My youngsters and I are again from the Baltics, and I’m head-over-heels in love with that a part of the world. It has all of the enchantment of Western Europe – stunning structure, previous tradition and historical past, clear streets, and a inhabitants that largely speaks English (and Russian, which let my youngsters take a look at their damaged Russian, to everybody’s amusement). To our amazement, we discovered “Russian” meals in every single place, a brand-new expertise for us outdoors Russia itself. It was a Baltic re-interpretation of their Russian cousin, however we completely beloved it.
We visited Vilnius, the capital of Lithuania, and Riga, the capital of Latvia. Each cities are stunning, however Vilnius felt homier – much less touristy, with extra eclectic structure. Some streets jogged my memory of Zurich; others despatched me again to pre-Soviet Russia. All Baltic international locations are extremely inexperienced – a 3rd to a half of them are lined by forest. We additionally fell for just a little Lithuanian resort city, Palanga. Image a village nestled amongst towering Scots pines, proper on the ocean with an exquisite seashore. I can’t wait to return and spend every week there doing completely nothing – one thing I’ve practically forgotten find out how to do.
I discovered myself always evaluating the Baltic cities we visited to Munich, the place we began our journey. Not solely had been the streets even cleaner, however in contrast to in Munich, we by no means noticed a single homeless particular person.
The Baltic international locations aren’t as rich as “previous” Western Europe (Germany, France, the UK). Half a century below the Soviet thumb set their economies again, nevertheless it additionally spared them the posh beliefs and guilt that prosperity can breed. They haven’t flung their borders broad open to individuals who may resent their tradition, nor have they pursued aggressively “inexperienced” insurance policies—like closing nuclear vegetation—that intestine manufacturing and easily ship CO₂ and jobs to China. Over the past 20 years, the standard of life for the common “previous” European has slipped, whereas life within the Baltics has improved sharply. If the established order holds, I’d wager on the Baltics with out hesitation.
Nonetheless, previous Europe is exhibiting early indicators of waking up from its luxury-belief coma. Arguably with Trump’s assist (the specter of the US not defending Europe goes a good distance), they’re growing spending on protection and, simply as importantly, infrastructure. German infrastructure was uncared for for a couple of many years – it degraded to the purpose the place I just lately learn that German trains are working much less on time than Italian trains.
Missing “previous” European wealth, they needed to claw their method out of the Soviet grave and have become way more pragmatic. Now they’re turning into tech hubs.
This go to additionally jogged my memory of two issues. First, earlier than WWII half of Vilnius’s inhabitants was Jewish – the Nazis modified that. My youngsters and I visited a memorial within the forest outdoors Palanga the place hundreds of Jews had been massacred merely for being Jewish.
Second, a tour in Riga underlined how possession of this nook of Europe has shifted each few generations: Latvia alone was dominated by Germans after which Russians/Soviets twice simply within the final century. This darkish historical past is why the Baltics – and Europe as an entire – take the Russian menace so critically; that historical past has been instructive.
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Over the following few weeks I’ll share excerpts from the 27-page letter I simply wrote to IMA shoppers. So take these excerpts as they’re – written for shoppers however helpful, I hope, to you.
- Half 1: Ideas available on the market and the financial system.
- Half 2: An in depth take a look at our funding course of – how we resolve place sizes for every inventory.
- Half 3: Notes from my journey to Worldwide Petroleum in Calgary, the economics of Canadian oil sands, and the significance of company tradition.
- Half 4: Our latest funding, Aker BP, an oil firm from Norway.
- Half 5: Insights from my go to to Huntington Ingalls Newport Information shipyard, the state of US shipbuilding, and why we personal HII.
Skating on Skinny Ice: Self-discipline, Doubt, and the Lengthy Sport (Half 1)
Self-discipline
IMA’s belongings below administration crossed $700 million in 2025, a considerably surprising quantity contemplating that solely 5 years in the past we managed $100 million. I’m humbled and happy. Humbled as a result of the variety of households who selected to belief us has tripled. I actually worth and treasure this belief! And happy as a result of we’ve accomplished what we promised to do – develop your wealth so that you don’t have to fret in regards to the markets.
This success just isn’t worry-free for me.
At the moment we appear like geniuses, however there might be instances when, by making rational and unpopular selections, we’ll appear like idiots. There are few ensures I can provide on this enterprise, however that is certainly one of them. We normally appear like idiots throughout market euphoria, and that’s what markets do every now and then – after which it ends in tears.
IMA has a novel familial tradition and I need to retain it. I’ve no need to see IMA turn out to be a monetary behemoth with lots of of staff. We’ve made a major funding of money and time into our programs to have the ability to scale correctly. I need us to maintain offering glorious service to you thru a handful of terrific group members.
We’re going to proceed to be uncompromising about who joins IMA as a consumer. Sooner or later we’ll have to start out placing the brakes on progress (by elevating account minimums for brand new accounts and limiting the variety of new shoppers we settle for every year), however we’re not there but.
We’ve acquired a whole lot of curiosity from prospects inquiring about our providers just lately. Our message is identical – we would like people to turn out to be our shoppers not as a result of we had an ideal 12 months (and even the final ten years), however as a result of they purchase into our process-driven worth funding philosophy.
There are three issues we ask from our shoppers:
- Purchase into our philosophy – we’re the “getting wealthy slowly” individuals.
- Have a long-term time horizon – once we analyze shares, we’re wanting 5 to 10 years out.
- Do your homework – learn my letters. If you happen to don’t, your portfolio might be only a assortment of random tickers that go up and down daily.
With out these three issues, this relationship just isn’t going to work.
We aren’t simply managing cash. We’re bettering the standard of our shoppers’ lives by rising their wealth and eradicating the stress that comes with the inventory market. Our strategy of shopping for high-quality undervalued corporations is common-sensical, but one way or the other distinctive (maybe as a result of frequent sense is uncommon at this time).
Skating on Thinning Ice
This has been a considerably surreal six months for our portfolios. Though protection shares have led the positive factors, they weren’t the one supply of returns – different corporations, which had been punished by the market final 12 months, had been revalued this 12 months.
As I discussed in my earlier letter, we didn’t abruptly get smarter in 2025 – the outcomes you see are a manifestation of many small selections we remodeled earlier years. As I used to be scripting this letter, I reviewed the numerous new positions we’ve added to the portfolio.
Most of them had been comparatively small (1% or 2%), and their comparatively minor measurement was a results of many elements.
Some are in sectors like power the place we have already got a major stake, hitting towards our whole publicity ceiling; others weren’t low-cost sufficient to deserve a bigger place (although we’d be delighted to purchase extra at decrease costs).
A 3rd group falls below the class of what I name “enterprise” shares (a notion I’ll focus on in Half 2), and at last some had been in industries which are new to us the place we determined to “purchase and continue to learn.”
This disciplined and considerably cautious posture displays the uncertainties of the present geopolitical and macroeconomic atmosphere. We’re in a standard financial enlargement, however our authorities is working a funds deficit (6.2%) that exceeds these seen throughout previous extreme recessions. We now have the very best debt-to-GDP ratio since World Warfare II.
On the identical time, rulemaking in DC is erratic and unpredictable. The reality is that DOGE has didn’t considerably lower authorities spending, and the “Large Stunning Invoice” will add to the mountain of debt. In consequence, inflation or Nineteen Seventies-era stagflation (inflation with decrease financial manufacturing) is probably going the state of affairs we’re going through.
Though everybody’s consideration is targeted on the inventory market, the place day by day volatility is most evident, the true danger lies within the bond market. Sooner or later, bond traders wanting on the pile of previous debt and our issuances of latest debt (to finance funds deficits) will understand that future principal might be repaid with {dollars} which are cheapened by inflation. They’ll say “pay up,” and rates of interest will go up correspondingly. Increased rates of interest will result in increased curiosity prices, leading to bigger funds deficits, and the vicious circle will proceed.
Every single day we’re getting nearer to a “Liz Truss second.” If you happen to don’t acknowledge the identify, that’s as a result of she was the shortest-tenured UK prime minister in historical past, serving for under 44 days. In 2022, she introduced a extremely inflationary “pro-growth” funds. The UK bond market responded with a “mini-crash,” whereas the inventory market skilled a a lot larger decline, and Truss misplaced her job. The US is a stronger and broader financial system than the UK, however it isn’t immune from the legal guidelines of economics.
It is usually price noting that foreigners have been incrementally pulling their investments from the US – that is evident within the decline of the US greenback. The administration’s unpredictable and transactional conduct is the first reason for this, however our previous and current fiscal irresponsibility doesn’t assist both (I wrote about this in my final letter). That stated, a weaker greenback was a pleasant tailwind for our non-US shares in 2025.
Our aim as all the time is to outlive the marathon, to not end the dash first. Being methodical and process-driven will repay in the long run, prefer it has this 12 months. We’ll proceed to proceed with the temperament of somebody skating on an enormous lake because the climate will get hotter and the ice turns into thinner and thinner.
Battle Between IQ and EQ
Many purchasers have requested me about what is going to occur to protection shares when the battle in Ukraine ends. Regardless of proudly owning quite a few protection corporations, I need to make it clear that I’m not a warmonger. I need the battle in Ukraine to finish yesterday. Other than all the apparent causes, I’ve a really private one – our analyst Max lives in Kyiv together with his household, and my coronary heart skips a beat each time I study there’s a drone assault on Kyiv.
However Max would agree with what I’m about to say: Peace just isn’t sufficient. Ukraine desires a sustainable peace. It wants safety ensures that Russia, after it rebuilds its military, gained’t invade once more.
From an investor perspective, if the battle ends tomorrow, protection shares might initially dump, however European protection spending is not going to cease. Russia’s financial system just isn’t performing nicely and peace would give it time to recuperate. Nonetheless, Russia has a a lot stronger protection trade at this time than it did earlier than the battle. From a European perspective, Russia not at battle is simply Russia getting ready for battle.
As I discussed in my final letter, Europe not views the US as a dependable companion. Even when Trump had been changed tomorrow by French President Macron, you’ll nonetheless not know who’ll come after him. The US political winds change each two years, whereas it takes a decade (or longer) to construct a protection industrial base.
Over the previous couple of months, each single NATO nation (excluding Spain) dedicated to spending 5% on protection by mid-2030. The actual quantity is nearer to three.5% as 1.5% might be spent on infrastructure, which Europe (identical to the US) desperately wants. However even 3.5% is double what Europe spent just some years in the past. This doesn’t imply we simply let our protection shares journey; we frequently replace our fashions as we obtain new knowledge.
One of the vital troublesome components of being an investor just isn’t the fluctuation of IQ however the volatility of your individual EQ. Our IQ adjustments once we abruptly encounter new varieties of issues and can’t match our data base to those points. However EQ is the extra unstable of the 2 and has the larger affect on our decision-making.
Certainly one of my favourite books of all time is Edwin Lefèvre’s Reminiscences of a Inventory Operator, a fictionalized account of the lifetime of Jesse Livermore – one of the profitable merchants of all time.
I learn it for the primary time 1 / 4 century in the past and have reread it a number of instances since. One passage from it that I quoted in my first guide Lively Worth Investing describes at this time’s state of affairs completely:
After a number of months of despair, Livermore lastly summoned up the braveness to investigate his conduct and to isolate what he’d accomplished improper. He lastly needed to confront the human facet of his character, his feelings and his emotions… Why had he thrown all his market rules, his buying and selling theories, his hard-earned legal guidelines to the wind? His wild conduct had crashed him financially and spiritually. Why had he accomplished it? He lastly realized it was his vainness, his ego… The excellent success of constructing greater than $1 million in sooner or later had shaken him to his foundations. It was not that he couldn’t take care of failure – he had been coping with failure all his life – what he couldn’t take care of was success.
Our EQ is normally highest once we are in a state of equanimity. Success and failure take us away from this state. Failure makes you query your skill to stroll, however success makes you imagine you may stroll on water.
Over the previous couple of months, as a substitute of uncorking champagne, we dug into analysis. The rising valuation of protection corporations requires us to be smarter (i.e., have a better IQ). Once we initially purchased these shares, they had been so low-cost that modeling their truthful worth may have been accomplished with crayons. However increased costs demand a greater understanding of the longer term.
However we didn’t cease there. We went again and improved our funding course of. I’ll focus on it subsequent week in Half 2.
Key takeaways
- Rational, unpopular selections will generally make you appear like an fool throughout market euphoria, however this can be a assure within the enterprise that ends when the euphoria turns to tears.
- True consumer relationships require three non-negotiables: shopping for into the “getting wealthy slowly” philosophy, sustaining a long-term horizon of 5 to 10 years, and doing homework by studying letters so portfolios aren’t simply random tickers.
- Navigate unsure instances with the temperament of somebody skating on thinning ice, staying methodical and process-driven whereas going through funds deficits, excessive debt-to-GDP ratios, and potential “Liz Truss moments” in bond markets.
- Success might be more durable to deal with than failure as a result of it makes you imagine you may stroll on water as a substitute of sustaining the equanimity wanted for good decision-making, making a battle between IQ and EQ.
- Funding processes should evolve with circumstances, requiring deeper analysis as valuations rise and shifting from investments so low-cost you possibly can mannequin them with crayons to ones demanding higher understanding of the longer term.