Q2 represented a major advance by the NASDAQ Index.
Supported by a continuation of the massive capital investments to accelerate AI rollout and implementation, by a handful of megacaps, the index improved by 17.8% as compared to the prior quarter. The increase fully reversed the losses experienced by holders of the index during Q1.
The S&P 500 index also performed well in Q2.
Gains of 10.6% were noted in the second quarter. As with the Nasdaq turnaround, gains in the S&P in Q2 more than offset losses during Q1.
Even the Dow Jones Industrial Average reported a decent Q2 result.
The 4.98% return (let us just call it 5%) in the second quarter more than offset the modest 1.3% loss produced during Q1.
As for the Gnostic Model Portfolio, the NAV increased through the end of Q2 to close with a value of $1,443.49 per share.
This represents a quarterly increase of 19% over the NAV of $1212.81 at the end of Q1.
For first half of 2025, the major market indexes are now all in positive territory.
The NASDAQ has advanced 5.5% thus far in 2025. The S&P 500 has gained 5.5% and the DJIA has increased by 3.6%.
For the purpose of comparison, the Gnostic portfolio, not having declined along with the major indexes in Q1, has gained 29.3% YTD.
A longstanding policy of letting winners run as far as they can, in contrast with the ever-present actions by transaction-oriented types, to take some money off the table, to lighten up, accounts for the majority of 2025 absolute outperformance vs the indexes.
At the end of 2024, investors large and small counselled, urged, and on more than one occasion, berated, longs holding equities like Palantir (PLTR-NASDAQ, $136.32) to take profits. Palantir closed out 2024 with a share price of $75.63, moved to a price of $124.64 in mid-February 2025 and then fell to a value of just over $74 per share by very early April. “We won“, crowed the traders, claiming to have called the top.
What transaction oriented types ignore is that in taking money off the table, the cash proceeds needed to find an alternative home. Maybe that profit was placed into a stock which has generated a reasonable profit in the first half of 2025. But, did that redeployed capital generate a net return of 80% in the subsequent two quarters? Because that is what traders gave up when declaring a top.
Further, what analytical work was expended by an investor to locate an alternative equity, allocate capital towards said equity, and become comfortable with their decision? Finally, what taxable event was triggered through a partial or total liquidation, leading to a possibly significant remittance to the government for 2025?
This is all entirely too much work, too much thinking, unproductive “overthinking” for me.
“Well, I am now going use said proceeds to find the next Palantir“, might be the line of thinking for many. To which a sensible investor might query, “does that alternative equity even exist, and if not, what is wrong with the current Palantir, other than your short term view on price?”
Rebuffed, the trader then responds, “Well, I sold in conjunction with my hedging system in order to repurchase the shares at a lower price, to capture additional profit from short term moves.” To which the sensible investor responds, “how on earth do you effectively maximize profits with 40% share price swings every quarter? Because hedging not only doesn’t work with that magnitude of swing, it typically backfires on the trader with such exaggerated volatility, forcing one to periodically cover/roll hedges at losses, further adding to timing risk, increasing costs and producing current taxation. Partial or total liquidations of an equity, for to no other reason than pricing action, is not investing, it becomes speculation.
When the mighty Intercontinental Exchange Group and the world renowned Berkshire Hathaway cannot produce incremental net profitability through hedging on highly volatile equity positions (per prior posts), it likely cannot be done. No, the policy of this portfolio is to let an equity accelerating, away from the peloton in a significant breakaway; to just let it run. Whether one is a professional institutional investor or a retail stock purchaser; any ingrained, often formalized via option activity, decision for taking money off the table, “just because it has hit my target price“, is nothing more than a vanity trade, an “I know more about market moves than anyone, so this is where I have decided the top of a share price is“.
No purchases or sales of any equities took place in Q2, save for dividend reinvestment on equities that were up on the quarter. When an individual stock runs, for decades, your profit potential is always maximized, transaction costs eliminated, taxation minimized, by leaving the portfolio alone. I will not and do not “part out” a functioning piece of operating equipment.
There will be a new equity addition for Q3.
Differing from most money managers, who assemble a position, only to trumpet the merits in order to benefit from a short term pump as a result of followers attempting to replicate, with an objective of pushing up the price; this portfolio eliminates the self-serving variation on front-running and the impact upon short term net asset valuation, occasionally referred to as the “Warren Buffett Effect”.
I get in the exact line as do other investors. I publicly telegraph my intention of a purchase and then complete the same thereafter.
Oracle Corporation (ORCL-NYSE, $218.63) has recently announced a series of cloud based data storage deals, including a single contract that may produce revenues in excess of $30 billion annually within 3 years. Such recurring, scalable, revenues should go a very long way towards possibly doubling total corporate revenues within a 4 year timeframe, maybe even sooner. The nature of enterprise data storage is such that contracts are pretty sticky. The math in cloud based enterprise data contracts at Oracle confirm that they carry roughly 3x the margin as the service business and the current mix of storage, hardware and service is quickly converging towards storage. The current corporate EBITDA margin of 41.5% seems likely to rise once the storage contracts are fully on-boarded. This margin rate confirms the presence of a moat.
Oracle features scale, margins confirm the existence of a moat, a trend exists that provides for above average revenue growth and the corporation has announced, not just one, but several, highly accretive contracts to the top line. An emphasis upon growing out the highest margin division at a very significant future growth rate, by a tier #1 enterprise tech, to me, is a no-brainer. My investment model emphasizes not overthinking but rather, surfing an obvious trend. A potential $30 billion annualized recurring storage revenue payment, from a single customer? This seems a nice wave, not particularly challenging.
The Q3 purchase will be paid for with dividends received on account during the first half 2025 period of market volatility, funds that were not reinvested in current underperformers. The amount is a relatively modest sum in relation to the net value of the portfolio. Yet, prior investments in other securities have, due to letting them do what they do, become core holdings. On more than one occasion, insignificant outlays got the ball rolling.
It matters not how much money is invested, so long as the direction is forward, the equity is on-trend and the runway is long.
Surf’s Up.
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