Perfect Stocks Portfolio: August 2026 Edition

The past month has offered investors a useful reminder that financial markets rarely move in lockstep with the headlines.

The geopolitical backdrop has become more difficult, trade policy remains unsettled, energy markets are once again being influenced by events in the Middle East, and several major economies are operating with slower growth and less room for policy error than they enjoyed a few years ago.

None of that should be dismissed.

At the same time, it would be equally mistaken to look at the collection of risks in front of us and conclude that the global investment environment has become fundamentally unworkable.

The better way to think about the current environment is that the world has become more complicated, more regional, and more dependent on policy choices than it was during the long period of globalization that dominated the 1990s and early 2000s.

Governments are intervening more directly in trade, industrial development, energy, technology, and national security. Supply chains are being redesigned with resilience in mind rather than simply cost. Defense spending is becoming a structural part of fiscal policy in Europe and Asia. Artificial intelligence is drawing unprecedented capital into semiconductors, power generation, data centers, and related infrastructure.

At the same time, inflation has become more sensitive to geopolitical shocks, particularly those involving energy.

That creates risks, but it also creates opportunity.

The purpose of the Perfect Stock Portfolio has never been to forecast every election, central bank meeting, tariff announcement, or military development. The objective is to identify strong businesses with durable economics, good balance sheets, sensible valuations, and the ability to prosper through changing conditions.

Looking across the major global markets today, I continue to believe there are plenty of those businesses available to us.

United States: Slower Growth, Strong Businesses, Higher Prices

The United States remains the most important equity market in the world and continues to be the primary source of global earnings growth. The economic picture, however, has become somewhat less straightforward.

Second-quarter real GDP expanded at a 1.5% annual rate, down from 2.1% in the first quarter. Consumer spending and private investment remained positive contributors, but the pace of activity is no longer as strong as it was earlier in the cycle.

That slowdown has not yet developed into anything resembling a recession.

Corporate earnings remain healthy, unemployment remains relatively low, financial conditions are still supportive, and investment associated with artificial intelligence continues to provide a powerful source of demand across technology, industrials, and utilities.

Data centers require semiconductors, electrical equipment, cooling systems, power generation, networking hardware, real estate, and enormous amounts of engineering expertise. The AI spending cycle has therefore become much broader than the handful of large technology companies that dominate the headlines.

The more difficult issue for the United States is the interaction between growth, inflation, and interest rates.

The Federal Reserve held rates steady at its July meeting and continues to emphasize that inflation has not yet returned fully to target. Recent inflation data have been encouraging in several categories, but energy remains a significant uncertainty because of the conflict in the Middle East.

If oil prices remain elevated for a prolonged period, the Fed could find itself in the uncomfortable position of dealing with weaker growth while inflation pressures remain persistent.

Long-term rates are just as important as the Fed funds rate. Elevated Treasury yields continue to affect mortgage rates, commercial real estate, corporate refinancing, leveraged transactions, and equity valuations.

Investors have become accustomed to assuming that slower economic growth will automatically produce substantially lower interest rates. That may prove too optimistic if inflation remains sticky or large federal deficits keep Treasury issuance high.

Trade policy has become another important variable.

The administration continues to use tariffs and trade negotiations to encourage more production inside the United States and reduce dependence on foreign supply chains. That policy will have very different consequences from company to company.

A domestic manufacturer with strong pricing power may benefit from protection against lower-cost imports. A retailer or industrial company dependent on imported components may experience margin pressure.

That is one reason I continue to prefer analyzing individual businesses rather than making broad assumptions about whether tariffs are good or bad for the stock market. The economic consequences are too uneven.

The companies that can pass higher costs through to customers, redesign supply chains, or capture greater domestic market share will be in a much stronger position than businesses competing primarily on price.

Europe: Better Than the Narrative

Europe has been one of the more interesting areas of the global market this year because the performance of European equities has been stronger than the underlying economic narrative would suggest.

Growth remains modest, productivity remains a concern, and the region still faces structurally higher energy costs than it did before Russia invaded Ukraine. Yet European corporate earnings have generally held up well, and many of the region’s major equity markets have traded near record levels.

The attraction of Europe is primarily one of valuation and expectations.

Investors have spent years assigning lower multiples to European companies because of weak demographics, heavy regulation, and slower growth. Those criticisms are not entirely wrong, but they are also well understood.

Markets do not require Europe to suddenly become the fastest-growing region in the world. They require results to be somewhat better than the pessimistic assumptions already embedded in stock prices.

That is particularly true in financials, industrials, energy, and selected consumer companies.

European banks have benefited from a more normal interest-rate environment. Defense companies are seeing multiyear increases in military spending. Energy producers and industrial companies are benefiting from infrastructure rebuilding and the restructuring of supply chains.

Trade relations between Europe and the United States remain an important issue. Recent agreements have reduced some of the uncertainty surrounding tariffs on European exports, although differences over regulation, environmental standards, and industrial policy remain.

The more important point is that the worst-case scenario of an uncontrolled transatlantic trade war has not materialized. Businesses have greater visibility than they did a year ago, which is helpful for investment and capital planning.

The war in Ukraine also continues to shape European capital spending. NATO governments are no longer treating military investment as a temporary response to a single crisis. Defense, aerospace, cybersecurity, and related industrial capacity are becoming permanent strategic priorities.

That creates a long-duration opportunity for businesses that can serve those markets profitably.

It does not mean we should pay any price to own them.

United Kingdom: The Economy and the Market Are Not the Same Thing

The United Kingdom deserves separate consideration because the structure of its equity market is quite different from the domestic economy.

British growth remains modest, and the Bank of England continues to balance declining inflation against the possibility that higher energy prices could create another inflationary pulse.

The domestic economy is not particularly exciting.

That does not make the UK equity market unattractive.

The FTSE 100 is dominated by multinational businesses in energy, mining, pharmaceuticals, financial services, and consumer products. Many earn the majority of their revenue outside the United Kingdom.

For that reason, a negative view of the British economy is not necessarily a negative view of British stocks.

Valuations remain reasonable compared with the United States, dividend yields are generally higher, and several large British companies generate substantial amounts of free cash flow.

Our experience with Barratt Redrow this month provides a useful reminder that deeply depressed expectations can create opportunity even when the economic backdrop remains far from perfect.

Japan: Corporate Reform Is Becoming an Investment Catalyst

Japan continues to offer one of the most significant structural investment stories among developed markets.

For decades, Japanese companies were criticized for weak capital allocation, excessive cash balances, cross-shareholdings, and limited concern for shareholder returns.

That culture has been changing steadily.

Corporate governance reforms have encouraged companies to improve returns on equity, increase dividends, repurchase shares, and dispose of noncore assets.

The macroeconomic backdrop has also changed. Japan spent decades trying unsuccessfully to generate inflation. It now has enough inflation that the Bank of Japan has begun normalizing monetary policy.

Interest rates are no longer effectively zero, wages have been rising, and the yen has become an important policy concern.

That creates meaningful changes within the Japanese market.

Banks and insurers should benefit from a more normal yield environment. Exporters may face some pressure if the yen strengthens materially, but companies tied to global semiconductor and technology investment continue to benefit from strong external demand.

Japan is no longer attractive simply because it is cheap.

It is attractive because corporate behavior is improving while valuations in many sectors remain reasonable.

That distinction matters, and we are seeing it reflected in several of our Japanese holdings.

China and the Rest of Asia

China presents a much more complicated picture.

The economy continues to expand, but the pace and quality of that growth remain weaker than investors became accustomed to during the previous two decades. The property sector is still a drag, local government debt remains a concern, and household confidence has been slower to recover than policymakers would like.

Beijing is attempting to shift the economy away from its historic dependence on property, infrastructure, and exports toward advanced manufacturing, technology, and domestic consumption.

That transition will not happen smoothly.

China has built enormous competitive strength in electric vehicles, batteries, solar equipment, industrial machinery, and several technology sectors, but those same strengths are contributing to trade friction with both the United States and Europe.

The U.S. and China remain economic competitors even when trade relations are relatively calm. The strategic contest over semiconductors, artificial intelligence, advanced manufacturing, and critical materials is not going away.

Investors considering Chinese companies therefore need to incorporate political and regulatory risk directly into their valuation assumptions.

China remains too important to ignore, but it also remains a market where the margin of safety needs to be larger.

South Korea continues to benefit from the global semiconductor cycle and rapid expansion of AI infrastructure. Memory chips and advanced electronics are central to the current capital spending boom, and Korean companies occupy important positions in those supply chains.

The challenge is that semiconductor cycles remain cyclical. Extraordinary demand can create extraordinary capacity additions, and investors must remain alert to the possibility that expectations eventually run ahead of actual returns.

India remains one of the strongest long-term economic stories in Asia. Demographics are favorable, domestic consumption is expanding, manufacturing investment is increasing, and multinational companies continue to diversify supply chains into the country.

The principal investment issue is valuation.

Strong economic growth is valuable only if it is purchased at a price that still allows shareholders to earn attractive returns.

That distinction between a good economy and a good investment is important. Some of the strongest economies in the world can produce disappointing stock market returns if valuations become excessive.

Conversely, mediocre economies can produce excellent returns when expectations are sufficiently low and businesses are purchased at attractive prices.

North America, Tariffs, and the Changing Supply Chain

North America outside the United States also deserves close attention.

Canada continues to face slower domestic growth and significant exposure to U.S. trade policy. The Bank of Canada has held rates steady as inflation moves closer to target, but negotiations with Washington remain a source of uncertainty for exporters.

The potential impact of tariffs on Canada and Mexico should not be underestimated because North American manufacturing has become deeply integrated.

Automobiles provide the clearest example. Components can cross the U.S., Canadian, and Mexican borders multiple times before the finished vehicle reaches a dealer.

Changing the tariff structure can therefore increase costs throughout the entire supply chain rather than simply shifting business from one country to another.

Over time, companies will adapt.

Some manufacturing will move. Some suppliers will change. More production may be brought back to the United States. Automation will almost certainly become even more important if domestic labor costs rise relative to imported alternatives.

These changes will take years rather than months, and they will create substantial opportunities in industrial equipment, automation, logistics, and infrastructure.

The Middle East Remains the Immediate Risk

The Middle East remains the most immediate geopolitical threat to the global economic outlook because of its impact on energy.

The ongoing conflict involving Iran, Israel, and the United States continues to raise concerns about shipping through the Strait of Hormuz and the security of regional energy infrastructure.

The importance of the region lies less in the daily military headlines than in the possibility that an extended disruption could produce a sustained increase in oil and natural gas prices.

That would have consequences across almost every major economy.

Europe and Japan are particularly vulnerable because they are large energy importers. India would face higher import costs. U.S. consumers would experience higher gasoline prices, while American energy producers would benefit.

A prolonged energy shock would complicate monetary policy everywhere. Central banks preparing to cut rates could be forced to delay. Household purchasing power would decline. Transportation, chemicals, and manufacturing costs would rise. Corporate margins could be squeezed in industries unable to pass those costs through to customers.

For that reason, I am watching oil prices and credit markets more closely than the political rhetoric surrounding the conflict.

Markets usually provide better information about economic stress than television commentary does.

If energy prices rise sharply and remain elevated while credit spreads begin widening, the investment environment would become more defensive.

If the conflict remains contained and energy markets normalize, the economic impact should remain manageable.

This is part of a broader change in the global economy. Governments are once again playing a much larger role in deciding where capital is invested.

Semiconductor manufacturing, artificial intelligence, defense, energy infrastructure, critical minerals, and domestic manufacturing capacity are increasingly influenced by subsidies, tax incentives, and national security considerations.

That does not mean all government-directed investment will produce attractive returns. History strongly suggests that some of it will be wasted.

It does mean enormous amounts of capital are being redirected toward industries that were relatively neglected during the era of globalization.

For the Perfect Stock Portfolio, the investment lesson is not to become more political.

It is to become more selective.

We want businesses that can adapt to changing trade rules, manage higher input costs, operate with conservative balance sheets, and continue generating cash through economic cycles.

We want exposure to regions where valuations are reasonable and corporate behavior is improving.

We want to participate in structural growth trends such as AI infrastructure, defense, electrification, and supply-chain investment without paying prices that assume everything will go perfectly.

My view after reviewing the major global markets is that the investment environment remains constructive, but the margin for error has narrowed.

That makes price and balance-sheet strength more important, not less.

Portfolio Review

The portfolio had a good month, but I think the more important observation is why it had a good month.

According to our Aug. 14 portfolio spreadsheet, the 27 stocks currently in the Perfect Stock Portfolio produced an average one-month total return of approximately 3.4%.

The average year-to-date return of our open positions is approximately 8.9%.

We have also sold seven positions so far in 2026 with an average gain of roughly 90%.

Those numbers are useful, but they do not tell the entire story.

The dispersion inside the portfolio has been enormous.

Our best-performing stocks are benefiting from developments in shipping, energy, corporate restructuring, and improving capital allocation. Several of the laggards are dealing with very specific problems involving tariffs, weaker earnings, commodity exposure, or industry conditions.

I do not see evidence that the portfolio is suffering from a common fundamental problem.

In fact, the diversity of the results is precisely what we should expect from a portfolio built across industries and countries.

Shipping Continues to Lead

The strongest performer over the last month was A.P. Moller-Maersk (AMKBY), which gained 22.97% and is now up 42.97% year to date.

There is a very good reason for the strength.

Maersk just reported an exceptionally strong second quarter. Revenue increased 20% to $15.8 billion, EBITDA reached $3 billion, and operating profit almost doubled to $1.6 billion.

Management raised full-year guidance for the second time this year.

Higher freight rates, strong Chinese exports, and severe congestion at major ports have produced much better industry conditions than the market expected.

The Middle East conflict has complicated shipping routes and increased costs, but the effect has not been entirely negative for Maersk.

Longer voyages and disrupted shipping patterns reduce effective global capacity. Port congestion does the same thing. When ships spend more time waiting or traveling around disrupted regions, they are not available to carry somebody else’s cargo.

This is exactly the sort of situation we look for in the Perfect Stock Portfolio.

We bought a major global asset owner when expectations were modest, and a change in industry conditions is producing much better earnings than investors expected.

Maersk is no longer as cheap as it was, but nothing in the latest results suggests the investment thesis has deteriorated.

The same broad shipping story is showing up elsewhere in the portfolio.

Danaos (DAC) gained 10.06% during the month and is now up 53.75% year to date.

Second-quarter adjusted net income increased to $133.1 million from $117 million a year earlier. For the first half of the year, adjusted earnings reached $255.7 million.

Danaos continues to combine strong shipping markets with the balance sheet and liquidity that allow management to allocate capital rather than merely survive the cycle.

The stock still trades at just 4.79 times trailing earnings and approximately 0.64 times tangible book value.

That combination is difficult to ignore.

We have a company producing very strong earnings while the market continues to value its assets at a substantial discount.

Genco Shipping & Trading (GNK) is telling much the same story.

The shares have gained 47.87% this year. Genco generated $56.7 million of adjusted EBITDA in the second quarter and $92.9 million during the first half, already exceeding adjusted EBITDA for all of 2025.

Management declared an $0.80 quarterly dividend, more than five times the dividend paid in the comparable period last year.

Scorpio Tankers (STNG) has been even stronger on a year-to-date basis, gaining 58.54%.

Scorpio reported second-quarter net income of $387.5 million compared with $73.5 million a year earlier. Some of that reflects items we should not simply capitalize forever, but the underlying tanker environment remains very strong.

Shipping is clearly one of the major contributors to portfolio performance this year.

We should enjoy it without convincing ourselves that shipping has somehow stopped being cyclical.

These are asset-heavy businesses operating in industries where supply and demand eventually respond to high returns.

I am comfortable holding them because valuations remain sensible and balance sheets are much better than they were in previous shipping cycles.

Barratt Redrow: Capital Allocation Matters

The second-strongest monthly performer came from an entirely different industry.

Barratt Redrow (BTDPY) gained 19.17% over the past month. The stock remains down 15.08% for the year, which tells us just how depressed UK homebuilders had become.

The company completed 17,667 homes in its latest fiscal year and reported results broadly in line with expectations despite difficult housing conditions.

More important for shareholders, Barratt Redrow announced a £400 million capital return, most of which will be used for share repurchases.

Management is taking advantage of the very discount that attracted us to the shares.

That is exactly what I want to see.

Barratt Redrow trades at roughly 75% of tangible book value, carries almost no financial leverage, and has a current ratio of 4.66.

When a company with that balance sheet trades substantially below asset value, buying back stock can create considerably more value than chasing growth for the sake of growth.

The British housing market is not suddenly wonderful. Mortgage affordability remains challenging and economic growth is modest.

The attraction is that the stock was priced for a great deal of disappointment.

We do not need a housing boom.

We need normalization accompanied by disciplined capital allocation.

That is a much lower hurdle.

Japan: Mixed Results, Stronger Corporate Behavior

Our Japanese holdings produced mixed but generally encouraging results.

Dai Nippon Printing (DNPLY) gained 12.04% for the month and is up 22.25% this year.

The company remains an excellent example of why I have become more interested in Japan.

This is not simply a bet on Japanese GDP growth. Dai Nippon Printing is part of the broader movement toward better capital allocation and more shareholder-friendly behavior in corporate Japan.

The shares are not as statistically cheap as some of our other Japanese holdings, trading around 1.3 times tangible book value, but the balance sheet remains excellent, with debt to equity of just 0.22.

Management continues to shift the business toward areas where it can earn higher returns on capital rather than merely maximizing corporate size.

Subaru (FUJHY) gained 5.22% during the month but remains down 23% this year.

This one requires more patience.

First-quarter revenue increased 3%, but operating profit fell 44.3%. U.S. tariffs, higher incentives, raw material costs, and weaker unit economics have created significant pressure.

Management is attempting to offset those costs with cost reductions and pricing actions, but the tariff issue is very real for a company with substantial exposure to the U.S. market.

That is why the valuation matters.

Subaru trades at approximately 72% of tangible book value, has very little debt, and yields about 4.5%.

We are not paying a premium valuation and hoping management figures out the tariff problem.

We are paying a discounted valuation for a financially strong company while the market is already well aware of the problem.

TV Asahi Holdings (THDDY) declined 4.44% during the last month and 6.95% year to date.

First-quarter revenue increased modestly, but net income fell from ¥6.7 billion to ¥5.3 billion.

I do not see that as a reason for panic.

The stock trades at approximately 0.65 times tangible book value with essentially no debt. We can afford to give management and the underlying assets time to work.

Central Glass (CGCLF) has essentially gone nowhere over the past month and is up just 2.29% this year.

That is not particularly exciting, but the shares continue to trade below tangible book value with modest leverage.

Perfect Stock Portfolio positions do not all need to move at the same time.

In fact, I would be uncomfortable if they did.

Europe: Cheap Assets and Uneven Fundamentals

Our European holdings are similarly varied.

K+S (KPLUY) gained 3.75% during the month and is up 14% year to date.

The German potash and salt producer remains exceptionally cheap, with a trailing P/E of 2.45 and a price-to-tangible-book ratio of 0.47.

Commodity pricing will remain the primary driver of the business.

There is nothing glamorous about potash and salt.

That is part of the attraction.

We own productive assets at a fraction of stated tangible value and are being paid to wait for the cycle.

Bolloré (BOIVF) declined 3.62% during the month but remains up 14.48% for the year.

The stock trades at approximately 45% of tangible book value with essentially no debt.

Bolloré has always been more of an asset and capital allocation story than a quarterly earnings story.

Nothing about a modest monthly decline changes that thesis.

Swatch Group (SWGAY) fell 3.42% for the month but remains up 16.27% year to date.

The reported trailing P/E is distorted by depressed earnings and therefore tells us very little.

The more useful numbers are the strong liquidity position, negligible debt, and valuation below tangible book value.

Luxury demand remains uneven, particularly in China, but Swatch has one of the strongest balance sheets in the consumer sector.

We can afford to wait for normalization.

Porsche Automobil Holding (POAHY) gained almost 4% during the month but remains the portfolio’s largest year-to-date laggard, down 27.93%.

The problems facing European automobile manufacturers are not imaginary.

Chinese competition, expensive electrification strategies, weak European growth, and changing tariff arrangements have all contributed to investor pessimism.

The reason we continue to pay attention rather than simply run away is valuation.

Porsche Holding trades at roughly 24% of tangible book value.

At that level, the market is assigning an enormous discount to the underlying assets.

There can certainly be more pain, but the stock does not require a return to the glory days of the German automobile industry to produce an attractive return from current valuations.

Asia: Deep Discounts Remain

Asia outside Japan remains one of the more interesting parts of the portfolio.

Anhui Conch Cement (AHCHY) gained 5.05% during the month but remains down 18.83% this year.

The Chinese property slowdown continues to weigh heavily on cement demand.

That is the obvious problem, and there is no point pretending otherwise.

The other side of the argument is valuation.

Anhui Conch trades at approximately 59% of tangible book value, carries little debt, and yields more than 5.5%.

We own one of China’s largest cement businesses at a large discount to asset value during what is clearly a very difficult part of the cycle.

That is precisely when value investors are supposed to become interested.

Autohome (ATHM) gained 8.49% during the month and is now modestly positive for the year.

The company recently announced a new $400 million share repurchase authorization and will report second-quarter results Aug. 20.

Autohome is another example of why balance sheets matter.

It has essentially no debt, a current ratio above 8, and a dividend yield above 8%.

Chinese equities carry political and regulatory risks that we cannot ignore, but a substantial cash position and aggressive shareholder returns provide a meaningful margin of safety.

Megaworld (MGAWY) gained 9.75% during the month.

Second-quarter net income was approximately ₱5.65 billion, and the company has increased its cash dividend by 25% to a record ₱3.8 billion distribution.

The valuation remains remarkable.

Megaworld trades at just 0.26 times tangible book value and about 3.5 times trailing earnings.

Philippine real estate is not without risk, but we are being paid extraordinarily well to accept that uncertainty.

JOYY (JOYY) gained 4.76% for the month and is up almost 20% year to date.

It continues to combine an inexpensive valuation with an unusually strong balance sheet and a 6.6% indicated yield.

Yue Yuen Industrial (YUEIY) rose 2.04% but remains down 9.75% for the year.

Global manufacturing and apparel supply chains are being reshaped by tariffs and changing trade relationships, creating both risk and opportunity for a company with Yue Yuen’s scale.

At 0.66 times tangible book value with modest leverage and a yield close to 9.5%, a substantial amount of uncertainty is already reflected in the share price.

Hello Group (MOMO) has been one of the weaker holdings, falling 4.42% for the month and 8.28% this year.

It nevertheless remains one of the least financially stressed companies we own.

Debt to equity is just 0.01, the current ratio is 4.35, and the stock trades around 59% of tangible book value and less than 9 times earnings.

China-related sentiment can keep valuations depressed for a long time, but the balance sheet gives us the ability to remain patient.

Sun Hung Kai Properties (SUHJY) was essentially flat for the month but remains up 22.41% for the year.

Hong Kong real estate is still far from booming, yet Sun Hung Kai continues to own extraordinarily valuable property assets with conservative leverage.

At approximately 54% of tangible book value, the investment thesis remains centered on buying high-quality assets at a substantial discount.

North America: Asset Value Still Matters

The North American positions have been somewhat less cooperative recently.

Millrose Properties (MRP) gained 6.64% during the month and is up 9.42% for the year.

The shares yield almost 10% and continue to trade below tangible book value.

This remains primarily an income and asset-value story.

Ingles Markets (IMKTA) declined almost 3% during the month but remains up 28.07% year to date.

Grocery retail is not going to provide the excitement of artificial intelligence or shipping, but Ingles combines a durable operating business with substantial real estate assets.

The shares trade near tangible book value with modest leverage.

That continues to fit the portfolio very well.

Fresh Del Monte Produce gained 9.67% over the last month but remains down 12.44% for the year.

The second quarter was mixed. Revenue rose modestly to $1.22 billion, but reported earnings were hurt by impairments, acquisition-related expenses, and other costs.

Adjusted earnings and EBITDA were better than the headline numbers suggested.

This is not currently one of the cleaner stories in the portfolio.

Valuation remains reasonable and the balance sheet is manageable, but I want to see evidence that management can convert the acquisition strategy and restructuring efforts into stronger free cash flow before becoming substantially more enthusiastic.

Assured Guaranty (AGO) fell 7.72% during the month and is down 14.3% this year.

The stock market reaction has been substantially worse than the underlying balance-sheet development.

Assured reported second-quarter adjusted operating income of $55 million, or $1.23 per share, while adjusted operating shareholders’ equity reached a record $129.94 per share and adjusted book value reached $189.72 per share.

With the stock at $76.30, we are paying a very large discount to the company’s various measures of book value.

That does not make every quarterly earnings disappointment irrelevant, but it provides the margin of safety that attracted us in the first place.

NACCO Industries (NC) was the weakest stock in the portfolio over the last month, falling 10.9%.

NACCO reported a $1 million net loss after taking a $12 million impairment charge associated with its decision to pull back from solar development.

The operating picture was considerably stronger than that headline suggests.

Gross profit increased 123%, and adjusted EBITDA increased sharply, helped by improvements in contract mining and utility coal operations.

I view the decision to stop deploying capital into unattractive solar development projects as potentially constructive if management concluded that prospective returns no longer justified additional spending.

Value creation sometimes requires admitting that a strategy is not working rather than continuing to throw good money after bad.

At 0.74 times tangible book value with modest debt, NACCO remains financially sound.

We will continue watching the operating businesses and capital allocation carefully.

Deswell Industries (DSWL) fell 9.83% over the last month.

Full-year fiscal 2026 revenue declined about 9% to $61.3 million and earnings slipped modestly.

Again, the balance sheet changes the discussion.

Deswell has essentially no debt, a current ratio above 5, and trades at roughly 45% of tangible book value.

This is not a company facing a balance-sheet crisis.

It is a small manufacturing company dealing with an uneven operating environment while trading at a very low valuation.

Finally, Meren Energy (MRNFF) gained 10.2% this month and is up 29.28% year to date.

Meren reported second-quarter results this week and continues returning substantial amounts of cash to shareholders.

With the shares yielding more than 9%, Meren remains one of the more interesting ways in the portfolio to combine energy exposure with income.

The Middle East conflict has increased the geopolitical premium attached to energy assets, but Meren’s longer-term attraction is still based on cash generation and shareholder distributions rather than our attempting to forecast the next move in oil.

New Portfolio Addition: PT Bank Negara Indonesia (PTBRY)

We are adding PT Bank Negara Indonesia, which trades in the United States through the unsponsored ADR PTBRY, to the Perfect Stock Portfolio as a buy.

This is not a recommendation based simply on a high dividend yield or an apparently cheap price-to-book ratio.

BNI is a large, profitable, well-capitalized banking institution producing respectable returns on equity while maintaining solid reported asset quality.

The opportunity exists because investors are being offered that combination at a valuation normally associated with a bank facing much more serious operating or balance-sheet problems.

At current prices, PTBRY trades at approximately 6.2 times earnings and about 81% of tangible book value.

The indicated dividend yield is roughly 10%, and the equity-to-assets ratio is approximately 11%.

Those numbers put the shares directly into the area where I become interested in bank stocks.

We are buying below tangible book value, paying a very low multiple of current earnings, and receiving a substantial cash return while we wait for the valuation gap to close.

There are legitimate reasons for the discount.

BNI operates in Indonesia. The Indonesian government effectively controls the institution. The ADR is not particularly liquid, and U.S. investors assume currency risk in addition to ordinary banking risk.

Net interest margins have also declined, and loan growth has been sufficiently rapid that credit performance deserves close attention over the next several years.

None of those issues should be dismissed.

They are also precisely why the stock is available at six times earnings rather than 12 or 14 times earnings.

The question for the Perfect Stock Portfolio is not whether BNI is flawless.

It is whether the current price provides enough margin of safety to compensate us for the identifiable risks.

I believe it does.

A Large, Profitable Bank at a Deep Discount

BNI is one of Indonesia’s major banking institutions, with operations across corporate banking, commercial lending, consumer banking, treasury, international banking, and other financial services.

This is not a small regional institution or a marginal emerging-market lender.

Consolidated assets reached approximately IDR1.461 quadrillion at June 30, 2026, while equity attributable to shareholders totaled approximately IDR161.6 trillion.

That balance sheet produces an equity-to-assets ratio close to 11%, which is an important starting point for the investment case.

One of the first things I want to know when evaluating a bank is whether the institution can endure a difficult economic environment without needing to raise capital on unfavorable terms.

BNI appears well positioned on that front.

The bank reported a capital adequacy ratio of 18.09% at June 30, 2026.

Common equity Tier 1 capital remained comfortably above regulatory requirements, although total capital ratios have declined from the previous year as the balance sheet has expanded.

The decline in the reported capital adequacy ratio from 21.07% in June 2025 to 18.09% this year deserves attention, but the absolute level remains strong.

Capital is not the reason the shares trade below book value.

Credit quality is also stronger than the valuation would lead us to expect.

Gross nonperforming loans were 1.93% at June 30, little changed from 1.95% a year earlier. Net nonperforming loans were just 0.72%.

Nonperforming earning assets represented 1.30% of earning assets.

Those are respectable numbers for any bank, particularly one operating in an emerging economy and expanding its loan book aggressively.

There are areas that require continued monitoring.

Stage 3 loan impairment allowances increased to approximately IDR17.9 trillion from IDR15.6 trillion a year earlier, while Stage 2 allowances remained substantial at roughly IDR14.4 trillion.

Restructured loans, however, declined to approximately IDR59.8 trillion from IDR69.6 trillion in the comparable period.

Taken together, those numbers do not suggest that credit is deteriorating dramatically.

They do suggest that we should pay close attention to the loans being originated during the current period of rapid expansion.

That is probably the most important risk in the investment.

Loan Growth Is Both Opportunity and Risk

BNI has been growing loans at a pace that I would not want to extrapolate indefinitely.

Consolidated loans reached approximately IDR968.5 trillion at the end of June 2026, up from approximately IDR899.5 trillion at the end of 2025.

Rapid loan growth always attracts attention from investors because it produces rising interest income and the potential for higher earnings.

Bank investors should be more skeptical.

The loans that create problems several years from now are frequently made during periods when growth is strongest and credit conditions appear benign.

Competitive banks stretch on pricing. Borrowers gain negotiating leverage. Underwriting standards can weaken gradually enough that the deterioration is not obvious until the economic environment changes.

For that reason, I would actually prefer to see BNI’s loan growth slow from current levels.

Moderate growth funded increasingly with low-cost deposits would be healthier than another year of exceptional balance-sheet expansion.

The good news is that earnings are currently benefiting from the larger loan portfolio without a corresponding deterioration in reported nonperforming loans.

Consolidated net interest income increased to approximately IDR22.3 trillion during the first six months of 2026 from IDR19.5 trillion in the comparable period of 2025.

Net income attributable to shareholders increased to approximately IDR10.76 trillion from IDR10.09 trillion.

Those are not the numbers of a broken bank.

BNI’s reported return on equity was 14.54% during the first half of 2026 compared with 14.24% a year earlier.

Return on assets was 1.92%.

This relationship between profitability and valuation is central to the recommendation.

A bank earning roughly 14% on equity while trading at approximately 81% of tangible book value does not need extraordinary growth to produce attractive shareholder returns.

If profitability merely remains in the general neighborhood of current levels, the valuation is difficult to justify over the long run.

The market is effectively offering us a profitable banking franchise for less than the value of its tangible net assets.

That is exactly the type of situation I want in the Perfect Stock Portfolio.

The Margin Is the Number to Watch

The primary operating weakness is the net interest margin.

BNI’s reported net interest margin declined to 3.55% from 3.83% a year earlier.

This is not insignificant.

Deposit competition has increased, asset yields have come under pressure, and a greater dependence on higher-cost time deposits would reduce the economic benefit of continued loan growth.

The deposit mix therefore becomes one of the most important numbers to follow.

At June 30, current accounts totaled approximately IDR425 trillion, while time deposits totaled approximately IDR371 trillion on the individual bank balance sheet. The low-cost current and savings deposit franchise remains substantial, but time deposits have grown rapidly.

The loan-to-deposit ratio stood at 87.73%, up from 86.18% a year earlier.

That is not an alarming level, but the direction is important.

A bank that grows loans much faster than its core deposit franchise eventually has to pay more aggressively for funding.

That process can squeeze margins even when reported loan growth appears impressive.

This is another reason I would favor slower, higher-quality growth from here.

What Is the Upside?

The attraction of PTBRY is that we do not have to assume every operating issue will improve.

At approximately 6.2 times earnings, expectations embedded in the share price are already low.

A business trading at that valuation does not require perfection.

It requires survival, continued profitability, and the absence of a major permanent impairment to book value.

BNI appears comfortably capable of meeting those requirements.

The discount to tangible book provides an additional layer of protection.

At approximately 0.81 times tangible book value, a return merely to book value would represent about 23% appreciation before accounting for dividends or future growth in book value.

That is not an aggressive valuation target.

We are not assuming the bank eventually trades at twice tangible book.

We are simply considering what happens if the market eventually decides that a profitable, adequately capitalized bank earning a mid-teens return on equity deserves to trade somewhere near the value of its tangible equity.

The earnings valuation tells much the same story.

A move from 6.2 times earnings to eight times earnings would produce approximately 29% appreciation even if earnings did not grow.

A revaluation to 10 times earnings would represent considerably more upside.

Again, I do not need that outcome to occur quickly.

The dividend gives us considerable compensation while we wait.

The current indicated yield is approximately 10%.

That is unusually high for a bank that is profitable, well capitalized, and not experiencing obvious credit distress.

The dividend should not be regarded as a fixed-income substitute. BNI is majority controlled by the Indonesian state, and dividend policy can change depending on earnings, capital requirements, and government priorities.

Still, the combination of a double-digit indicated yield with a valuation below tangible book produces a favorable total-return setup.

What We Need to Watch

There are several risks that need to remain on our quarterly checklist.

The first is the credit performance of the rapidly growing loan book. I want to see gross nonperforming loans remain contained, Stage 2 loans stabilize or decline, restructured loans continue moving lower, and credit costs remain manageable.

The second is capital. Current ratios are more than adequate, but rapid growth consumes capital. Another significant decline in CET1 or the overall capital adequacy ratio without a corresponding increase in retained earnings would cause me to become more cautious.

The third is the net interest margin. Some deterioration is already reflected in the numbers. A sustained decline well below current levels would reduce the earnings power of the franchise and could indicate that BNI is sacrificing pricing discipline to maintain loan growth.

The fourth is funding. Growth in low-cost current and savings accounts needs to become a larger part of the deposit story. Continued dependence on rapidly growing time deposits would place additional pressure on margins.

The fifth is political and currency risk.

BNI is not a U.S. bank.

The Indonesian government effectively controls the company, and U.S. shareholders own an ADR whose value is influenced by the rupiah as well as the underlying business.

Those risks deserve a permanent valuation discount.

The ADR itself is also relatively illiquid, which makes limit orders appropriate when establishing or exiting a position.

Those risks are real, but they have to be considered in the context of price.

I would have very little interest in taking these risks if BNI traded at 1.5 times tangible book and 12 or 14 times earnings.

At that valuation, we would need management to execute almost perfectly.

At 81% of tangible book and 6.2 times earnings, the situation is different.

The market is already discounting a meaningful amount of uncertainty.

That creates our margin of safety.

The Perfect Stock Portfolio is built around the idea that we do not have to predict the future precisely if we buy strong enough assets at sufficiently attractive prices.

BNI fits that philosophy unusually well.

The bank has ample capital, respectable profitability, and currently manageable credit metrics. The shares sell below tangible book value at a single-digit earnings multiple while providing a substantial cash dividend.

There is no need to invent an elaborate growth story.

If BNI continues earning somewhere close to its current return on equity, maintains acceptable credit quality, and avoids serious capital impairment, today’s valuation should prove too low.

A normalization toward tangible book value would provide meaningful capital appreciation, while the dividend gives us a substantial return during the waiting period.

That is the type of combination I want to own.

Recommendation: Buy PT Bank Negara Indonesia ADRs (PTBRY) for the Perfect Stock Portfolio.

Final Thoughts

When I look at the portfolio as a whole, I am pleased with what I see.

The portfolio is not dependent on the S&P 500 continuing to make new highs.

It is not dependent on NVIDIA selling another mountain of chips next quarter.

It is not dependent on the Federal Reserve cutting rates three times or Europe suddenly becoming an economic powerhouse.

We own shipping companies benefiting from strong freight markets.

We own Japanese companies benefiting from improving capital allocation.

We own European businesses trading at substantial discounts to tangible value.

We own Asian companies with extraordinarily strong balance sheets and depressed valuations.

We own North American companies where asset values and cash generation offer us a margin of safety.

And with PT Bank Negara Indonesia, we are adding exposure to a profitable, well-capitalized emerging-market bank at a valuation that already reflects a great deal of uncertainty.

There are problems in the portfolio.

Subaru has a genuine tariff issue. Porsche Holding is exposed to a deeply troubled European automobile industry. Anhui Conch is operating against a terrible Chinese property backdrop. NACCO and Fresh Del Monte have company-specific execution questions. Assured Guaranty’s recent earnings have disappointed investors.

Those are the things we need to watch.

What I do not see is a reason to make broad changes simply because the world has become more geopolitically uncomfortable.

The risks are not difficult to identify.

A wider Middle East war could create a meaningful energy shock. Aggressive trade policy could weaken margins and slow global commerce. Government borrowing could keep long-term interest rates higher than investors expect. The AI capital spending cycle could eventually produce overinvestment. China’s property and debt problems remain unresolved. The war in Ukraine continues.

Those concerns deserve attention.

They do not justify abandoning equities or attempting to move entirely in and out of markets based on geopolitical forecasts.

One of the great advantages of owning businesses is that companies adapt.

Management teams change suppliers, raise prices, reduce costs, repurchase shares, enter new markets, and redirect capital.

Strong businesses do not simply sit still waiting for economists and politicians to tell them what to do.

Our strongest positions provide an important reminder of what can happen when a company that everybody has decided is dull, cyclical, or permanently impaired suddenly produces results that are merely better than expected.

Maersk, Danaos, Genco, and Scorpio Tankers have done exactly that.

Barratt Redrow may be beginning to do it in UK housing.

Dai Nippon Printing is benefiting from changes in corporate Japan.

Megaworld is increasing shareholder distributions while remaining extraordinarily inexpensive.

That is how value investing usually works.

We rarely buy the company everybody is excited about at precisely the moment everybody becomes excited.

We buy assets and cash flows when expectations are low, balance sheets are sound, and the price gives us room to be wrong.

Then we wait.

The world does not need to become peaceful, predictable, or economically perfect for good businesses to create wealth.

It simply needs to remain functional.

At the moment, despite all the noise, that is still what the evidence suggests.

And the Perfect Stock Portfolio currently has plenty of things worth waiting for.