It’s been a busy quarter at Patient Capital.
First, we’re excited to announce we’ve hired a new analyst, Panpan Xiao. Panpan graduated from Columbia University’s Value Investing program last May with her MBA. Prior to that, she worked as an analyst at several places including Fidelity and Schroders. We’ve interviewed many candidates. Panpan’s flexible thinking, value orientation and history of delivering results made her a standout. Before business school, Panpan grew up in China and then worked in Europe covering international stocks. She will help accelerate our global research efforts. Join us in welcoming her.
The Opportunity Equity Strategy declined 5.96% in the first quarter, underperforming the benchmark S&P 500’s 4.33% decline. For the 1-year period, the portfolio gained 31.05% significantly outpacing the S&P 500’s 17.80% return. Since the start of the secular bull market in March 2009, the strategy delivered annualized returns of 17.88%, 153 basis points per year better than the S&P 500’s 16.35%. For the year-to-date period through this writing (Apr 8th), the market has recovered and portfolio is down 0.41% outperforming the S&P 500’s 0.61% loss.
Our performance in the quarter was better than recent past selloffs. We were down 1.38x as much as the index, which compares favorably to the 1.8x greater gains we’d earned in the prior three quarters (40.89% vs. 23.13%).
In the first quarter of 2025, the third quarter of 2023 and the first quarter of 2022 (the initial quarter in that market decline), the S&P declined a comparable 3.27%-4.60% and we were down 1.5x to 2.2x as much. While we think short term downside matters much less than long term returns, many investors care greatly about these metrics.
That said, we believe the secular bull market that began in March 2009 is intact. If we’re correct, the optimal strategy is to buy on weakness. Leadership is likely to remain the same (Mag 7 and technology).
If we’re wrong, the biggest risk is a significant bear market like we saw at the end of the Tech Bubble or the Nifty Fifty period. In those situations, a value oriented portfolio cushioned you against the worst losses.
We don’t think a significant bear market is imminent. The usual prerequisites don’t exist. The Fed is unlikely to raise rates and recession remains improbable. The selloff took the S&P 500’s P/E back to levels (19.1x) we haven’t seen since 2023 and relieved pockets of excess.
Given recent moves, we see ample attractive opportunities, though they are dispersed across the market. The top 10 companies in the S&P 500 now trade at a smaller premium to their historical average than the remaining 490. Value outperformed growth for the second consecutive quarter, bringing relative valuations back to their long-term average. Small cap growth now trades at a discount to its 20-year average valuation (P/E), the best of any style box.
During the quarter, the S&P declined 9.8% from its January peak to its March 30th low. Since the secular bull market began, the S&P has declined 5%, 31 previous times, a rate of nearly twice per year. It’s lost 10% ten times, slightly more than once every other year. Volatility occurs regularly and usually represents a buying opportunity.
Beneath the surface, moves were extreme. Some private credit names were crushed. Software declined 35% from its peak late last year. Bitcoin’s peak-to-trough loss hit 52%, while Ark Innovation ETF’s loss hit 32%. Some former darlings, like Trade Desk (TTD $22.69) and Duolingo (DUOL $98.57), are down roughly 80% from their 52-week highs.
Market prices gyrate more dramatically than intrinsic business values, which means violent swings make mispricings more likely. We’ve dedicated significant time and research this quarter to software, payments companies (another area hit hard) and private credit.
Software’s taken a beating due to concerns about AI disruption, but we aren’t finding clear widespread opportunities. Before fears arose, beloved software names carried lofty valuations. Through the peak in October, software had gained 19.9% per year1, 540bps better than the S&P 500, from the time Marc Andreesen famously stated that “software is eating the world” in Aug 2011.
At that time, the enterprise value-to-operating income of the group was ~11x. By October 2025, the multiple nearly tripled to ~28x, making outperformance more challenging. The all-time high of ~45x occurred in the 2020-2021 pandemic period. (These companies’ prodigious issuance of stock compensation makes this metric better than others).
As we write this, valuations have fallen back to about 18x, the low end of the past decade’s range. All else equal, a potentially compelling level. But all is not equal. AI represents a legitimate competitive threat. For most software companies, market embedded expectations still imply companies can sustain growth and returns for more than a decade.
This is certainly possible, but it’s difficult to get conviction when most embedded value creation occurs in the distant future and disruption risks grow.
We found one company we thought was a bargain: Adobe (ADBE $243.08). Adobe’s stock price peaked in 2021 at $700 per share. It’s faced competitive threats, namely in Figma (FIG $21.14) and Canva, for the better part of the last half decade. As a result, the price and valuation have compressed more than other names.
The stock has a 10%+ free cash flow yield – a level historically associated with excess returns. Additionally, the company responded to threats with strategically sound adjustments including a new freemium tier for consumers and small businesses. We think the Enterprise business is insulated by the IP risk protection it offers.
Adobe is still growing topline and profits in the high single digits. We estimate the price discounts only four more years of growth. If it can grow 7.5% for the next 5 years then transitions to inflationary level growth, we estimate the stock is worth close to $400 per share (+65%).
The company has been aggressively allocating free cash flow to share repurchases. Shares fell 5.1% in fiscal 2025, and 3.7% in the last quarter. We think the combination of continued growth and prodigious cash generation, which is returned to shareholders, is powerful.
What would make us wrong? Competitive threats that erode business fundamentals, which we’ve yet to see. The company also has room to cut costs aggressively – a benefit in any scenario.
We like companies with high free cash flow yields that aggressively buy back stock and shrink shares outstanding. We own several: Adobe, Crocs (CROX $83.02), General Motors (GM $74.50), Expedia ($230.89) and JD.com (JD $29.57) . The depressed valuations protect against potential market-driven valuation headwinds. Repurchases create demand for the stock and improve intrinsic values (if done below them, which is a requirement for us).
Private credit also troubled investors in the quarter. Fraud at Tricolor and First Brands, along with software exposure fears, led to massive investor redemptions in private credit portfolios. Private credit rapidly expanded over the past decade, which led to loosening credit standards. Higher interest rates also challenged returns.
Overall, systemic risk appears minimal. Corporate debt relative to GDP is falling - a stark contrast to the years preceding the tech bubble and global financial crisis. Bank balance sheets remain strong, especially at the largest banks. We monitor closely but believe risks will remain contained.
So far, we haven’t made any investments in the space. BDCs currently trade at 0.75x their Net Asset Values, but we don’t yet think returns compensate for the risk. The Alternative Asset Managers are down 25% to start the year and look more compelling. They have more diversified and durable revenue streams, high margin profiles, and significantly less software exposure.
We used pressure in the crypto space to add to positions in Bitcoin and Coinbase. We have long term conviction in both. We see bitcoin as early-stage digital gold. This does not imply any level of stability; it implies a special psychological belief state. Bitcoin remains volatile, though volatility has been declining. If the value of bitcoin outstanding rises to gold’s level over coming decades, the appreciation potential is enormous.
We view Coinbase as a platform for crypto and blockchain based services. We’ve seen significant progress on fundamental business drivers, with stablecoins, tokenization and Base (transaction times and costs) progressing nicely.
At the same time, we are prioritizing companies we think can do well even in the most adverse scenarios, like Royalty Pharma (RPRX $47.97), our largest position, and UnitedHealthcare (UNH $270.59), which we’ve added to. We think both can deliver double-digit returns in most scenarios.
To summarize, market volatility creates opportunities. We’ve used recent moves to position the portfolio for strong long-term risk-adjusted returns. We think the bull market is intact, and buying weakness will prove profitable. We can always be wrong and attempt to position the portfolio to outperform even in an adverse scenario.
1As measured by the S&P 500 Application Software Index
FOR INSTITUTIONAL INVESTORS ONLY
Note: Individual stock prices as of 3/31/26
The views expressed in this commentary reflect those of Patient Capital Management portfolio managers as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. These views are not intended to be a forecast of future events, a guarantee of future results or investment advice. Because investment decisions are based on numerous factors, these views may not be relied upon as an indication of trading intent on behalf of any portfolio. Any data cited herein is from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice.
All historical financial information is unaudited and shall not be construed as a representation or warranty by us. References to indices and their respective performance data are not intended to imply that the Strategy’s objectives, strategies or investments were comparable to those of the indices in technique, composition or element of risk nor are they intended to imply that the fees or expense structures relating to the Strategy or its affiliates, were comparable to those of the indices; since the indices are unmanaged and cannot be invested in directly.
Portfolio holdings and portfolio discussion are for a representative Opportunity Equity account. Holdings discussed may or may not be included in all portfolios subject to account guidelines.
The performance information depicted herein is not indicative of future results. There can be no assurance that Opportunity Equity’s investment objectives will be achieved and a return realized. Returns for periods greater than one year are annualized.
First, we’re excited to announce we’ve hired a new analyst, Panpan Xiao. Panpan graduated from Columbia University’s Value Investing program last May with her MBA. Prior to that, she worked as an analyst at several places including Fidelity and Schroders. We’ve interviewed many candidates. Panpan’s flexible thinking, value orientation and history of delivering results made her a standout. Before business school, Panpan grew up in China and then worked in Europe covering international stocks. She will help accelerate our global research efforts. Join us in welcoming her.
The Opportunity Equity Strategy declined 5.96% in the first quarter, underperforming the benchmark S&P 500’s 4.33% decline. For the 1-year period, the portfolio gained 31.05% significantly outpacing the S&P 500’s 17.80% return. Since the start of the secular bull market in March 2009, the strategy delivered annualized returns of 17.88%, 153 basis points per year better than the S&P 500’s 16.35%. For the year-to-date period through this writing (Apr 8th), the market has recovered and portfolio is down 0.41% outperforming the S&P 500’s 0.61% loss.
Our performance in the quarter was better than recent past selloffs. We were down 1.38x as much as the index, which compares favorably to the 1.8x greater gains we’d earned in the prior three quarters (40.89% vs. 23.13%).
In the first quarter of 2025, the third quarter of 2023 and the first quarter of 2022 (the initial quarter in that market decline), the S&P declined a comparable 3.27%-4.60% and we were down 1.5x to 2.2x as much. While we think short term downside matters much less than long term returns, many investors care greatly about these metrics.
That said, we believe the secular bull market that began in March 2009 is intact. If we’re correct, the optimal strategy is to buy on weakness. Leadership is likely to remain the same (Mag 7 and technology).
If we’re wrong, the biggest risk is a significant bear market like we saw at the end of the Tech Bubble or the Nifty Fifty period. In those situations, a value oriented portfolio cushioned you against the worst losses.
We don’t think a significant bear market is imminent. The usual prerequisites don’t exist. The Fed is unlikely to raise rates and recession remains improbable. The selloff took the S&P 500’s P/E back to levels (19.1x) we haven’t seen since 2023 and relieved pockets of excess.
Given recent moves, we see ample attractive opportunities, though they are dispersed across the market. The top 10 companies in the S&P 500 now trade at a smaller premium to their historical average than the remaining 490. Value outperformed growth for the second consecutive quarter, bringing relative valuations back to their long-term average. Small cap growth now trades at a discount to its 20-year average valuation (P/E), the best of any style box.
During the quarter, the S&P declined 9.8% from its January peak to its March 30th low. Since the secular bull market began, the S&P has declined 5%, 31 previous times, a rate of nearly twice per year. It’s lost 10% ten times, slightly more than once every other year. Volatility occurs regularly and usually represents a buying opportunity.
Beneath the surface, moves were extreme. Some private credit names were crushed. Software declined 35% from its peak late last year. Bitcoin’s peak-to-trough loss hit 52%, while Ark Innovation ETF’s loss hit 32%. Some former darlings, like Trade Desk (TTD $22.69) and Duolingo (DUOL $98.57), are down roughly 80% from their 52-week highs.
Market prices gyrate more dramatically than intrinsic business values, which means violent swings make mispricings more likely. We’ve dedicated significant time and research this quarter to software, payments companies (another area hit hard) and private credit.
Software’s taken a beating due to concerns about AI disruption, but we aren’t finding clear widespread opportunities. Before fears arose, beloved software names carried lofty valuations. Through the peak in October, software had gained 19.9% per year1, 540bps better than the S&P 500, from the time Marc Andreesen famously stated that “software is eating the world” in Aug 2011.
At that time, the enterprise value-to-operating income of the group was ~11x. By October 2025, the multiple nearly tripled to ~28x, making outperformance more challenging. The all-time high of ~45x occurred in the 2020-2021 pandemic period. (These companies’ prodigious issuance of stock compensation makes this metric better than others).
As we write this, valuations have fallen back to about 18x, the low end of the past decade’s range. All else equal, a potentially compelling level. But all is not equal. AI represents a legitimate competitive threat. For most software companies, market embedded expectations still imply companies can sustain growth and returns for more than a decade.
This is certainly possible, but it’s difficult to get conviction when most embedded value creation occurs in the distant future and disruption risks grow.
We found one company we thought was a bargain: Adobe (ADBE $243.08). Adobe’s stock price peaked in 2021 at $700 per share. It’s faced competitive threats, namely in Figma (FIG $21.14) and Canva, for the better part of the last half decade. As a result, the price and valuation have compressed more than other names.
The stock has a 10%+ free cash flow yield – a level historically associated with excess returns. Additionally, the company responded to threats with strategically sound adjustments including a new freemium tier for consumers and small businesses. We think the Enterprise business is insulated by the IP risk protection it offers.
Adobe is still growing topline and profits in the high single digits. We estimate the price discounts only four more years of growth. If it can grow 7.5% for the next 5 years then transitions to inflationary level growth, we estimate the stock is worth close to $400 per share (+65%).
The company has been aggressively allocating free cash flow to share repurchases. Shares fell 5.1% in fiscal 2025, and 3.7% in the last quarter. We think the combination of continued growth and prodigious cash generation, which is returned to shareholders, is powerful.
What would make us wrong? Competitive threats that erode business fundamentals, which we’ve yet to see. The company also has room to cut costs aggressively – a benefit in any scenario.
We like companies with high free cash flow yields that aggressively buy back stock and shrink shares outstanding. We own several: Adobe, Crocs (CROX $83.02), General Motors (GM $74.50), Expedia ($230.89) and JD.com (JD $29.57) . The depressed valuations protect against potential market-driven valuation headwinds. Repurchases create demand for the stock and improve intrinsic values (if done below them, which is a requirement for us).
Private credit also troubled investors in the quarter. Fraud at Tricolor and First Brands, along with software exposure fears, led to massive investor redemptions in private credit portfolios. Private credit rapidly expanded over the past decade, which led to loosening credit standards. Higher interest rates also challenged returns.
Overall, systemic risk appears minimal. Corporate debt relative to GDP is falling - a stark contrast to the years preceding the tech bubble and global financial crisis. Bank balance sheets remain strong, especially at the largest banks. We monitor closely but believe risks will remain contained.
So far, we haven’t made any investments in the space. BDCs currently trade at 0.75x their Net Asset Values, but we don’t yet think returns compensate for the risk. The Alternative Asset Managers are down 25% to start the year and look more compelling. They have more diversified and durable revenue streams, high margin profiles, and significantly less software exposure.
We used pressure in the crypto space to add to positions in Bitcoin and Coinbase. We have long term conviction in both. We see bitcoin as early-stage digital gold. This does not imply any level of stability; it implies a special psychological belief state. Bitcoin remains volatile, though volatility has been declining. If the value of bitcoin outstanding rises to gold’s level over coming decades, the appreciation potential is enormous.
We view Coinbase as a platform for crypto and blockchain based services. We’ve seen significant progress on fundamental business drivers, with stablecoins, tokenization and Base (transaction times and costs) progressing nicely.
At the same time, we are prioritizing companies we think can do well even in the most adverse scenarios, like Royalty Pharma (RPRX $47.97), our largest position, and UnitedHealthcare (UNH $270.59), which we’ve added to. We think both can deliver double-digit returns in most scenarios.
To summarize, market volatility creates opportunities. We’ve used recent moves to position the portfolio for strong long-term risk-adjusted returns. We think the bull market is intact, and buying weakness will prove profitable. We can always be wrong and attempt to position the portfolio to outperform even in an adverse scenario.
1As measured by the S&P 500 Application Software Index
FOR INSTITUTIONAL INVESTORS ONLY
Note: Individual stock prices as of 3/31/26
The views expressed in this commentary reflect those of Patient Capital Management portfolio managers as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Patient Capital Management disclaims any responsibility to update such views. These views are not intended to be a forecast of future events, a guarantee of future results or investment advice. Because investment decisions are based on numerous factors, these views may not be relied upon as an indication of trading intent on behalf of any portfolio. Any data cited herein is from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice.
All historical financial information is unaudited and shall not be construed as a representation or warranty by us. References to indices and their respective performance data are not intended to imply that the Strategy’s objectives, strategies or investments were comparable to those of the indices in technique, composition or element of risk nor are they intended to imply that the fees or expense structures relating to the Strategy or its affiliates, were comparable to those of the indices; since the indices are unmanaged and cannot be invested in directly.
Portfolio holdings and portfolio discussion are for a representative Opportunity Equity account. Holdings discussed may or may not be included in all portfolios subject to account guidelines.
The performance information depicted herein is not indicative of future results. There can be no assurance that Opportunity Equity’s investment objectives will be achieved and a return realized. Returns for periods greater than one year are annualized.
| QTD | YTD | 1-Year | 3-Year | 5-Year | 10-Year | Since Inception (12/30/1999) | |
| Opportunity Equity (gross of fees) | -5.72% | -5.72% | 32.34% | 24.18% | 2.49% | 12.56% | 8.94% |
| Opportunity Equity (net of fees) | -5.96% | -5.96% | 31.05% | 22.96% | 1.47% | 11.45% | 7.87% |
| S&P 500 Index | -4.33% | -4.33% | 17.80% | 18.32% | 12.06% | 14.16% | 7.83% |
Click for the Opportunity Equity Strategy Composite Performance Disclosure.
Past performance is no guarantee of future results.
©2026 Patient Capital Management, LLC
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