2025 Letter To Clients

Stephen often tells me half-jokingly that I’m a robot. I speak English, but the depth of analysis I conduct and the intricacies and logic behind my views can sound Greek without proper articulation on my part. This is not a nod to my investment acumen but rather an admittance of a skill I need to work on. 

A term we use often here is “analysis paralysis”; we often fall down rabbit holes and spin our tires for longer than we should. In reality, we are often better served by simplifying our thesis and taking the appropriate action or inaction governed by that thesis and underpinned by a systematic approach. There is a sweet spot between under and over analyzing. It’s often difficult to find.

At the end of the day, as Stephen often says, the simplest articulation of the results of our efforts can be boiled down to, from the perspective of our clients:

1. How much did we invest?
2. How much did we earn?
3. How much do we have now?

An important question that is often omitted from the list is, how much could I have lost? More on that later.

In the spirit of this “KISS (Keep it Simple, Stupid!)” theme, I’ve reflected on our year here at Biscop Cross Border and came away with some key takeaways – some are observations, some are long-engrained investment principles that have been relevant of late, some are frustrations, and some are celebrations.

Much of my commentary pertains to our “Tactical Model” and less so to the fixed income (low risk) side of our investment strategy. However, I believe it will still prove insightful to readers as it illustrates our mindset as investors and how we act as stewards of your hard-earned capital.   

New World, New Strategy

My several years of investing experience is relatively shorter than Stephen’s 40+, but I can see just as clearly that we are not in the same world as the pre-pandemic years.

The conditions of that world allowed Warren Buffett to amass a fortune using a simple formula that was rinsed and repeated over 60+ years. He would find high-quality businesses and buy them at reasonable prices, often for less than what he estimated them to be worth. The results compounded over time into extraordinary wealth. That’s it. Talk about KISS.

If someone were to start investing today following Buffett’s strategy, it’s doubtful the results would be comparable 60 years down the road. Why? The world has changed, and quickly.

The financial markets don’t work like they used to. Buffett could analyze the assets on a company’s “balance sheet”, as well as the company’s earnings (profit) and their prospects to grow those profits – this fundamental, bottom-up analysis was and still is the bedrock of his strategy.  Today as investors, however, we have much more to analyze than simple earnings reports; numerous and powerful forces have emerged that alter the equation. It’s now more like the Wild West than ever before.

From our July 2025 newsletter:

We believe we are at an inflection point—a structural shift where the next 40 years will look very different than the last. The rules that governed markets from 1980 to 2020 may no longer apply… The strategies that worked for the last 40 years are increasingly misaligned with the realities of today’s world... The boom of the last four decades was fueled by falling rates, cheap money, and investor psychology that assumed the past would repeat. We believe that that era is ending.

Significant stock market movements are often driven by automated trading “algorithms” that buy and sell billions of dollars’ worth of stocks electronically in a matter of microseconds. Contrast this with the days it would have taken for Buffett to call a broker and send/receive physical paper stock certificates in the mail.

Naturally, the market moved slower and less extremely back then. Not to age Stephen, but this was the environment of his early days as a broker. 

We are also burdened with information overload, most of it is useless and distracting “noise”, and some of it is not even true. Whereas the old guard was starved for information. It was easier to have an edge because information was scarce, and those who uncovered anything unique could benefit from it. Information is much more commoditized now, basically since the internet went mainstream.

Even if we deem certain information useful, the movement of a stock price will depend more so on others’ interpretation of the information rather than the information itself.  For example, even if an earnings report is negative, it may still move the price up if the results were less negative than expected. What was once checkers is now chess.

So rather than operate based on our interpretation of information, we need to factor in the likely interpretation of others – this involves a degree of speculation. To get everything right, we almost need to speculate on the nature of others’ speculation. Speculation². That’s why we don’t expect to get everything right.

Speculation vs Investing

Many will confuse speculation with investing. They are not interchangeable terms. One should exercise objective self-awareness and contemplate whether they are speculating or investing. The former involves jumping on whatever is hot, while the latter involves subscribing to an objective and systematic approach with built-in guardrails. We will only ever engage in the latter.

Depending on what time frame you consider, speculating can sometimes outperform investing (it certainly has lately) – that is what makes diverting from the plan so tempting to most investors.

So, we like Buffett, are investors, not speculators. We conduct thorough research and run systematic strategies underpinned by many of the same principles as Buffett. The issue we face relative to Buffett is that he was an investor in an investor-driven market – we are investors in a speculator-driven market.

We, as prudent investors, today contend with powerful and unpredictable algorithmic trading forces, information overload at lightspeed, and perhaps the most powerful force of all, which is mass speculation. I’ll speak to what has fostered the latter in a moment.

Over hundreds of years, financial markets have moved in cycles. This is natural. In Stephen’s experience, a normal cycle might last 5-7 years and repeat. Boom and bust. This has been consistent since the first modern stock market, the Amsterdam Stock Exchange, was established in 1602.

The upswing of the current cycle has been stretched out for 17 years and counting.

One of our many jokes involves the fact that I was in middle school during the last meaningful market correction, completely oblivious to the world around me and certainly unaware of what stocks were.

My age cohort (Gen Z) currently occupies many of the desks in the investment industry. So, for a group who has only ever seen markets go up, it’s easy to understand why much of the industry has chosen speculation as their default setting. It may be articulated or justified as investing, but in many cases, it is simply unconscious speculation.

As many of our clients know, I am a highly visual thinker. I find it useful in telling this story to present a chart that shows the S&P 500 index (a proxy for the U.S. stock market) over the past 100 years. Yes, 100 years – an ode to a core mantra of ours: “zoom out”.

What do you notice?

I notice that since 2008-09, the market has gone ballistic. The shape of the curve (exponential) matters more than the numbers. I also noticed that no such thing had happened in the 80+ years prior. Naturally we should ask why.

Well, what happened in ’08-09? My prefrontal cortex was still developing, but most of us know there was a significant economic recession.

What happened shortly after (and is still happening)? The United States, then and still (arguably) the financial powerhouse of the world, printed enormous amounts of money out of thin air. It also kept interest rates (the cost of borrowing that money) low and pushed them lower still. Side note – people think 5% interest rates are high, but “zoom out” a little further and you might disagree.

This cash injection and interest rate manipulation were meant to keep the economy afloat and support businesses as the world dealt with the fallout of the financial crisis. It seems to have worked. But did it really?

The effect of all this cash in the system at such low interest rates (the cost of borrowing and using that cash) is that everyone, especially institutions, has had more dollars in their pocket with which to go about their business and with which to speculate. Is it merely a coincidence that the stock market went meteoric at the same time the US began interfering with the natural cycle?

The economy and businesses rebounded and flourished, but did they ever fall to the natural depths they were meant to, that would have been implied by the natural ebb and flow of the market over the past few centuries? Or did interference from governments and economic policymakers simply kick the can down the road and dislocate the financial markets from the true value of the underlying assets they are meant to represent? It’s been a 17-year road that the can has bounced down, but we would argue that this dynamic is what’s at play.

Think about all of the commercials we see now for gambling apps, sports betting, etc. Speculation has taken over, not just in finance but in many walks of life. Get this: if I wanted to (I don’t), I could place a bet online right now on whether President Trump will purchase part of Greenland. I could speculate with $100 and earn $295 if I choose the right side. There is currently $2.5M staked on this.

My generational cohort has grown up in this world and is currently taking the reins of the financial industry. Some people are even confusing this gambling activity with investing; they are effectively, unknowingly, using the terms interchangeably.

What Now?

We know the investment philosophies and principles of Buffett’s past are still inherently logical and they still hold true for the most part – the issue is whether they will work in a market driven by speculation and noise. In recent years, they have worked with limited success and have certainly underperformed speculators.

Buffett himself is currently sitting on the largest pile of uninvested cash he’s ever had, because his simple formula of the past doesn’t work anymore in today’s financial markets. His formula tells him that there is nothing worth investing in because speculators have pushed prices too high, meaning he would need to pay more than the company is actually worth to own it. In that sense, his formula is correct. It just isn’t useful anymore. We can conclude that the days of relying solely on fundamental analysis are over.

So, what is an investor to do? Abandon tried and true philosophies that have worked for centuries until recently? Join the herd and start gambling and speculating? Your heart rate might have gone up just now. That is not our plan. Our plan has been to modify and adapt the proven strategies of old to work in the markets of today and the future.

Our core philosophies that align with Buffett’s:

• Rule #1: protect the capital
• Rule #2: refer back to rule #1.
• The question should always be: “How much could I lose?” not “How much could I make?” Everyone and their uncle is asking the latter question right now, when the most successful investors in history have always thought more about the former.
• Zoom out – think in years and decades, not months and quarters.
• Invest objectively, not emotionally
• Always know exactly what you own and why you own it.
• “Be fearful when others are greedy and greedy when others are fearful”. Don’t follow the crowd; Contrarian positions are often most fruitful when one can be patient.

Stephen often says he has “all the scars” from past market corrections. The beauty in that is that it’s allowed for new principles to take shape and compliment those more time tested – this is where we evolve from Buffett:

• Date investments; don’t marry them. Buy and hold won’t work anymore. Hope is not a strategy.
• In investing, what’s comfortable is often not profitable – being contrarian can be profitable, as can having unique ideas. We won’t hear these ideas on any news networks until it’s too late. When ideas go mainstream is when we start thinking about taking profits off the table (fearful vs. greedy).
• Give technical analysis (analyzing price chart patterns) as much if not more weight in decision making than fundamental analysis. It’s a speculative market that moves on emotions and algorithms; technical analysis can help us read and position for these movements.
• “Bulls make money, bears make money, pigs get slaughtered” – this is a favourite philosophy of Stephen’s. Set targets and take profits when targets are reached. It doesn’t matter if a position proceeds to rocket another 100%. We’ve already achieved what we wanted to achieve. We move on.
• Avoid complacency - What has been and what is, will not always be.
  • My time in large professional investment firms showed me that analysts and talking heads on TV typically extrapolate the present and are poor predictors of what the future will look like. We for certain cannot assume it will look the same as today – when has that ever been true?
• Simplify the complex

The result of these philosophies: our Tactical Model. This is how our Tactical Model works:

Investment Objective

Invest in high-quality securities globally across the risk/return spectrum based on the prevailing and expected macroeconomic environment. The main objective is growth of capital through capital appreciation and income (“total return”).

Investment Philosophy

Safeguard capital first and foremost while seeking outsized risk-adjusted returns opportunistically. Open minded, independent investing with global scope and limited constraints.

Investment Process

Multi-disciplined approach, accounting for prevailing and expected economic environments, different geographies, currencies, industry sectors, asset classes, and specific companies/governments.

Technical signals guide timing and sector emphasis, while fundamental analysis supports asset selection.

Constant monitoring with formal monthly reviews using rolling 12-month outlooks.

Emphasize agility, independence, and conservatism.

Our Tactical Model is flexible. It’s not a “cookie-cutter” portfolio. It’s not a mutual fund. It’s not a “set it and forget it” strategy. It’s a living, breathing model that adapts to what’s happening in the world.

The following excerpts from our previous newsletters may help hammer home the essence of the model:

From our November 2025 newsletter:

Why would anyone pay a money manager to tactically move in and out of specific stocks when they could buy the market, do nothing else, and perform just as well, if not better, without paying management fees?

If everything goes up all the time, where’s the value in active management?

“Mom-and-pop” investors wouldn’t pay a money manager if their main concern is “how much money can I make?” But they most certainly will, if their main concern is “how much money can I lose?”. The most successful investors in history are those who have shared the latter attitude.

The value in active, tactical investment management is in seeking appropriate risk-adjusted returns.

The fact that the market is more overvalued than it has ever been in recorded history, does not mean that respectable risk-adjusted returns cannot be made. It means that investors should be prudent in the strategies they employ to earn such returns. Buying and holding the broader market has been a successful strategy, but it turns a blind eye to risk.

From our November 2025 newsletter:

How much further can the market climb? Nobody knows. Will it go up forever? Nobody knows. An educated guess that takes hundreds of years of history into account and zooms out to see the big picture, is that, no, it will not go up forever. Things have always changed throughout history and we expect change to continue being a constant.

From our November 2025 newsletter:

Outlets like CNBC and Bloomberg often favor bullish headlines - not because they know what will happen, but because their business depends on keeping investors engaged, invested, and watching. It feeds the machine. If investors pull back, fee revenue falls across the industry. This is why clients so often hear the refrain: “You need to be in it for the long term.” Sometimes that’s sound advice. But often, it’s used to justify holding investments that are already stretched or even poised to contract. Hope and patience are not the same as a disciplined strategy. Hope is not a strategy at all.

From an earlier 2025 newsletter:

In this environment, traditional 60/40 portfolios are broadly exposed to systemic risk. When markets fall, these portfolios often fall with them. Diversification alone is no longer enough.

From an earlier 2025 newsletter:

With markets priced over-generously, in our opinion, and uncertainty abounding across global economies, we believe the most prudent course is to remain highly selective and deliberate in how capital is deployed. Rather than chasing momentum or reacting to headlines, we focus on identifying specific, unique opportunities where the balance of risk and reward is clearly in our favour (an extremely rare occurrence in today’s market). That means waiting for the right conditions—where valuations are compelling, fundamentals are strong, technicals are positive, and the probability of success is high. These opportunities are rare, but they do emerge, and when they do, we act with conviction.

From an earlier 2025 newsletter:

Our job is to be ready—not reactive. To protect capital when risks are high, and to deploy it when opportunities arise and the balance between risk and reward becomes more favourable on a broader scale.

From an earlier 2025 newsletter

If you’re feeling uncertain about the markets, you’re not alone. But uncertainty doesn’t have to mean inaction. With the right strategy, the right philosophy, the right guidance, and no small amount of patience, you can navigate even the most turbulent times with peace of mind.

From our September 2025 newsletter

The risks are what people need to understand fully, including the fact that the risk they choose affects the returns they can expect on their investments and the degree of fluctuations they will need to tolerate on those investments.

From our September 2025 newsletter:

Stock markets can stay irrational longer than one can stay solvent. We are in an environment of investor complacency. There has not been a sizable stock market correction where market valuations revert to more realistic valuations since the 2007-2009 bear market caused by the Great Financial Crisis, when we had the last 50% + market decline. Before that, it was the 2000-2003 bear market with another 50% + market decline caused by the unwinding of the Tech Bubble, where many technology stocks declined by 80% or more, with some becoming worthless. For the major North American stock markets, that’s 16 years of market gains since the last bottom in 2009, with no significant correction, and now, we have the most overvalued stock markets in recorded history. More overvalued than 2007, more overvalued than 2000 and more overvalued than the 1929 market crash that led to the Great Depression.

From our September 2025 newsletter:

The 50% stock market declines of 2000-2003 and 2007-2009 were very painful for all investors.On top of that, the math is that if you lost 50%, you had to make 100% returns after that loss to get back to even. Here’s another fact for you.If one had $1 invested in the S&P 500 index in January 2000, you had to wait the next 13 years to get your $1 back”

Putting it All together – Does the Equation Balance?

I’d like to conclude by articulating how this model has performed in practice.

We don’t need markets to go up or down for our model to achieve its objective (adequate risk-adjusted returns). Bulls make money, bears make money, but pigs get slaughtered. So, when markets and specific assets are all the stir, we usually shrug – our strategy performs regardless of whether we are participating or not.

We are in the business of doing what's best for our clients. Accordingly, we believe that this requires using a disciplined, thoughtful, and systematic investment approach. Underpinning this approach, are each person’s unique objectives. The framework, the decision-making process, and the overall operation of our investment strategy is a means to an end – it is simply the tool we use in achieving each client’s objective; objectives may differ vastly, but our process doesn’t have to in order to achieve them.

If that means watching everyone else make a fortune in the markets, so be it. Comparison is the thief of joy. We have performed our duty so long as we protect the capital first and foremost and earn an adequate risk adjusted return. We are not concerned with what anyone else is doing, nor anything else that transpires in the markets, including meteoric rises in assets we don’t own. What matters is we do what's best for our clients with the resources and experience we have. Both are deep.

Investors who are “following the herd” are only thinking about how much money they could make. They aren’t thinking about how much money they could lose. Simply following what others are doing is not truly investing, either. It’s speculating. Those who trade according to what everyone else is doing might outperform the smartest of investors over periods of months, years, and maybe even a stretch of years. But it’s rare that that investor would outperform a systematic risk-focused approach over periods of several years and decades.

Following the crowd would have paid handsomely these past few years, but recall that years are very short intervals in markets. Zoom out decades. Investors can lose in weeks and months what they spent years accumulating if they turn a blind eye to risk in pursuit of the next hot thing.

We can’t end without first discussing gold. Yes, we exited our gold-related positions and missed some of the proceeding upside. Why? Because our research told us it was prudent to do. So, did the research mislead us and was it technically wrong? Yes. It is simply impossible to research to the extent that we will be right every time. That's called having a crystal ball, which wasn’t under the tree this year.

Were we wrong to follow our process and trust in the research that supports our strategy? We got the gold trade wrong, but it's not wrong to follow discipline and a strategy, a strategy which over longer periods is going to get more things right than wrong. We made attractive profits on our gold trades and took them off the table, just as our strategy dictated. Then we moved on.

We won't get every one right, but we aim for at least six out of ten - Peter Lynch, who ran the Fidelity Magellan fund from 1977 to 1990, is one of the most successful investors of all time and famously stated that he was only right about six out of ten times with his stock picks. Yet he still averaged a 29.2% annual return and consistently outperformed the S&P 500 stock market index.

We did not outperform the market in 2025 on an absolute returns basis. The S&P 500 return was higher. We almost certainly did outperform on a risk-adjusted returns basis.

For every 1 unit of risk, our return was higher than the market return per 1 unit of risk. So while our return was lower, we took proportionately less risk to earn that return than one would have had to take to earn the market return.

As attractive as market returns have been, we believe that broadly exposed investors are taking on outsized risk relative to that reward. We, on the other hand, are seeking outsized rewards relative to the risk we bear.

In a healthy market, the risk/reward relationship is balanced, but in today’s world that balance is often skewed to risk. We can’t pull rabbits out of hats and are constrained to operate within the conditions the market imposes – we can’t expect to make attractive returns in the market without tolerating commensurate or higher relative risk.

However, we can uncover and participate in selective opportunities where reward outweighs risk and still do well without bearing more risk than necessary.

That is the beauty of our Tactical Model and that is the whole point.

2025 was a good year for our team, our business, and our investment strategies. We aspire to the same level of success in 2026 and look forward to working with you along the way.

Happy New Year from all of us at Biscop Cross Border Investment Services.

Lee Scully, CFA

Associate Investment Advisor