The end of the year offers a rare opportunity to reflect and audit our own thinking. My goal on Arbalist Money is to share objective analysis on stock market investing as well as the evolution of my thinking.
For me, writing is thinking. Looking back at my writing—the articles, calls and caution published over the last year provides a clear record of that thinking and the discipline behind it. It allows me to assess whether the thesis held up, whether patience was worthwhile, and, perhaps most importantly, whether we were prepared when the market finally offered opportunity.
2025 provided no shortage of moments to test that discipline. The investing year began with quite a bit of political uncertainty. While volatility usually translates to opportunity, the early months of 2025 presented a frustration familiar to quality investors which was that the businesses were great, but the prices were not.
My writing early in the year reflected this tension. I spent the first quarter highlighting exceptional companies while explicitly warning against their valuations. I acknowledged Netflix’s dominance and the quality of the business, but expressed concern about the valuation. Similarly, I argued that Costco’s valuation defied logic. Even the best retailer in the world should not be bought at “any” price. And with the stock trading north of $1,000 at roughly 60x earnings, it was pricing in years of perfect execution.
In both cases, I acknowledged that these were exceptional businesses, but the stocks offered little margin of safety. This sets up a critical lesson for the year: being bullish on a business does not obligate an investor to buy the stock immediately.
And so, instead of chasing, we prepared.
The Search for Value
As the market pulled back to start the year, I turned my attention to the highest quality cohort in the market. The so-called Magnificent 7. I ranked them in terms of value, placing Alphabet at the top of the list. While it was a volatile holding, that call ultimately aged well as Alphabet proved it could compete meaningfully in AI, a theme that underpinned much of the year.
But the hunt continued. I assembled a shopping list of high-quality stocks to watch as the pullback continued. The goal was to identify quality names and the target price ranges now so that if and when the panic came, we would be better prepared to take action.
The Tariff Panic In April
In April, the opportunity arrived.
When President Donald Trump displayed the new tariff rates, the market reacted sharply. The response was fast, emotional, and visceral. Headlines and pundits argued that “this time is different.” Well, it took until the morning after the announcement to collect my thoughts, recognizing that of course this time was not different.
In the midst of the sell-off, I explicitly called for equanimity. We had seen markets react to serious geopolitical situations before. My instruction was to stay calm. This was not a moment to sell in fear. It was a moment to act on preparation.
Why? Because when you own quality companies and understand their long-term economics, you can find conviction when others find panic. That is part of the beauty of the approach.
It was during this sell-off that preparation and patience were rewarded. The sell-off brought elite businesses down to our entry targets:
- Amazon fell into the $160s.
- Moody’s dipped sub-$400.
- Microsoft fell to the mid-$300s.
- Trane Technologies dropped below $300.
- American Express fell to the low $200s.
And the list goes on. At that moment, I could not highlight every opportunity, but I made two specific calls during the turmoil. I pointed out the mismatch between Disney’s depressed price and its recovering fundamentals when it sat under $85 per share. At the same time, I highlighted Vertiv around $70, arguing that the stock reflected the base business but was getting zero credit for the AI infrastructure tailwind.
It was not long before risk-on sentiment returned. The window closed quickly. As the market digested the tariff uncertainty and the narrative shifted to the impact of AI, my posture shifted from broad accumulation back to selective opportunism.
The Search for Opportunity
By late spring, the easy beta was gone. I pivoted to idiosyncratic opportunities.
I highlighted three beaten down quality stocks: Thermo Fisher (TMO), FICO, and UnitedHealth (UNH). These were high-quality compounders suffering from temporary narrative issues which created clear dislocations. Looking back, the thesis on all three is well intact, particularly TMO and FICO, which are now trading well off those lows.
There is a lesson here that I am still refining in practice, one that is often emphasized by Warren Buffet and Charlie Munger. The lesson is to act decisively on rare opportunities. When a high quality business becomes mispriced and the thesis is clean, the correct move is to size the position appropriately to reflect the opportunity.
Later in the year, another opportunity surfaced following a dip in MSCI after their Q2 earnings. I noted at the time that this was a classic case of short-term market disappointment offering a long-term entry into a wide-moat business. The stock has moved within a range for most of the year, but the underlying compounding potential remains intact.
When Patience Pays Off
Perhaps the most important lesson of 2025 was that missing out is often a winning strategy.
My early caution on Costco and Netflix avoided chasing companies with stretched valuations. Netflix remains a wonderful company, but the stock eventually offered better entry points after bidding for the Warner Brother’s assets. Costco, while still an exceptional retailer, remains expensive even after coming off its highs.
Patience also paid off elsewhere. I advised buying Procter & Gamble on pullbacks, and the opportunity came when the stock traded down to the $140s. We saw the same pattern with Waste Management. After describing it earlier in the year as a compounder at a premium, the stock finally moved into a buyable range after reporting softer Q3 earnings.
In an effort to be balanced, however, it is also worth addressing my call on Reddit. In my analysis, I called the stock unproven and overvalued. While the stock is volatile, it has moved higher since then. To be fair, I was right to highlight the risks, and I stand by my discipline. Reddit does not fit the risk profile I prefer. It lacks the decades of compounding history and the moat of those I categorize as quality compounders. Missing a winner is acceptable if it means avoiding a position I would not have the conviction to hold through volatility.
Refining the Process
In the second half of the year, as tariff talks faded and AI optimism fueled valuations higher, attractive prices became more scarce. So, I returned to the watchlist to identify compounders for the next pullback. But rather than force ideas, I focused on refining and articulating the framework itself.
That work showed up in educational pieces such as Capital-Light Businesses Make the Best Compounders and The Real Math Behind Compounding. It also led to the creation of the Quality Compounder Hub, designed to clarify the approach for new readers.
Looking Ahead to 2026
I view market predictions as largely futile, but there is one forecast I feel safe making—The market will go up and down, and in what will feel unexpected, sentiment will suddenly shift.
This is somewhat tongue-in-cheek, but the point is not that this will happen, but how to be prepared for it. We do not manage risk by predicting the future. Instead we thwart risk by focusing on quality, sizing positions appropriately, and insisting on reasonable prices.
In 2026, my approach will continue to evolve. The objective, however, remains to own quality compounders, and allow compounding to do the work over time.
