A Familiar Backdrop, Unresolved
The second quarter picked up where the first left off. War and trade disputes remained unresolved, equity markets moved higher, and beneath the surface, a widening gap opened between reported corporate earnings and the underlying quality of those earnings. In this issue we focus on three themes that shaped the quarter: an unsettled geopolitical environment in which world–influencing policy is increasingly announced by social–media post; a robust stock market whose earnings growth carries a significant asterisk; and the familiar boom–and–bust dynamics of cyclical industries.
War, peace, and policy by post
If the first quarter was defined by the outbreak of Middle East conflict, the second was marked by its frenetic rhythm — war, then peace, then war again. Following earlier strikes on Iran, a fragile ceasefire took hold and markets promptly resumed their advance. Within days, however, the cracks reappeared: Iran floated the possibility of re–closing the Strait of Hormuz, negotiations were postponed, and the U.S. President expressed his displeasure on his social media platform. This is a defining characteristic of the current environment: decisions capable of altering the status of the world’s most important energy corridor, and with it global markets, are now telegraphed and reversed in real time, often in a single social–media post. For investors, the range of potential outcomes remains exceptionally wide, and, as we have written before, attempting to predict resolutions is not a productive exercise. What we can observe is how markets have chosen to respond. For the most part, investors have looked past the geopolitical noise, reasoning that the transformation underway in artificial intelligence matters more to corporate profits than the state of any single ceasefire. That may prove correct. However, it also means a great deal now rides on the durability of the earnings story itself — which brings us to our second theme.
Strong markets, with an asterisk
Equity markets were robust through the quarter, and the justification most often cited was earnings. The S&P 500 reported average constituent company profit growth of nearly 30% — a single, powerful data point that underscores the market’s ascent. On closer inspection, however, a meaningful portion of that growth did not come from selling more goods or services. It came from the largest technology companies marking up the value of their investments in one another. As highlighted in a recent analysis by Tim Shufelt in The Globe and Mail, nearly half of the S&P 500’s profit growth in the quarter can be traced to a number on financial statements that was historically a rounding error: “other income.” Alphabet reported roughly US$38 billion of other income last quarter, or about 60% of its bottom line, much of it non–cash gains on its stakes in private AI companies. Amazon exceeded earnings estimates by more than 70%, aided by a US$16 billion paper gain on its investment in Anthropic, while Nvidia booked US$16 billion of non–operating gains. Stripping out these one–time effects, University of Florida finance professor Baolian Wang estimates average earnings growth in the S&P 500 would have been closer to 16% than the reported 29%.
This is a classic feedback loop. Publicly traded giants commit enormous sums to private AI ventures; the ensuing arms race lifts those ventures’ valuations; and public companies then mark up the value of their investments, flattering their reported earnings and clearing the way for the next leg higher in the index. Nothing here is untoward — these are transparent disclosures by healthy companies — but it introduces a blind spot. Illiquid, volatile venture–capital marks are increasingly dictating public company net income lines, and a loop that works so pleasantly on the way up can just as easily run in reverse. Our own preference is unchanged: we anchor our valuation assessments to operating earnings and durable free cash flow, and we discount paper gains that can evaporate as quickly as they appear.
The boom and bust of cyclicals: memory chips
Few industries illustrate the perils of extrapolation better than the cyclical corners of technology. Semiconductors — and memory chips in particular — are enjoying an extraordinary upcycle. A severe shortage of AI–grade memory chips has sent prices skyward. Industry estimates show that Dynamic Random Access Memory (DRAM) chip contract prices have risen several–fold so far in 2026, with prices of NAND (a form of chip designed for long-term data retention) climbing even more steeply. Inventories tell the same story; DRAM stockpiles have fallen to just two–to–four weeks from roughly thirteen–to–seventeen weeks of supply in late 2024. With Micron, Samsung and SK Hynix together controlling more than 90% of the DRAM market, each holds considerable pricing power for as long as the shortage persists. Micron Technology has become the market’s chosen expression of this theme. Its shares posted their best week since 2008, and in late May the company’s market capitalization crossed US$1 trillion — after entering 2026 with a market capitalization of ~$300B. Unquestionably, rising prices in a concentrated, capacity–constrained market are good for a low–cost producer. The bigger question – the one the share price implies – concerns duration. In other words, how high can memory prices climb before they trigger demand destruction, or before new capacity is added to the market to relieve the shortage? We do not know, and, importantly, we do not believe anyone can underwrite the answer with confidence. The market, by contrast, is remarkably quick to extrapolate a trend and to price in its persistence. That is precisely the dynamic that makes cyclical businesses treacherous: the moment of maximum optimism, when the numbers look best and the shortage feels permanent, is often the moment of maximum risk. It is a useful reminder of why our philosophy favours businesses whose earnings rest on durable structural advantages rather than on the next move in a commodity price — even when, for a time, the commodity is winning.
Takeaways
Geopolitics, an earnings picture that flatters itself, and a cyclical boom that dares investors to extrapolate — each factor will continue to drive near–term market volatility and is impossible to forecast. We focus instead on owning businesses with the balance–sheet strength, competitive positioning and operational resilience to compound through uncertainty, assembled into a portfolio built to keep working regardless of the headlines.
EQUITIES
We used the second quarter to strengthen the portfolio in two ways.
1) Increasing our Costco, Moody’s and Eaton investments
In the first quarter we initiated positions in these three businesses, each with durable and, in several respects, expanding structural advantages. As the quarter progressed our conviction deepened, and we increased each position. Costco’s membership model compounds through a self–reinforcing flywheel of low prices, high renewal rates and growing fee income. Moody’s is one of only three globally recognized rating agencies in an oligopoly protected by regulation, network effects and prohibitive switching costs. Eaton sits squarely in the path of electrification and AI–driven power demand, with a “grid–to–chip” portfolio, deep hyperscaler relationships and exceptional long–cycle revenue visibility. In each case we added to businesses whose competitive advantages are widening, not narrowing.
2) Exiting Oracle, initiating Amazon
We exited our remaining position in Oracle during the quarter, completing a process we began in 2025 when we first trimmed our holding. Our original thesis rested on Oracle as a high–margin, enterprise software provider with sticky, recurring revenue. The business has moved steadily away from that model, recasting itself as a builder of AI data centres and becoming a capital–intensive developer of computing infrastructure. The shift troubles us. Strategically, the company is becoming ever more leveraged to a single technology and, in large part, a single customer while financially, funding this build–out has made the balance sheet materially more leveraged. When a business migrates this far from the durable, high–return model that first attracted us, discipline calls for action.
Sale proceeds funded a new position in Amazon (AWS). It is rare to be offered a business of this quality at a below–market multiple, and the quarter presented exactly that opportunity. Amazon owns two enormous, structurally advantaged franchises — a retail and logistics network of unmatched scale, and Amazon Web Services, the leading cloud–computing platform. Two of the largest markets in the world — retail and enterprise IT — remain overwhelmingly offline and on–premises, and Amazon is exceptionally well positioned to capture the shift in both. That is the kind of durable, multi–decade runway, backed by real operating cash flow rather than paper gains, our philosophy is built to own.
FIXED INCOME
The same forces that unsettled equity markets left central banks with little room to manoeuvre. In June, the Bank of Canada held its policy rate at 2.25%, a fifth consecutive hold. Governor Tiff Macklem framed the pause as an exercise in balancing risks, observing that “the economy is weak, but it is not clearly in recession,” and noting that raising rates to contain inflation could deepen the slowdown, while cutting them could let inflation run. Notably, the Bank went out of its way to lay out two–sided paths for policy from here. Should the United States impose new trade restrictions, the Bank signalled it may need to cut rates to support growth; should the conflict in the Middle East persist and higher energy prices feed a broader, more generalized inflation, it acknowledged that consecutive rate increases could instead be warranted. That is an unusually wide fork in the road. The Canada–U.S. rate differential remains meaningful, and Canadian yields continue to take their cue from both domestic conditions and their American counterparts. In an environment where the same central bank is openly preparing for outcomes as different as rate cuts and rate hikes, we continue to manage fixed income across a range of scenarios.
CLOSING THOUGHTS
As Coleford marks its 37th year of stewardship, the world remains as dynamic as ever — perhaps more so. Public policy seems to shift by the hour, reported earnings flatter themselves, and a cyclical boom invites investors to assume the good times will last. Our response to this background is unchanged: discipline. We do not attempt to predict the outcome of geopolitical conflicts, the duration of a commodity cycle, or the next move in interest rates. We focus on what we can control: the structural quality of the businesses we own, the rigour of our valuation discipline, and the patience to let compounding do its work. The distinction we keep returning to is between price and value. Markets are very good at extrapolating the present; they are far less adept at pricing durability. Our task is to own businesses whose advantages endure well beyond the current headline, and to remain skeptical of earnings — and prices — that depend on a trend continuing indefinitely.
We remain, as always, steadfast in our approach: conservative, consistent, and committed to the long–term financial objectives of our clients.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” –Robert Kiyosaki
Skip to content 
Optimized by Seraphinite Accelerator
2026 Q2 Coleford Quarterly Commentary
Quarterly Commentary
Q2 2026
Executive Summary
• Geopolitics remains an unresolved overhang, with market–moving policy increasingly announced — and reversed — in real time
• Markets are robust, but headline earnings growth carries a large asterisk: much of it now flows from non–operating “other income”
• Cyclical booms reward extrapolation — memory chips are the current example — but their duration is precisely what cannot be underwritten
• We increased our positions in Costco, Moody’s and Eaton, and exited Oracle in favour of Amazon at a below–market multiple
Conservative. Consistent. Committed.
PORTFOLIO MANAGEMENT TEAM
MACRO ENVIRONMENT
A Familiar Backdrop, Unresolved
The second quarter picked up where the first left off. War and trade disputes remained unresolved, equity markets moved higher, and beneath the surface, a widening gap opened between reported corporate earnings and the underlying quality of those earnings. In this issue we focus on three themes that shaped the quarter: an unsettled geopolitical environment in which world–influencing policy is increasingly announced by social–media post; a robust stock market whose earnings growth carries a significant asterisk; and the familiar boom–and–bust dynamics of cyclical industries.
War, peace, and policy by post
If the first quarter was defined by the outbreak of Middle East conflict, the second was marked by its frenetic rhythm — war, then peace, then war again. Following earlier strikes on Iran, a fragile ceasefire took hold and markets promptly resumed their advance. Within days, however, the cracks reappeared: Iran floated the possibility of re–closing the Strait of Hormuz, negotiations were postponed, and the U.S. President expressed his displeasure on his social media platform. This is a defining characteristic of the current environment: decisions capable of altering the status of the world’s most important energy corridor, and with it global markets, are now telegraphed and reversed in real time, often in a single social–media post. For investors, the range of potential outcomes remains exceptionally wide, and, as we have written before, attempting to predict resolutions is not a productive exercise. What we can observe is how markets have chosen to respond. For the most part, investors have looked past the geopolitical noise, reasoning that the transformation underway in artificial intelligence matters more to corporate profits than the state of any single ceasefire. That may prove correct. However, it also means a great deal now rides on the durability of the earnings story itself — which brings us to our second theme.
Strong markets, with an asterisk
Equity markets were robust through the quarter, and the justification most often cited was earnings. The S&P 500 reported average constituent company profit growth of nearly 30% — a single, powerful data point that underscores the market’s ascent. On closer inspection, however, a meaningful portion of that growth did not come from selling more goods or services. It came from the largest technology companies marking up the value of their investments in one another. As highlighted in a recent analysis by Tim Shufelt in The Globe and Mail, nearly half of the S&P 500’s profit growth in the quarter can be traced to a number on financial statements that was historically a rounding error: “other income.” Alphabet reported roughly US$38 billion of other income last quarter, or about 60% of its bottom line, much of it non–cash gains on its stakes in private AI companies. Amazon exceeded earnings estimates by more than 70%, aided by a US$16 billion paper gain on its investment in Anthropic, while Nvidia booked US$16 billion of non–operating gains. Stripping out these one–time effects, University of Florida finance professor Baolian Wang estimates average earnings growth in the S&P 500 would have been closer to 16% than the reported 29%.
This is a classic feedback loop. Publicly traded giants commit enormous sums to private AI ventures; the ensuing arms race lifts those ventures’ valuations; and public companies then mark up the value of their investments, flattering their reported earnings and clearing the way for the next leg higher in the index. Nothing here is untoward — these are transparent disclosures by healthy companies — but it introduces a blind spot. Illiquid, volatile venture–capital marks are increasingly dictating public company net income lines, and a loop that works so pleasantly on the way up can just as easily run in reverse. Our own preference is unchanged: we anchor our valuation assessments to operating earnings and durable free cash flow, and we discount paper gains that can evaporate as quickly as they appear.
The boom and bust of cyclicals: memory chips
Few industries illustrate the perils of extrapolation better than the cyclical corners of technology. Semiconductors — and memory chips in particular — are enjoying an extraordinary upcycle. A severe shortage of AI–grade memory chips has sent prices skyward. Industry estimates show that Dynamic Random Access Memory (DRAM) chip contract prices have risen several–fold so far in 2026, with prices of NAND (a form of chip designed for long-term data retention) climbing even more steeply. Inventories tell the same story; DRAM stockpiles have fallen to just two–to–four weeks from roughly thirteen–to–seventeen weeks of supply in late 2024. With Micron, Samsung and SK Hynix together controlling more than 90% of the DRAM market, each holds considerable pricing power for as long as the shortage persists. Micron Technology has become the market’s chosen expression of this theme. Its shares posted their best week since 2008, and in late May the company’s market capitalization crossed US$1 trillion — after entering 2026 with a market capitalization of ~$300B. Unquestionably, rising prices in a concentrated, capacity–constrained market are good for a low–cost producer. The bigger question – the one the share price implies – concerns duration. In other words, how high can memory prices climb before they trigger demand destruction, or before new capacity is added to the market to relieve the shortage? We do not know, and, importantly, we do not believe anyone can underwrite the answer with confidence. The market, by contrast, is remarkably quick to extrapolate a trend and to price in its persistence. That is precisely the dynamic that makes cyclical businesses treacherous: the moment of maximum optimism, when the numbers look best and the shortage feels permanent, is often the moment of maximum risk. It is a useful reminder of why our philosophy favours businesses whose earnings rest on durable structural advantages rather than on the next move in a commodity price — even when, for a time, the commodity is winning.
Takeaways
Geopolitics, an earnings picture that flatters itself, and a cyclical boom that dares investors to extrapolate — each factor will continue to drive near–term market volatility and is impossible to forecast. We focus instead on owning businesses with the balance–sheet strength, competitive positioning and operational resilience to compound through uncertainty, assembled into a portfolio built to keep working regardless of the headlines.
EQUITIES
We used the second quarter to strengthen the portfolio in two ways.
1) Increasing our Costco, Moody’s and Eaton investments
In the first quarter we initiated positions in these three businesses, each with durable and, in several respects, expanding structural advantages. As the quarter progressed our conviction deepened, and we increased each position. Costco’s membership model compounds through a self–reinforcing flywheel of low prices, high renewal rates and growing fee income. Moody’s is one of only three globally recognized rating agencies in an oligopoly protected by regulation, network effects and prohibitive switching costs. Eaton sits squarely in the path of electrification and AI–driven power demand, with a “grid–to–chip” portfolio, deep hyperscaler relationships and exceptional long–cycle revenue visibility. In each case we added to businesses whose competitive advantages are widening, not narrowing.
2) Exiting Oracle, initiating Amazon
We exited our remaining position in Oracle during the quarter, completing a process we began in 2025 when we first trimmed our holding. Our original thesis rested on Oracle as a high–margin, enterprise software provider with sticky, recurring revenue. The business has moved steadily away from that model, recasting itself as a builder of AI data centres and becoming a capital–intensive developer of computing infrastructure. The shift troubles us. Strategically, the company is becoming ever more leveraged to a single technology and, in large part, a single customer while financially, funding this build–out has made the balance sheet materially more leveraged. When a business migrates this far from the durable, high–return model that first attracted us, discipline calls for action.
Sale proceeds funded a new position in Amazon (AWS). It is rare to be offered a business of this quality at a below–market multiple, and the quarter presented exactly that opportunity. Amazon owns two enormous, structurally advantaged franchises — a retail and logistics network of unmatched scale, and Amazon Web Services, the leading cloud–computing platform. Two of the largest markets in the world — retail and enterprise IT — remain overwhelmingly offline and on–premises, and Amazon is exceptionally well positioned to capture the shift in both. That is the kind of durable, multi–decade runway, backed by real operating cash flow rather than paper gains, our philosophy is built to own.
FIXED INCOME
The same forces that unsettled equity markets left central banks with little room to manoeuvre. In June, the Bank of Canada held its policy rate at 2.25%, a fifth consecutive hold. Governor Tiff Macklem framed the pause as an exercise in balancing risks, observing that “the economy is weak, but it is not clearly in recession,” and noting that raising rates to contain inflation could deepen the slowdown, while cutting them could let inflation run. Notably, the Bank went out of its way to lay out two–sided paths for policy from here. Should the United States impose new trade restrictions, the Bank signalled it may need to cut rates to support growth; should the conflict in the Middle East persist and higher energy prices feed a broader, more generalized inflation, it acknowledged that consecutive rate increases could instead be warranted. That is an unusually wide fork in the road. The Canada–U.S. rate differential remains meaningful, and Canadian yields continue to take their cue from both domestic conditions and their American counterparts. In an environment where the same central bank is openly preparing for outcomes as different as rate cuts and rate hikes, we continue to manage fixed income across a range of scenarios.
CLOSING THOUGHTS
As Coleford marks its 37th year of stewardship, the world remains as dynamic as ever — perhaps more so. Public policy seems to shift by the hour, reported earnings flatter themselves, and a cyclical boom invites investors to assume the good times will last. Our response to this background is unchanged: discipline. We do not attempt to predict the outcome of geopolitical conflicts, the duration of a commodity cycle, or the next move in interest rates. We focus on what we can control: the structural quality of the businesses we own, the rigour of our valuation discipline, and the patience to let compounding do its work. The distinction we keep returning to is between price and value. Markets are very good at extrapolating the present; they are far less adept at pricing durability. Our task is to own businesses whose advantages endure well beyond the current headline, and to remain skeptical of earnings — and prices — that depend on a trend continuing indefinitely.
We remain, as always, steadfast in our approach: conservative, consistent, and committed to the long–term financial objectives of our clients.