The Challenge of Comfort at Record Highs
With the S&P 500 and Nasdaq sitting at fresh record highs, bullish sentiment has firmly taken hold of Wall Street. For investors who approach the market as business owners rather than ticker-watchers, however, this environment is uncomfortable. The last three-plus years have delivered such sweeping multiple expansion across the market that finding price levels worth committing capital to has become genuinely difficult. A fundamental value investor seeking risk-adjusted returns must work harder than ever to justify entering positions at current prices.
Still, opportunity exists even within the most scrutinized corner of the market—the mega-cap technology names that have driven so much of the rally. Two of them, in particular, continue to offer legitimate value despite their size and visibility.
Microsoft: A Case Study in Long-Term Compounding
Microsoft is a holding that rewards patience. Consider that a disciplined investor could have owned the company since 2003 and still found reasons to hold, though the position size has fluctuated over the decades. Back then, the company was widely written off, still operating under Steve Ballmer, and was a very different business than today. Remarkably, the stock price went nowhere for roughly a decade—yet during that same stretch, the company was quietly building enormous value brick by brick, including the launch of its cloud business.
That experience illustrates the power of separating business performance from stock performance. When you hold a company whose fundamentals are compounding, you do not need to chase the frothy multiples attached to it during speculative cycles. Microsoft today remains a dominant player across many critical segments with a leadership team that consistently innovates. That combination—entrenched position plus genuine innovation—is what justifies continued ownership.
Alphabet: Scientific Depth and Free Optionality
Alphabet tells a similar long-term compounding story but with a different flavor. Its scientific foundation is essentially unmatched, with the DeepMind team innovating in artificial intelligence long before the technology entered the public imagination. The company is now pushing further by moving deeper into the chip business, building real commercial products around cutting-edge science rather than merely talking about the space.
What makes Alphabet especially attractive is the hidden value layered into the business. Buying the stock gets you exposure to the search and advertising core, but it also effectively gives you assets like Waymo and YouTube for free. When the market undervalues the parts, owning the whole becomes an asymmetric proposition.
This is worth contrasting with companies that merely slap an AI label onto themselves to chase attention—when a footwear company declares itself an AI company, the signal is very different from a company whose scientific roots run deep and whose engineers are producing the tools others depend on.
U-Haul: Two Businesses Hiding in One
Beyond the familiar mega-caps, some of the most interesting opportunities sit in businesses the market misunderstands. U-Haul is a compelling example. It has underperformed on a year-over-year basis and is often mentally linked to the frozen housing market, since people moving homes drive truck rental demand. But that framing misses what the company actually is.
U-Haul is family-controlled by the Shoen family, and they run it the way committed owners would. Inside the corporate wrapper sit two distinct businesses. The first is the trucking operation—essentially the Kleenex brand of self-moving, with the added benefit that every customer becomes a driving billboard for the brand. For a large institutional holder, roughly one in twenty of those trucks on the road can represent invested capital, which concentrates the mind on the asset's ubiquity.
The second business is self-storage, and this is where the market misprices the entire company. Because U-Haul doesn't report financials in a way that cleanly compares its self-storage operations to publicly traded storage REITs, investors miss how valuable that segment actually is. When a major public storage operator acquired a competitor recently, the implied multiple, if applied to U-Haul's self-storage business, would leave the trucking operation valued at essentially zero. That is a classic setup: leadership investing like long-term business owners, a conservative corporate structure, and a net asset value that the public markets are failing to recognize. These situations can lag for extended periods before the value unlocks, but the underlying compounding continues regardless.
The Rates Wildcard and What Holds Up
Geopolitical risk, particularly around Iran, may have a shorter runway than many fear, with an off-ramp arriving sooner rather than later. But one wildcard still looms over everything: interest rates. Elevated energy prices and the expectation of a Fed on hold longer than previously anticipated have pushed the consensus to just one rate cut for the remainder of the year.
The honest answer about predicting these outcomes is to not try. What investors can do instead is construct portfolios that account for the risks at all times. A meaningful allocation to both the energy sector and defense names, built up in late 2022 and early 2023, continues to look well-suited to this environment. Both benefit from sustained geopolitical tension and from the structural realities of elevated commodity prices.
The Risk No One Is Talking About
The most underappreciated risk in today's market is leverage. Prolonged high rates will eventually hit the consumer through elevated prices and hit corporate balance sheets through the cost of servicing debt. Many companies across the market carry highly leveraged balance sheets, and very few market participants are seriously discussing what happens when that leverage reprices.
Debt-related risk has a way of materializing precisely when it is least expected. In a market giddy at record highs, the assumption that rates will quietly cooperate with stretched balance sheets is exactly the kind of complacency that value-oriented investors distrust. The companies best positioned to navigate the years ahead will be those with disciplined capital allocation, reasonable leverage, owner-operators at the helm, and business fundamentals that compound regardless of which macro scenario plays out. Finding them at reasonable prices is harder than ever—but that is precisely why the work matters.