Title: Portfolio Update: July 2026 — Chasing momentum, memory mean-reversion, and three portfolio names re-underwritten Show: Compounding Quality (Substack, paid post — compoundingquality.net) Guest: Pieter Slegers / Team Compounding Quality (author) Date: 2026-07-12 URL: https://www.compoundingquality.net/p/portfolio-update-july-2026 Length: written post — no timestamps Note: Paid-subscriber post captured via Stephen's logged-in session. Body text verbatim; UI chrome removed. The post's ~30 charts are Fiscal.ai forward-PE / reverse-DCF panels whose figures are stated in the prose; they are noted inline as [Image — …] rather than transcribed.
Hi Partner 👋
I hope you are having an amazing summer.
Let's dive into Our Portfolio Update today.
What's going on in the markets today? And how are our stocks doing?
Chasing Momentum
Investors seem to continue to be focused on the short term and chasing momentum.
Remember when the Magnificent 7 were the most exciting stocks in the market?
[Image — Magnificent 7. Source: This is Money]
Investors have already moved on.
Bill Ackman says the market is distracted by momentum and hype.
He sees companies like Microsoft and Meta as old-fashioned.
The market is distracted by big IPOs.
Here are just a few examples:
SpaceX
OpenAI
Anthropic
Stripe
[Image — upcoming mega-IPO pipeline. Source: CPE One]
Besides IPOs, the market focuses on memory stocks (manufacturers of semiconductor memory chips):
Micron
Western Digital
Sandisk
They are all up +200 to +700% this year.
[Image — memory stock performance year to date. Source: Fiscal.ai]
Just take a look at this chart shared by my good friend Sebastian:
[Image — chart shared by Sebastian]
A different kind of problem
Companies like SpaceX and OpenAI are having a different problem compared to memory companies right now:
Companies like OpenAI, SpaceX, and Anthropic lose money every single month.
Memory companies like Micron and SanDisk are currently making too much money.
I know it sounds strange to say a company can make too much profit.
Why might that actually be a problem?
Historically, memory has been a very cyclical business.
Just look at Micron's revenue and net income:
[Image — Micron revenue and net income history. Source: Fiscal.ai]
Periods of high revenue and profits are almost always followed by periods of low revenue and profits.
Why?
Because memory is a commodity business.
These companies don't have any pricing power.
Their profits are completely driven by supply and demand.
Can you imagine a company like Coca-Cola or Moody's losing money because their customers demanded lower prices?
I can't.
But that's exactly what happened to Micron in 2023 and 2024.
Sumit Sadana, CEO of Micron, said that a couple of customers were aggressively pushing for lower prices.
"We told a couple of the customers who were being very aggressive with pricing at that time that this is not constructive. A lot of the industry investments got shut down in 2023 because of really poor pricing and really poor margins."
The losses (and low demand for memory) stopped Micron from building new factories.
Now that AI is pushing memory demand up and supply is low, prices are sky high.
In the past, this caused competition and lower prices.
Look at the Gross Margins for Micron in 2018, they were much higher than normal.
But they came back down.
[Image — Micron gross margin history. Source: Fiscal.ai]
And Micron's stock went down the year thereafter:
[Image — Micron share price after 2018. Source: Fiscal.ai]
Today their margins are even higher than in 2018.
[Image — Micron current gross margin. Source: Fiscal.ai]
Micron's elevated profits will probably last for a while, but here's what Jeremy Grantham says:
"Mean reversion is kind of shorthand for history matters… If you make abnormal profits, you will receive competition. If you make obscene profits, you'll get ferocious competition."
Here's the chart of Micron's Revenue and Net Income from 2006 to 2028:
[Image — Micron revenue and net income 2006-2028E. Source: Fiscal.ai]
The market is clearly not expecting any mean reversion or increased competition.
Maybe this time really is different.
But that's not a bet that I want to make.
And I don't think you should do either.
Let's now dive in and see how our businesses are performing.
Our Portfolio
Fundamentally, our businesses are doing great.
Our companies are healthier than the ones in the S&P 500.
And our companies are 15% (!) cheaper than the S&P 500.
The S&P 500 continues to look very expensive.
The intrinsic value of our companies has grown by nearly 20% (!) per year.
Almost every company we own remains undervalued right now.
That means it's a great time to buy a lot of the companies in Our Portfolio.
I feel very confident that Our Companies will be fine.
Why?
Because we own companies with durable competitive advantages.
In the short run, the prices can diverge a lot from the businesses fundamentals.
But in the long run, the business fundamentals will determine Our Results.
Just look at AbbVie (for clarity, we don't own this company).
The price declined all through 2018 because of fear over some of its drugs losing patent protection.
In the meantime the Free Cash Flow kept increasing.
And over the next few years, the stock caught up and more than doubled.
[Image — AbbVie price vs free cash flow. Source: Fiscal.ai]
Our Fundamentals
Here's the situation for our companies right now:
Expected Revenue Growth Rate (next 2 years): +6.8%
Forward P/E Ratio: 17.1x
Do you know what it would take to give us a 10% return per year going forward?
Grow Owner's Earnings at the same rate at Revenue (6.8%, very conservative)
And re-rate to just 20x Earnings
In other words, the expectations for our businesses are very low right now.
I think Mr. Market is underestimating Our Companies.
But he may be starting to catch on…
During speculative market runs like this one, boring, high-quality companies like Berkshire Hathaway often outperform in the years that follow.
Here's how Berkshire has performed compared to the S&P 500 over the past year:
[Image — Berkshire vs S&P 500, past year. Source: Fiscal.ai]
But if we look at the past month, it looks like we might be starting to see a rotation back into quality.
[Image — Berkshire vs S&P 500, past month. Source: Fiscal.ai]
Let's look at a few of our businesses and see what makes them so special.
Kinsale Capital ($KNSL)
How the business makes money:
Kinsale Capital operates as a specialty insurance company exclusively focused on the U.S. excess and surplus lines (E&S) market.
They earn revenue by collecting premiums to cover hard-to-place small and mid-sized business risks and generate income by investing those premiums.
[Image — Kinsale business overview. Source: Kinsale Investor Relations]
Why does Kinsale have a durable competitive advantage?
Kinsale has built its own technology platform, helping it operate faster and at a lower cost than competitors.
By focusing only on the less competitive small-account E&S market, Kinsale has strong pricing power.
Unlike many competitors, Kinsale handles all underwriting and claims in-house. This means its only goal is to write profitable insurance policies.
Valuation Update
Right now, the E&S market is 'softening'.
This means policy prices are going down because of higher competition.
Much like with the memory business, that usually leads to companies losing money, competition going down, and prices going back up.
But Mr. Market is pricing Kinsale like the soft market will continue forever.
Forward P/E
Kinsale's forward P/E is currently less than half its historical average:
[Image — Kinsale forward P/E vs history]
Reverse DCF
Our Reverse DCF states that Kinsale Capital needs to grow its Free Cash Flow by just 3.3% per year in order to return 10% per year to shareholders:
[Image — Kinsale reverse DCF]
Inter Parfums (Ticker: IPAR)
How the business makes money:
Inter Parfums runs a capital-light business that designs, manufactures, and distributes luxury fragrances.
They operate under exclusive worldwide licensing agreements with prestigious fashion brands like Montblanc, Jimmy Choo, and Coach.
[Image — Inter Parfums business overview. Source: Interparfums Investor Relations]
Why does Interparfums have a durable competitive advantage?
Its strong brand and long-term partnerships make Interparfums the go-to partner for luxury brands
It's very difficult for competitors to match Interparfums' economies of scale
Its global distribution network spans more than 120 countries and 22,000 points of sale, making it extremely hard to replicate.
Valuation Update
In early June, TJ picked IPAR as one of his favorite stocks in Our Portfolio.
He said the market expected too little from the stock:
The stock is up more than 20% since then.
However… The expectations from Mr. Market are still very low.
[Image — Inter Parfums expectations. Source: Fiscal.ai]
Forward P/E
Interparfums now trades at a Forward P/E of 23x.
Its historical average is almost 34x.
That's an undervaluation of almost 40% (!).
[Image — Inter Parfums forward P/E vs history]
Reverse DCF
Just like for Kinsale Capital, Interparfums would need to grow by only 3.3% per year in order to return 10% per year to shareholders.
[Image — Inter Parfums reverse DCF]
Ameriprise Financial (Ticker: AMP)
How the business makes money:
Ameriprise Financial makes money through financial advice and management fees, distribution fees, net investment income, and premiums from its retirement and protection insurance solutions.
[Image — Ameriprise business overview. Source: Ameriprise Investor Relations]
Why does Ameriprise Financial have a durable competitive advantage?
Ameriprise builds trust with its clients. This makes clients stay. The retention rate is over 90%.
Ameriprise has more than 10,000 financial advisors. The company manages $1.2 trillion in assets. This gives Ameriprise huge economies of scale.
By offering everything from financial planning to insurance, Ameriprise creates high switching costs for their clients.
Valuation Update
Since we bought Ameriprise, the price has been volatile:
[Image — Ameriprise share price since purchase. Source: Fiscal.ai]
That's good news for a cannibal stock like Ameriprise.
Management has had a lot of chances to keep reducing the share count.
Let's see if it's still at an attractive valuation for them to keep buying back shares today.
Forward P/E
Ameriprise is trading right around its historical average Forward P/E:
[Image — Ameriprise forward P/E vs history]
Reverse DCF
Ameriprise Financial needs to grow its FCF by just 2% per year in order to return 10% per year to shareholders:
[Image — Ameriprise reverse DCF]
Conclusion
Mr. Market is currently distracted by hype and chasing momentum.
He's euphoric about unprofitable IPOs and cyclical commodity stocks.
Investors feel excited. Many think that "this time is different." They price chip makers as if huge profits will last forever.
Mr. Market feels the opposite about many Quality companies.
He prices them very low.
This can continue for a while, but over the long run, our returns will be driven by business fundamentals.
We believe our portfolio of durable, high-quality businesses offers a significant margin of safety compared to the broader market.
Here's why we expect several of our portfolio companies to keep winning for many years to come:
Kinsale Capital (KNSL): Proprietary technology and strict in-house underwriting make it the most profitable small market E&S company out there
Inter Parfums (IPAR): Uses a capital-light, licensing model, strong brand partnerships and a vast global distribution network to dominate the premium fragrance market
Ameriprise Financial (AMP): Has high client switching costs, a massive advisor network, and deep trust that gives it a very profitable wealth management ecosystem
Everything in life compounds Team Compounding Quality
Book
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Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
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