that can drive a payoff ratio above 200%.

On the loss side, I try to be honest with myself about when a thesis has broken versus when a stock is simply cheap. If the business fundamentals have deteriorated in a way I didn’t anticipate, I’d rather take a 20% loss and redeploy that capital into a better asymmetric setup than hold on hoping to get back to even.

Getting back to even is not an investment strategy. It’s an emotional coping mechanism.

The hardest part is the winners.

When a position doubles, every instinct tells you to take profits. The gain is real, it’s sitting right there, and the fear of giving it back is powerful.

But the data is unambiguous:

The investors with the highest payoff ratios are the ones who can sit through that discomfort and let their best ideas continue to compound.

That doesn’t mean hold forever blindly. It means hold as long as the thesis is intact and the business is executing. The sell trigger should be fundamental, not emotional.

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The Takeaway

If you remember one thing from this post, make it this:

Investment success is not about being right most of the time. It’s about making more when you’re right than you lose when you’re wrong.

That’s the payoff ratio. And it’s driven by how you handle both sides of the ledger - your losers and your winners.

The best investors in the world are right about half the time.

What separates them is that their winners are two to three times the size of their losers. They achieve this through discipline: cutting losses when the thesis breaks and letting winners compound when the thesis is working.

That’s asymmetry applied to portfolio management.

And it’s the same principle that governs how we think about individual stock selection, position sizing, concentration, and time horizon at Schwar Capital.

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The game isn’t about finding more winners. It’s about making your winners count.

Thanks for reading.

Dom
Schwar Capital

The Art of Risk Taking

Schwar Capital Research — Mon, 06 Apr 2026 11:25:48 GMT

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Most investors think risk management means avoiding risk. They think of it as the boring part.

Sun Tzu would disagree.

The Art of War is commonly perceived as a book about aggression. It is, after all, called The Art of War.

But its core message is the opposite.

It is a book about patience, preparation, and knowing when not to act. It is, in many ways, the greatest investing book ever written. It just happens to have been written 2,500 years before the stock market existed.

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I recently read Tobias Carlisle’s book, Soldier of Fortune, which maps Sun Tzu’s principles onto Buffett’s career. It crystallized something I’d been thinking about for a while. I believe the principles in The Art of War, properly understood, describe the optimal framework for asymmetric investing.

The same framework that underpins this newsletter.

This post is an attempt to unpack why that is.

Via Negativa: Winning By Not Losing

The most surprising thing about The Art of War is how much of it is written in the negative. Don’t do this. Avoid that. Do not engage unless conditions are overwhelmingly favorable.

Sun Tzu’s central insight is what philosophers call “Via Negativa”: you get where you’re going by removing what doesn’t work, not by adding what might.

If you eliminate all of the obviously wrong paths, whatever remains is the only path you can take.

This is the most underrated concept in investing.

Most investors spend their time looking for reasons to buy something.

They hunt for catalysts, narratives, upside scenarios. But the best investors I’ve studied do the opposite.

They have a mental checklist of things that kill investments, and they refuse to engage unless none of those conditions are present.

Too much debt. Misaligned management. Cyclical business at peak earnings. Unquantifiable regulatory risk.

If any of these are present, they pass. They don’t care how exciting the story is.

I think about this every time I look at a new position.

The question is never “what could go right?” The question is “what would kill me?” If the answer is “nothing obvious,” then you start doing the real work.

If the answer involves three paragraphs of caveats and rationalizations, you move on.

The positions I’ve been most wrong on share a common trait: I talked myself past a clear disqualifying factor because the upside was too exciting. The positions that have worked best were the ones where I struggled to find reasons not to own them.

Via Negativa also applies to portfolio management. The months where I do the least tend to produce the best outcomes.

Not because inaction is inherently virtuous, but because action for its own sake is inherently destructive. Every unnecessary trade is a chance to introduce error.

Doing less, when you’ve already done the work, is a feature, not a bug.

I’ve written before about how “boring is a feature.” This is the Sun Tzu version of the same idea.

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Defend First: The Ergodicity Problem

Sun Tzu says you must defend before you attack. You secure your own position before engaging.

The reason is simple: if you are destroyed, nothing else matters. There is no second chance.

In investing, this is the ergodicity problem.

If your portfolio goes to zero, it does not matter that your CAGR was 40% for the prior five years. Compounding works in both directions.

A single catastrophic mistake can undo years of correct decisions.

This is why position sizing matters more than stock selection.

You can be right on every thesis and still blow up if you’re sized incorrectly. Conversely, you can be wrong frequently and still compound well if your sizing protects you from ruin.

Sun Tzu actually understood probabilities.

He writes about “balancing the chances of life and death” and uses an archaic ratio, something like a grain to a pound, which is approximately 1 to 6,000.

His point: you should only act when the odds are overwhelmingly in your favor. Not slightly in your favor. Overwhelmingly.

This sounds extreme. But in practice it describes exactly how the best investors behave.

They wait.

They do nothing for extended periods.

And then, when the odds are truly lopsided, they act decisively and in size.

This is the margin of safety concept, but stated more aggressively.

It is not just about avoiding losses. It is about refusing to engage until the setup is so asymmetric that losing becomes very difficult.

This maps directly onto how I think about the positions I write about in this newsletter.

I am looking for situations where the downside is quantifiable and limited, and the upside is a multiple of the current price.

Not a 20% upside with 15% downside. That is not asymmetric.

That is a coin flip with a small edge.

I want setups where a reasonable downside scenario is a 30% correction, and a reasonable upside scenario is a 200%+ rerating.

These setups are rare. But they exist, and waiting for them is the entire game.

The Rabbit vs. The Hunter

I’ve written before about the Rabbit vs. Hunter framework.

It describes two instinctive responses to drawdowns.

The Rabbit freezes. It sits paralyzed, staring at the red on the screen, doing nothing.
The Hunter assesses conditions and, if the thesis is intact, adds to the position.

Sun Tzu would recognize this immediately. He writes extensively about emotional discipline. About understanding your own psychological state. About not reacting to conditions, but instead shaping them.

The problem is that the Rabbit response feels rational in the moment. The stock is down 15%.

The market is telling you something. Maybe you should wait for clarity. But waiting for clarity is often just a euphemism for doing nothing while the asymmetry improves in front of you.

The Rabbit watches the price fall further, never adding, and eventually the thesis plays out without them having capitalized on the dislocation.

The Hunter knows this.

The Hunter has done the work beforehand. The Hunter has a thesis with clearly defined assumptions and kill criteria.

When the stock drops, the Hunter checks the kill criteria. If none have been triggered, the drawdown is information about the market, not information about the business.

And information about the market, for a long-term investor, is useful only insofar as it lets you buy more of something you already liked at a lower price.

Sun Tzu would say: “Know yourself, know your enemy.” In investing, “knowing yourself” means understanding your own emotional triggers, your tendency to freeze, your susceptibility to FOMO.

“Knowing your enemy” means understanding the market’s behavioral tendencies: its tendency to overreact, to extrapolate, to misprice duration, to ignore small and illiquid names.

The investor who knows both will rarely be caught off guard.

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Wu Wei: Don’t Be a Great Farmer. Farm in Spring.

Wu Wei is a Daoist concept that roughly translates to “non-action” or “effortless action.” It does not mean doing nothing. It means aligning yourself with the natural flow of events rather than fighting against them.

There’s a line attributed to one of the Daoist philosophers that I think about often:

“It’s great to be a good farmer, but you don’t have to be a great farmer in the spring.”

In spring, the conditions do the heavy lifting. You just have to show up and plant.

Investing is the same.

There are periods where the conditions are doing the work for you: regulatory tailwinds, industry transitions, valuation dislocations, forced selling. In these periods, you do not need to be a genius stock picker.

You just need to be present and positioned.

Conversely, there are periods where conditions are hostile: everything is expensive, speculative fervor is peaking, and the easy money has been made. In these periods, even excellent stock picking may not save you.

Wu Wei says: flow with events, do not fight them.

This is counterintuitive for contrarian investors.

Part of what we do is bet against the crowd. But there is a difference between betting against the crowd on a specific mispriced situation, and fighting the entire direction of the market or the macro environment.

The former is good investing.

The latter is stubbornness disguised as conviction.

I try to find situations where the natural flow of events is working in the company’s favor. A regulatory change that creates a structural tailwind. A recurring revenue transition that the market is not yet pricing. A catalyst with a defined timeline.

These are “spring” conditions.

The thesis is not dependent on the company doing something extraordinary. It is dependent on the company executing on something that is already in motion.

When multiple “spring” conditions converge on a single name, that is what Charlie Munger called the Lollapalooza Effect.

Individual tailwinds add. Convergent tailwinds multiply. And the market, because it tends to think linearly, consistently underprices the multiplicative scenario.

This is my edge.

Coup d’oeil: Seeing What Others Cannot

Coup d’oeil is a French term meaning “stroke of the eye.” It refers to the ability of great military commanders to take in a complex situation, with its many variables and uncertainties, and instantly perceive the correct course of action.

Napoleon was said to have possessed it. Von Clausewitz wrote about it.

In investing, coup d’oeil is the ability to look at a company and see, in an instant, why the market is wrong.

Not because you’re smarter. But because you’ve done the pattern recognition work so many times that the signal cuts through the noise.

This is not mystical.

It is the product of method.

You do the analysis over and over. You study hundreds of situations. You develop an instinct for which factors matter and which are distractions. And then, one day, you look at a company and the thesis assembles itself almost automatically.

The misclassification. The hidden asset. The earnings power that the market is ignoring because it’s fixated on the wrong metric.

I think about this when I write about companies that I think the market has mislabeled.

A company classified as “insurance” that is actually a search fund platform.

A company labeled as “coal” that is actually transitioning into a power utility.

A monitoring business whose earnings are misread because the market is focused on a single quarter rather than the trajectory.

In each case, the thesis is not complicated. It is a simple observation that the label is wrong, and when the label changes, the multiple changes.

The hard part is not the observation. It is having done enough work, on enough situations, to recognize the pattern when it appears.

That is coup d’oeil.

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Victory Without Battle

Sun Tzu’s most famous principle may be that the greatest victory is won without fighting.

The battle, if it comes to that, is already a sign that something went wrong.

The real victory was achieved beforehand, through positioning, preparation, and patience.

For investors, the “battle” is the period after you buy.

The volatility. The drawdowns. The noise. If you have done the work correctly, the battle is already won before you enter the position.

You’ve identified the mispricing. You’ve confirmed the thesis. You’ve sized the position appropriately. You’ve defined your kill criteria.

The outcome will be determined by whether the business executes, not by whether you can stomach the daily price action.

The investors who lose are the ones who enter the battle unprepared.

They buy on a tip, or a chart, or a feeling. They have no thesis and therefore no ability to distinguish between signal and noise. Every drawdown is existential because they have no framework for evaluating it. They are the army that arrived at the battlefield without a plan, and every army that arrives without a plan eventually loses.

Sun Tzu, writing 2,500 years ago, understood all of this. The principles have not changed.

They will not change.

Markets evolve, technology evolves, geopolitics evolve. But the way you win does not. You defend first. You wait for overwhelming odds. You flow with conditions rather than fighting them. You trust your preparation. And you act decisively, and only, when the moment is right.

That is the art of risk taking.

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Thanks for reading.

Dom
Schwar Capital