Quarterly Client Letter: Q4 2025
The past year delivered unexpected developments of all kinds, both positive and negative, but a major surprise to us was the performance of the economy and the stock markets. The GDP report released in the last week of December showed an economy that grew at a 4.5% annual pace, the fastest clip in two years, exceeding the 3.2% economists had anticipated. This buoyed the S&P 500 to its third year in a row of double-digit gains, and we were gratified to see that the companies in our Model Portfolio* participated. The list of Drucker Institute’s “Management Top 250” businesses showed its top five to be Nvidia, Apple, Microsoft, Alphabet and Amazon, and we own three of them. Further down the list in its top 50 are six more of our holdings and scattered among those 50 are many wonderful companies we would like to own and have discussed in some depth in our Investment Committee meetings but passed on for various reasons, including being too expensive.
The problem of overvaluation has concerned us over the past few years, since the last large drop in the stock market in 2022. It exists in the residential real estate market too, making first time home buyers feel frustrated and left out of a process those of us in our later years see as an essential part of becoming adults. Peak’s client letters have regularly addressed the fully valued state of the stock market and the need to be cautious, maintaining a strong balance of Treasury Notes, bond ladders and cash substitutes as safe havens against an inevitable correction.
The greatest investor of all time, Warren Buffett, wrote about this 67 years ago, in 1959: “…I do believe that widespread public belief in the inevitability of profits from investment in stocks will lead to eventual trouble.” He went on to say something that is ominous and reassuring at the same time: “Should this occur, prices, but not intrinsic values in my opinion, of even undervalued securities can be expected to be substantially affected.” In other words, when the pendulum swings from overvaluation to undervaluation, all of our stock holdings will be affected, not just the ones that have become the most expensive. But if we have focused on intrinsic value in our purchases as well as throughout our long-term ownership of these great businesses, we will be less fearful when a market downturn arrives. Investing, as in everything else, involves doing one’s homework, being patient and thorough, and putting up with a degree of tedium. Employing metrics such as price-to-earnings and price-to-sales ratios and discounted cash flows serves to keep us in touch with intrinsic value, be enthusiastic when stocks become cheap and wary when we see froth.
As far as what to expect in the coming year, we will spend time in our investment meetings discussing what the Federal Reserve might do when Jay Powell is no longer at the helm, almost certainly to be replaced by a person more closely aligned with the President’s oft-stated desire to lower interest rates. A resurgence of inflation is another topic, along with the concern about “affordability,” which so far has not dampened consumer spending, at least at the higher socio economic levels. In fact, spending just rose 3.5% in the third quarter. We do not talk much about tariffs, since they are constantly in flux and unpredictable; it’s a subject best dealt with by hard pressed entrepreneurs and company executives.
In late 2025 manufacturing activity in the U.S. continued to contract, plagued by tariff worries and economic uncertainty, staff reductions, and a reluctance to hire. A bright spot, however, has been the vast amount of spending on building new data centers, driven by AI innovations, and this will be at the top of investors’ minds for the next few years, or until the economy turns south again.
We are living in a tumultuous time and we at Peak are watching the news, just as our clients and friends are. We have been focused for a long time on keeping our clients and ourselves secure and relatively immune to large market dislocations by using a risk averse approach to asset allocation and we are counting on that strategy to stand us in good stead in the New Year.
We appreciate the trust you have placed in us, and we will continue to work hard to earn it. Best regards,
Noel F. Bennett
*The Model Portfolio is not a real cash portfolio. It represents the core direction of our portfolio management strategies. Individual client portfolios are managed in accordance with the clients’ specific objectives and constraints. Historical information is available upon request.
Advisory Services offered through Peak Asset Management, LLC, an SEC registered investment advisor. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This content is developed from sources believed to be providing accurate information and may have been developed and produced by a third party to provide information on a topic that may be of interest. This third party is not affiliated with Peak Asset Management. It is not our intention to state or imply in any manner that past results are an indication of future performance. Copyright © 2025 Peak Asset Management
