Market breadth is the hot topic of many a Q3 2026 portfolio review. Among value-oriented investors – of which Middle Coast Investing is one – the near historic concentration of market performance in one or two sectors and in a handful of stocks is a convenient explanation of what is happening in the stock market and as a corollary, an exculpation for our portfolios. A couple stats I’d add to the pile:

• The average return of S&P 500 stocks year to date is 9.7% (as of October 5^th). The median is 2.2%. Average is often higher than median, but that is a notable gap.

• 40.55% of S&P 500 stocks were trading above their 200-day Moving average as of September 30^th. The percentage was last this low at different points in March, April, and May of 2025 – i.e. the run-up to and aftermath of the Liberation Day sell-off – and before that, in November 2023

The market breadth issue is real, but it is a symptom. The cause appears to be a narrow market focus. I mentioned baskets as a way to explain last quarter, but at least as far as our portfolios go, things have gotten even simpler. We can reduce market to three themes:

• Artificial intelligence (AI)
• Inflation
• The Iran War

Benjamin Graham, the legendary value investor and mentor of Warren Buffett, came up with the concept of the market as voting machine and weighing machine. In plain words, hype and emotion drive the market’s short-term focus, while companies’ earnings is what matters over time.

Each of these three themes matters in the short-term because market participants are trying to anticipate their impact on the long-term earnings. In other words, we know the future is coming, but how fast, and of what kind?

I’ve Seen The Future, Brother

(Source: Leonard Cohen)

The U.S.-Iran war seems like a temporary issue. It’s not in either the U.S.’s or Iran’s long-term interest to continue to fight. The rub is that enough has changed that it’s hard to unwind the situation. Iran has made gains – control of the Strait of Hormuz – and suffered material losses, and will want to justify those losses. The U.S. doesn’t want to aggravate markets, but leaving Iran in charge of Hormuz would be a huge own goal.

This has gone on long enough that, however temporary the war is, there will be long-term effects. Energy security is again important, green energy is again attractive, and China’s position as a leader in green energy looms large. Defense spending seems likely to go up, and shipping routes seem like to be more expensive. All of these point to longer-term cost pressure. And most basically, ships carrying oil and other commodities are not getting through the Strait of Hormuz like they were in February, and there’s no promise that we will ever get back to that point¹.

In the meantime, consumers and businesses face shorter-term costs constraints. More money to gas means less money to spend on other things. Airlines are finding certain routes less profitable. A few days after the quarter ended, both of our Mexican airport companies reported passenger decline in September, especially among domestic passengers².

We are still seeing signs, though, that travel demand is enduring. Carnival Cruise Lines guided its key profit metric – net yields – to be only 30 basis points worse this year than their December 2025 guidance. That is a real difference, but not a major one. And one would think cruise ships would be more vulnerable to the headwinds travel is facing than any other sub sector. Delta also reported its Q3 earnings, and while the headline was lower profits due to fuel costs, seat miles were still up (if barely) from a year prior, suggesting enough travelers managed the extra costs.

Photo by Arpit Agrawal on Unsplash

Have To Admit It’s Getting Bigger

Inflation has returned. This starts with gas and diesel prices – a staple of the current U.S. midterm campaign environment – and then seeps into many other parts of the economy (like airfare).

Either as a reaction or a precipitant, bond yields have also risen very quickly. The market is demanding more interest for bonds the U.S. government. U.S. treasuries still representing the ‘risk-free’ rate, yields for most other global debt are rising. This and inflation together force interest rates higher, and put more pressure on the consumer.

In our previous inflation go-round in 2022, the Federal Reserve played catch up with several rate hikes, and the post-Covid hangover kicked in for markets. This time around, the market has continued to hit all-time highs (albeit with the breadth problems mentioned).

What’s going on? The prevailing argument I’ve seen is that AI spending is so urgent, so technologically necessary, that it is unlikely to be slowed by rate hikes. On the other hand, there is the hope that already high rates and any sort of resolution of the various wars will allow inflation to be, yes, transitory this time.

For our purposes, over-reacting seems rash. We prioritize businesses that have strong balance sheets or, in the least, a clear plan to deleverage. We have quite a few financial companies that, all things equal, could benefit from higher interest rates. On the margins of our portfolios, we have both long-bond ETFs and preferred stocks that have sold off as the risk-free rate has risen, and a short-bond ETF that has risen in value as a hedge against inflation.

As long as we are investing in well-capitalized, growing companies, we should be able to bear inflation. The path will be bumpy, but manageable.

Another AI Round

The topic that poses most risk to our portfolio would seem to be AI. The wave of ‘AI may kill us all hype’, as well as continued new releases – Meta Platforms’ (META) Muse Agent being the most notable – suggest a) increasing capacities for AI, and b) the likelihood that these capacities will only improve and get cheaper.

I don’t pretend to know all the ramifications of this. We’ve gone through several rounds of AI is eating the world concerns. Except for a few discrete cases, it hasn’t played out in the corporate sector yet. Many of the power usage is happening in the tech world. Developers I know describe its capabilities but also the new type of oversight work it requires. Non-developers mostly use it as a google supplement or to develop images.

It still seems to me like market participants underrate the moats companies have around regulated businesses as well as business relationships. A discount broker like Charles Schwab (SCHW) has an advantage in asset heft, regulatory approval, and credibility. A travel marketplace like Booking Holdings (BKNG) has its edge in hotel supply and internet search ranking ubiquity. Does the form change if Booking has to pay to get to the top of agents’ lists instead of Google Search ranks? Sure. Does the essence shift? I am still betting the answer is no.

How long the build out of AI capabilities will go, and to whom the value accrues, remains an open question. It’s a question that, a few of our legacy positions aside, is less directly pertinent to our portfolio. The game is going to be what it displaces. Which goes back to ‘well what is it you do around here, exactly?’ The question we should be asking of all of our companies.

Weighing In

Quarterly letters are useful to provide clients transparency. They are enjoyable for swapping ideas with other investors. In rare cases, they can be effective marketing vehicles. They are counterproductive, however, for focusing on investing over years and decades.

When I step back from the headline signal of ‘how much were our stocks up or down in our Q3 2026 portfolio review’, the underlying indicators I find are good. I estimate our U.S.-based stocks grew revenue 7.2% and earnings 16.4% at the median, and that is excluding any of our obvious AI beneficiaries. Those are good numbers. Two of our 45 or so stocks had what I would call disappointing or meh earnings. The rest was quite encouraging.

At the same time, my loose estimation of our portfolio based on net income suggests it is as cheap as it has been since at least early 2023. That feels bad, because it suggests stocks are not staying in line with their company performance. That is enough to drive one crazy. But it’s good because it gives us a chance to buy cheap stocks. As Warren Buffett himself says, ‘low prices are our friends.’ True, as long as we weigh out the future probabilities well enough.

Q3 2026 Performance

	Q3 2026	YTD 2026	2025	2024	2023	2022	2021
U.S. portfolios	-2.4%	5.1%	16.9%	15.1%	47.0%	-13.4%	16.8%
S&P 500	2.0%	11.8%	16.4%	23.3%	24.2%	-19.4%	26.9%
Core U.S. portfolios	-3.9%	3.3%	20.4%	11.2%	47.0%	-13.4%	16.8%
Russell 2000	-7.5%	12.7%	11.3%	10.0%	15.1%	-21.6%	13.7%
S&P 600	-8.3%	12.8%	4.2%	6.8%	13.9%	-17.4%	25.3%
Nasdaq	2.5%	15.6%	20.4%	28.6%	43.4%	-33.1%	21.4%
European Portfolios	-5.0%	-1.6%	23.9%	10.9%	13.4%	-15.3%	4.5%
Euro Stoxx 50	-0.9%	8.2%	18.3%	8.3%	20%	-11.7%	21.0%
DAX	0.8%	2.9%	23.0%	18.8%	19.2%	-12.3%	15.8%

Disclaimers and notes:

• See performance disclosures for more details on performance.
• These results are net of fees and include reinvested dividends or the cash received.
• Core portfolios exclude a portfolio with outsized Amazon and Apple positions. I anticipate maintaining this distinction until at least the start of 2027.
• All calculations are done by me and subject to error.
• Portfolio performance represents the collective results of Middle Coast Investing equity portfolios. We manage accounts separately, and individual accounts may have slightly different portfolio makeups or objectives.
• Portfolio performance is only for equity-focused portfolios managed by Daniel Shvartsman. ETF portfolios managed by Jonathan Liss are tracked independently.

Portfolio stats

• Our portfolio level price to earnings for trailing 12 months (TTM) was 16.8. This compares to 18.1 P/E at end of Q2. (Note: these calculations are not to be relied upon and are based on best efforts.)
• Cash and equivalents (the ETFs MINT, JPST, ICSH SGOV, and BIL, the money market fund SNOXX, and short-term U.S. T-bills) was 12% of our quarter end portfolio, with an estimated average yield of 2.8%. This compares to 13.7% of our portfolio and 2.1% yield at the end of Q2. We also had a bond/fixed income ETF/preferred stock portfolio that accounts for 1.6% of the total portfolio size compared to 2% at end of Q2, and a hedge position of 1.4% of the portfolio as compared to 1.1% at end of Q2.
• We bought 40% more equity positions than we sold in Q3.

Our top 15 equity positions as of October 1, 2026:

• Amazon.com (AMZN) – 10.3% of our portfolio
• Apple (AAPL) – 6.5%
• Astronics (ATRO/ATROB)  – 4.8%
• Grupo Aeroportuario del Centro Norte (OMAB) – 4.1%
• Progressive Corporation – 3.9%
• Capital One Financial (COF) – 3.7%
• HNI Corporation (HNI) – 3.2%
• AerCap (AER) –2.9%
• Crown Holdings (CCK) – 2.7%
• Corpay (CPAY) – 2.6%
• Booking Holdings – 2.5%
• Charles Schwab – 2.2%
• F&G Annuities & Life (FG) – 2.2%
• Lyft Inc (LYFT) – 2.2%
• Everus Construction Group (ECG) – 2.1%

Q3 Winners / Losers

Winners	% Gain*	Losers	% Loss*
Apple	0.9%	Astronics	-0.9%
Gitlab (GTLB)	0.5%	Everus Construction Group	-0.8%
Amazon	0.5%	TripAdvisor (TRIP)	-0.7%
HNI	0.4%	OMAB	-0.7%
Corpay	0.4%	Standard Aero (SARO)	-0.5%
		F&G Life & Annuities	-0.4%

* % gain or loss in this table is of our total U.S. portfolio value (including non-core). The value of our HNI position, including sales of shares, grew 13.8% in value, translating to a 0.4% portfolio impact, for example.

Focus stocks

In addition to new buys, I am including a couple positions we added meaningfully to, and the two aforementioned stocks with weaker Q2 earnings.

Trimas (TRS)

We’ve owned Trimas for over a year, but added significantly to it this quarter.

Trimas is a metal and plastic packaging company with a small gas cylinders unit. It trades for, as I write, a roughly $1.4B market cap, but thanks to its recent sale of its aerospace unit, an enterprise value of only $550M, or $725M if we adjust for taxes still due.

The balance sheet is in a great place. The debt is locked in at a 4.125% interest rate through 2029. Trimas’s cash should earn a higher interest rate. The math is a little confusing as we sort through what Trimas’s corporate costs are after its aerospace sale, but I get the company trading at 9.2x 2026 EV/EBITDA at current prices.

The packaging business is a slow but steady grower, and the cylinders business is in a cyclical recovery. Between the ability to buy back shares when prices are good, and the ability to steadily grow, this should work out fine for shareholders.

The big risk and the big upside are one and the same: the company is a weird size. Risk? That it will waste its money on a bad acquisition? Upside? That it sells itself to a bigger company that is a more logical owner. Trimas has sold two of its units in the face of activist pressure. It would make sense to take the final step or two in the coming months.

If Trimas sticks it out and grows gradually, as I said, we should be ok. But I think there’s a better chance of a positive surprise than a negative one in this story.

Telephone & Data Systems (TDS)

Telephone & Data Systems is a telecommunications company (no surprise). It is an interesting investment because it has transformed its business.

Its current business is a cable/telephone business that is transitioning from classic copper lines to fiber lines. This can be a long process, but should be a rewarding investment over time, and TDS is equipped to make this shift.

That is because of its 82% ownership of Array Digital (AD), formerly known as U.S. Cellular. Array has shifted from a cellular service provider to becoming a cell phone tower business. This means a shift to selling to businesses instead of consumers. As part of that shift, the company has sold off a lot of the spectrum it owns (the radio frequencies that cellular companies and satellite companies use). It has paid out big dividends to its shareholders, including TDS.

TDS has a great balance sheet, and two clean business lines. There is one more significant spectrum asset on Array Digital’s balance sheet as well. Sum of the parts stories – where the stock level valuation requires adding disparate parts together – can take a long time to play out. In TDS’s case, we should be closer to the end of the story than the beginning, and were able to buy at a fair price ($33/share).

Telephone & Data Systems Preferred Stocks (TDS.U) (TDS.V)

Additionally, we bought shares of TDS’s preferred stocks, TDS.U and TDS.V, each of which pay a 8%+ dividend, and each of which, were TDS to redeem the preferred stocks to save on interest expenses, would return us 23-42%. I am holding those more for the income, and am confident TDS can cover those dividends for the foreseeable future.

Shifts to fiber can take a long time to realize returns. In theory, satellite companies lurk as a threat to both cell tower and fiber businesses. I think we have a good margin of safety in this case. This is a boring company, but we could wake up one day a year or two from now to see very good things have been realized.

Zoetis (ZTS)

Zoetis is a pet pharmaceutical company. Pfizer spun it off in 2013.

The company provides pharmaceuticals to both house pets (companion animals, as Zoetis calls them), and livestock animals. Their drugs treat dermatological issues, parasites, worms, and pain, and they also have a diagnostics unit. As an example, one of our cats has arthritis in his foot (an aftereffect of a big fall 8 years ago), and we gave him a shot of Portela this summer, which blocks the pain receptors that his arthritis triggers for a three-month period.

The stock has been a big loser this year. Zoetis’s growth has stalled, and the company is struggling with competition amidst inflationary pressures on the consumer. In other words, pet owners, in the U.S. especially, are trading down to not pay for the best of market treatments, especially in skincare.

I do not have a super sophisticated thesis here. Zoetis has been a leader in pet pharmaceuticals and has a pipeline of new drugs that should have an impact on the market. The stock is cheap. We did not make this a big position yet, and we could be in for more bumps in the short term. But I think there’s a track record and a valuation to suggest we could do well in this over time. The fact that the company lowered its revenue and earnings guidance on its Q2 earnings call and the stock didn’t really react is a sign that a lot of bad news is in the price.

CF Industries (CF)

CF Industries is a U.S. based fertilizer producer, especially of nitrogen-based fertilizer and ammonia. This is relevant because the Strait of Hormuz blockage has bottled up a lot of nitrogen supply.

This is a rare case where we are explicitly rooting against a stock we own. The conditions that would lower CF’s share price would on the whole be good for our portfolio. But, CF has proven to have better competitive position thanks to its access to cheap natural gas, is raking in a lot of cash to help fund its pending expansion project, and even at the price we paid ($120/share), it trades at about 7x their target mid-cycle EBITDA.

My aim is to build a starter position at an average price around $110/share, but I felt the insurance for our portfolio against continued Hormuz hold-ups was worth paying for now.

Mobility Global (MBGL)

I mentioned Mobility Global last quarter, briefly, as a spin-off from S&P Global. We indeed did buy more shares, and are not so far from our next buying target.

Mobility Global owns Carfax and other automotive data business lines. It is targeting 7.5-10% revenue growth over the medium term, and after 150 basis points of initial new corporate costs, 50 basis points of margin improvement a year. If it gets close to that, I think it’s reasonable to expect the stock would be worth $25+/share, vs. the $19 we started paying for it (I’d really like to get in at $16).

Can it grow that much? I am less concerned about AI threats – the AI has to be based on data, and Carfax etc. seem to have unique access to datasets that would protect its position. I am concerned about the automotive sector as a cyclical industry. But we should still benefit from market confusion over a newly public company for a few more quarters, giving us opportunities to decipher the story and buy in as merits.

TripAdvisor (TRIP)

Now we come to the two disappointing earnings reports. TripAdvisor’s report was a real stinker. I expected it to be a stinker – and sold some shares before the report to lighten up – but it was worse than I expected (though, in writing this letter and reviewing, not as bad as I remember).

To wit: Viator, TripAdvisor’s main growth engine, is guided to have flat revenue growth in Q3, the big travel quarter. As TripAdvisor sold its other growing unit, The Fork, and as TripAdvisor itself as a business is in decline, we are bracing for 7-10% revenue decline this quarter.

I invested in TripAdvisor because Viator appears to be a destination, point of sale part of the travel funnel. You go here to find experiences. I booked one at the last minute on my summer vacation, and the guide told me that they only use Viator for finding customers. There is something here.

The sale of the Fork gives TripAdvisor’s balance sheet time to figure it out. But it is hard to not get impatient. We need to see that the current slump is indeed primarily because of the current environment and not because Viator is less of a destination than I expected.

F&G Life & Annuities (FG)

F&G’s earnings was more on the meh or perplexing side. The company went ahead and pre-announced its Q3 earnings, and it is also meh or worse than meh.

The company has a lot of investments in alternatives, and those investments are performing well below management expectations. There should be many things favorable for the business – rising interest rate environment should increase demand for its products – and the stated book value of the company’s business is much higher than the current share price. But if the investments that make up one side of that balance sheet are returning poorly, that may be empty solace.

This is another case where F&G makes less sense to me as an independent operator than a part of a bigger company, and one more aligned with its business than its current ‘parent’, Fidelity National Financial (FNF). But that is a bit of a dream scenario at this stage given the company’s struggles.

Still, we bought some more at the beginning of Q3, and we are going to be patient while seeing if the company can sort this out.

Sells

We closed our positions in Gogo (GOGO) and Portillo’s (PTLO), and sold our remaining bond in a bond portfolio (Marathon Oil). That portfolio is now oriented to dividend stocks. We also sold a small Novo Nordisk (NVO) position that was a legacy of a client’s prior portfolio.

The most notable partial sale we made was about 40% of our Gitlab position (all shares held in tax-advantaged portfolios). I felt we were getting a fair price. While Gitlab currently has market momentum as the thesis is playing out that AI creates more demand for its software tools, the stock is not exactly cheap, and these narratives change quickly.

Interested in more from Middle Coast Investing? Or in talking to us? Get in touch.

Please read our full performance disclosures.

Disclosure: I am long all bolded companies mentioned in this letter. I may change positions at any time. I have no immediate plans to make major changes. This is not investment advice. Investing is risky. Any investing decisions are your own responsibility and should be taken after speaking with an advisor or at your own risk. This is not a solicitation to buy or sell anything. Past performance is of course no promise of future results.

Disclaimer: I calculate performance and all portfolio figures manually, so it may be prone to error. The accounts I manage may deposit or withdraw money over the course of a quarter. I account for that in my calculations by adding/subtracting that money to/from the starting amount at the beginning of the period. This means withdrawals intensify performance and deposits dampen it. For half-year, 9-month, and full-year performance, I multiply quarterly performance by one another to control for deposits/withdrawals.

1. Was this foreseeable? Hey, I’m not a testosterone-obsessed poser nor a Secretary of Defense or War, I don’t know. ↩︎
2. This may be due to weather, but it is at least a yellow flag. ↩︎