Value in the Multipolar World: A Core Portfolio for 2026

For years, the market felt like a casino. From 2020 through 2024, simply "putting chips on the table" worked unusually well. In that period, more than half of S&P 500 companies delivered annualized returns above 15%, and about 90% had positive annualized returns. The house edge was obscured by a powerful tide of liquidity and optimism.

That night is ending. As 2025 winds down, the lights are coming up. Around 40% of the S&P is heading for a negative year. The shift in the odds is clear. The coming year looks less like a casino and more like an investor's market. You win not by chasing every hot trade, but by sizing positions thoughtfully and focusing on high-probability outcomes.

The macro backdrop remains supportive. Global equities are forecast to climb, with Goldman Sachs Research expecting 11% returns over the next 12 months. But last year's dramatic advance has left valuations at historically high levels across all regions. This means the easy money from rising multiples is likely gone. As the report notes, returns in 2026 are likely to be driven more by fundamental profit growth rather than by rising valuations.

This environment favors a core portfolio of reliable, long-term compounding businesses. When the market is selective, the focus must be on intrinsic value and the width of a company's competitive moat. It is the disciplined investor, not the speculative one, who will prosper in this new reality.

Identifying the Core: Criteria for a Value Investment

In an investor's market, the old rules of chasing momentum no longer apply. The disciplined approach requires a clear set of criteria to separate durable businesses from fleeting fads. Based on a Reddit post outlining a personal value framework, the starting point is a margin of safety. The stock should not be trading near its all-time high, or even close to it. This provides a buffer against the inevitable volatility and ensures the purchase price reflects a more reasonable estimate of intrinsic value.

Beyond price, the business must have a clear, understandable reason for growth. This is not about chasing stocks with merely good financial metrics, which can be a trap for the unwary. As one investor noted, buying a stock like PayPal might be "catching falling knives" if the growth story is opaque or fundamentally broken. The value investor seeks a business whose competitive advantages and growth drivers can be grasped with a reasonable level of confidence.

The most critical criterion, however, is the presence of a durable competitive moat. This is the long-term advantage that allows a company to earn returns on capital above its cost over many business cycles. In today's complex landscape, this moat is increasingly shaped by structural shifts like the rise of AI. Evidence from BlackRock highlights that AI adoption is a critical driver of stock performance in 2026. For a value investor, the question is whether a company's moat is being widened or eroded by this technology. A moat built on proprietary data, network effects, or scale can be a powerful cost lever, as seen in the "multipolar world" theme where governments and companies prioritize control over technology and supply chains. The goal is to identify businesses where this moat is not just present but is being reinforced by the very forces reshaping the global economy.

The bottom line is that a value investment in 2026 requires patience and discipline. It means looking past the noise of quarterly earnings and focusing on the long-term compounding power of a business with a wide moat, bought at a price that offers a margin of safety. This is the setup for success in a market that is finally pricing in reality.

The AI and Labor Cost Transformation: A Sector-Wide Catalyst

The most powerful earnings catalyst for 2026 may not be found in the latest quarterly report, but in the back-office systems of companies across the economy. As inflation's storm recedes, a new structural shift is coming into focus: the impact of AI on corporate labor costs. This is not a niche tech story. It is a fundamental reordering of the cost structure for businesses, with the potential to lift profits across sectors.

The scale of this opportunity is significant. Evidence suggests AI adoption could reduce labor's share of corporate costs by 5% or more. In an era where profit growth is paramount, this is a massive lever. For a company with a 60% labor cost ratio, a 5-percentage-point reduction translates directly into a 10% improvement in pre-tax margins. This is the kind of efficiency gain that compounds over time, enhancing intrinsic value without requiring a new product or market.

This transformation is a key driver of the "Societal Shifts" theme identified by Morgan Stanley Research. The theme explicitly captures AI-driven labor impacts, framing the technology not just as a productivity tool but as a force reshaping the entire economy. The data supports this: layoff announcements in recent months have been framed overwhelmingly as efficiency initiatives, not cyclical weakness. The market is pricing in a new reality where automation is a strategic cost-management tool.

For the value investor, the implication is clear. The benefit of this labor cost reduction will flow to companies that are already strong, not just those trying to pivot into AI. The focus should be on businesses where AI enhances their existing moat-its scale, data assets, or operational expertise-rather than on those attempting a speculative new venture. A manufacturing leader using AI to optimize its supply chain is a different story from a retailer betting its future on an unproven AI platform. The former is compounding its durable advantage; the latter is building a new, uncertain moat.

This creates a compelling setup outside the current AI bubble. The earnings growth powered by this sector-wide cost management lever is likely to be more durable and widespread than the speculative rallies seen in pure-play tech. It is a classic value opportunity: a powerful, structural change in the business environment that is being priced in slowly, if at all, by the market. The companies best positioned to capture this shift are those with the operational discipline to integrate AI effectively and the financial strength to invest through the transition.

Catalysts and Risks: What to Watch in 2026

The core thesis for 2026 hinges on two powerful, structural shifts: the realization of AI-driven cost savings and the potential for government support in strategic industries. The path to validating this thesis, however, is not without its guardrails. Investors must monitor for both catalysts that could accelerate growth and risks that could derail the favorable backdrop.

The most direct catalyst is the tangible rollout of AI as a cost lever. Evidence suggests the technology could reduce labor's share of corporate costs by 5% or more. For the value investor, the critical test will be seeing this translate into reported earnings growth. The market has priced in a new era of efficiency, but the proof lies in the financial statements. Watch for companies with strong operational moats to demonstrate that AI is not just a promise but a tangible margin enhancer. This validation would confirm the earnings growth thesis that Goldman Sachs Research expects to drive returns in a year where returns are likely to be driven more by fundamental profit growth rather than by rising valuations.

A parallel catalyst is government policy, particularly in capital-intensive sectors. The Reddit post highlights Intel as a potential 2026 pick, citing the "western govs want chip sovereignty" as a potential tailwind. This reflects a broader theme where state support for strategic industries could provide a powerful, non-market-driven boost. For a value investor, this is a double-edged sword. It can act as a catalyst for a struggling but strategically important business, but it also introduces a new layer of risk tied to political and budgetary decisions. The key is to assess whether such support is a temporary tailwind or a fundamental change in the competitive landscape that widens the moat.

The primary risks to the setup are a broader economic slowdown or a resurgence of inflation. The current favorable backdrop assumes continued global expansion. Yet, the labor market data shows a concerning drift, with the share of workers marginally attached to the labor force or not in the labor force but wanting a job drifting higher. If this trend accelerates into a broader jobs crisis, it could challenge the earnings growth thesis. Similarly, while inflation's storm appears to have passed, the market's 2.3% inflation expectation is a fragile baseline. Any significant resurgence would likely pressure valuations, which are already historically high, and could force a reassessment of the entire earnings outlook.

In essence, the investor's market of 2026 demands vigilance. The catalysts are structural and powerful, but the risks are equally real. The disciplined approach is to watch for the concrete realization of AI's cost savings and the durability of government support, while remaining alert to any cracks in the economic foundation. The margin of safety built into a core portfolio will be tested by these forward-looking events.