2026 Investment Plan: A Value Investor's Guide to Intrinsic Value and Patience

The market's mood is shifting. For years, it felt a bit like walking through a casino where almost every table was paying out. From 2020 through 2024, the equity market rewarded almost any risk you took. In that period, more than half of S&P 500 companies delivered annualized returns above 15%, and about 90% had positive annualized returns. Simply "putting chips on the table" worked unusually well. This year has been different. As 2025 winds down, around 40% of the S&P 500 is heading for a negative year. That shift in the odds is the core of how we're thinking about 2026. The coming year looks less like a casino and more like an investor's market.

In this new environment, intrinsic value and durable competitive advantages are paramount. You win not by chasing every hot trade, but by sizing positions thoughtfully and focusing on high-probability outcomes. The era of indiscriminate risk-taking is ending. The core driver for 2026 is above-trend growth and easing policy, which favors selective risk-taking over the broad exposure that paid off in recent years. This setup demands patience and discipline, the hallmarks of a true value investor.

The backdrop is changing. The inflation storm that dominated the last few years looks largely behind us, with underlying price volatility returning to the stable norms of the 1990s and 2000s. But a new challenge is emerging: labor. The economy is showing clear signs of strain, with hiring downshifted and slack building. This combination-cooler inflation but a labor pothole ahead-creates a policy environment ripe for selective opportunity. It's a market where companies with wide moats and the ability to compound earnings through efficiency gains, like those leveraging AI for cost management, will be rewarded. The focus must be on businesses that can generate real value, not just chase narratives.

Portfolio Construction: The Value Investor's Toolkit

The shift from a casino to an investor's market demands a disciplined toolkit. The starting point is a margin of safety, and the current market offers one. As of year-end, the US equity market trades at a 4% discount to a composite of our fair value estimates. That's a solid foundation. Yet, this average is skewed by the towering valuations of mega-caps. Excluding giants like Nvidia, Alphabet, and Broadcom from the calculation brings the market price closer to fair value. This means the discount is real, but it's not uniformly distributed. The safety net is there, but it's thinner for the most popular names.

From this discount, the logical next step is to seek durable competitive advantages. The rotation out of crowded growth trades is likely to continue, with sectors like financials, industrials, and utilities as prime candidates. These sectors often trade at more reasonable valuations, with average forward P/Es around 18x. They represent a classic value rotation-a move from speculative narratives to businesses with predictable cash flows and strong moats. The catalysts here are practical: rate expectations, capital expenditure trends, and data center power demand. This is where patient capital can find attractive entry points, especially if the broader market remains fixated on AI.

Embracing Mr. Market's mood swings is the final, essential discipline. Expect volatility ahead. The market's intense focus on AI remains, but those lofty valuations now require even stronger growth to support them. This creates a volatile setup where sentiment can swing sharply. The value investor's role is not to avoid this turbulence but to navigate it with a clear view of intrinsic value. By building a portfolio anchored in a margin of safety, focused on wide-moat sectors, and prepared for swings, you position yourself to compound wealth through the cycles, not chase them.

Catalysts and Guardrails for the Long-Term Investor

The value investor's path in 2026 is defined by watching for the right catalysts while being vigilant for the risks that could challenge the thesis. The primary catalyst to monitor is the continuation of sector rotation. As concerns over overvalued growth stocks persist, the move into value-oriented areas like financials, industrials, and utilities is likely to continue. This isn't just a broad ETF play; the opportunity lies in stock selection within these sectors where valuations sit below the norm. Practical drivers like rate expectations, capital expenditure trends, and data center power demand will be the real-world signals to watch for which companies are truly compounding value.

A compelling case study in macroeconomic stabilization will unfold in Argentina. The country enters 2026 after a two-year adjustment that delivered its first primary fiscal surplus in over a decade and stabilized inflation from a peak near 300% to a projected 13.7% in 2026. The July 2026 review of its IMF program will be a critical test. Success would validate the power of credible policy frameworks to restore stability and unlock investment, as seen in Argentina's projected US$13 billion trade surplus and over $30 billion in announced investments across energy and mining. For emerging markets, a positive outcome could ease global risk sentiment and support capital flows, while a setback would be a reminder of the fragility that often underpins high-growth narratives.

Yet the dominant risk remains the rich valuations in AI and growth stocks. These names now trade at levels that demand not just strong growth, but even stronger growth than many analysts forecast. As one analysis notes, artificial intelligence stocks require even stronger growth to support lofty valuations. This creates a precarious setup where any stumble in execution or a shift in sentiment could trigger volatility. The market's current 4% discount to a composite of fair value estimates is real, but it's a composite that gets skewed by the towering, overvalued mega-caps. The guardrail for the long-term investor is to ensure that any position, regardless of sector, offers a margin of safety that is not contingent on a flawless AI growth story. Patience means waiting for that safety to reappear, not chasing momentum into thin air.