Perfect Stock Portfolio: September 2026 Edition

The past month has reminded us that international investing is never simply a matter of finding a cheap stock market and waiting for investors to notice. Politics, energy, trade policy, currencies, and interest rates all affect corporate earnings. The Middle East conflict has made that especially clear as it has disrupted energy supplies, increased shipping risk, and pushed oil and fuel costs higher. Those risks do not eliminate investment opportunity.

They make discipline more important. The goal of the Perfect Stock Portfolio is not to predict every political decision or military development. It is to own financially sound businesses with real assets, manageable debt, durable cash flow, and valuations that provide a margin of safety. Periods of uncertainty are often when the best bargains appear.

Europe: Reasonable Valuations, Real Economic Pressure Europe remains one of the more attractive places in the world for value investors. S. companies. Many have better tangible-asset support and less demanding valuations than their American peers.

The economic picture is still slow but not disastrous. Consumer spending has remained more resilient than expected, helped by stable labor markets, while private investment and industrial activity remain uneven. Europe is still highly sensitive to energy costs. The Middle East conflict has increased the risk and cost of moving oil, liquefied natural gas, and goods through major shipping routes.

That is a burden for manufacturers, chemical companies, transport businesses, and consumers. Governments are responding through defense spending, energy-security programs, infrastructure investment, and industrial-policy initiatives. Germany’s increased willingness to spend on defense and infrastructure is important. Europe is also investing more heavily in semiconductors, power infrastructure, domestic supply chains, and strategic industries.

Trade policy is another major complication. Tariffs and the threat of new restrictions are a tax on global commerce. Europe’s export-oriented companies, particularly automakers, machinery producers, and chemical companies, are vulnerable to weaker trade volumes and higher costs. That is why we remain selective.

The best opportunities are businesses with sound balance sheets, pricing power, and the ability to generate cash even if economic growth remains mediocre. United Kingdom: Low Expectations Can Be an Asset The UK remains a compelling contrarian market. British shares are still inexpensive, while many listed companies earn substantial revenue outside the United Kingdom. Investors are not simply buying a slow domestic economy.

They are buying global businesses at valuations that often assume little will ever improve. The economy has held up better than expected, with modest growth and signs of improving consumer and business confidence. Inflation and government borrowing costs remain the problem. Higher oil and gas prices create an uncomfortable situation for the Bank of England.

The economy does not appear especially strong, but energy inflation makes it harder to cut rates quickly. Gilt yields have moved higher, reflecting global bond-market pressure and concerns about fiscal sustainability. The government must balance investment, public services, defense needs, and the desire to keep debt costs under control. There are no painless solutions.

That uncertainty is precisely why opportunities remain available. We continue to like UK businesses that can generate cash through a slow-growth environment, maintain conservative balance sheets, and return capital to shareholders intelligently. Banks, insurers, asset managers, energy companies, and selected housing-related businesses remain particularly interesting when purchased at the right price. Japan: Corporate Reform Remains the Major Story Japan remains one of the most promising developed markets for long-term value investors.

Corporate-governance reform, increased shareholder distributions, improved capital allocation, and pressure to reduce cross-shareholdings are creating a better environment for owners of Japanese stocks. The economy is growing modestly, while inflation and wage gains have been more persistent than Japan experienced for decades. The Bank of Japan is gradually moving away from its old ultra-easy monetary policies. Recent yen strength reflects expectations for further tightening and the possibility that Japanese investors will repatriate capital.

A stronger yen can pressure exporters, but it also reduces imported inflation and supports domestic purchasing power. The real question is whether Japan can normalize rates without disrupting growth or its heavily indebted public finances. The Bank of Japan will almost certainly proceed cautiously. Trade-policy uncertainty is another risk for Japanese auto, machinery, electronics, and semiconductor companies.

Yet the corporate-reform trend remains an important catalyst. Companies are increasingly being pressured to explain excess cash, low-return assets, and poor capital allocation. For investors buying good businesses below intrinsic value, that is exactly the kind of change we want to see. Asia Outside Japan: Strong Growth, Selective Opportunities Asia remains a broad opportunity set.

China has property-market weakness, low consumer confidence, and policy uncertainty, but it also has world-class companies in selected industrial, consumer, and technology industries. Beijing continues to support strategic manufacturing, energy security, and domestic technology capability. Investors simply need to demand a larger margin of safety. India remains one of the world’s strongest long-term growth stories, supported by infrastructure, digitalization, manufacturing investment, and consumer growth.

The issue is valuation. A good economy does not make every stock a good investment. Vietnam and the Philippines remain attractive beneficiaries of supply-chain diversification, manufacturing investment, and expanding domestic demand. Taiwan and South Korea remain central to global technology and semiconductor production.

We should also remember that artificial-intelligence enthusiasm can create unrealistic expectations. A company needs real earnings, balance-sheet strength, and a sensible valuation — not simply an AI label. North America: Strong Businesses, More Valuation Risk The United States continues to lead in innovation, corporate profitability, and capital-market depth. Investment in technology, power infrastructure, defense, manufacturing, and energy remains significant.

Labor markets have cooled without breaking, and economic growth has been more resilient than many expected. The stock market is another matter. Valuations in the most popular technology and AI-related companies leave little room for disappointment. Great companies can still be poor investments when purchased at prices that assume years of perfect execution.

Trade policy is increasingly important for the United States, Canada, and Mexico. Tariffs can encourage domestic investment, but they also raise costs and create uncertainty for businesses trying to plan supply chains. S. trade, commodity prices, and housing, while Mexico retains a powerful nearshoring opportunity despite policy and trade uncertainty.

The Middle East conflict has also pushed energy back to the center of the investment picture. Higher oil prices help selected producers, pipelines, and royalty businesses, but hurt consumers, transport companies, and energy-intensive industries. Prolonged shipping disruptions could also keep inflation higher and limit central-bank flexibility. The world remains uncertain, but uncertainty is not a reason to abandon discipline.

Our job is not to predict every headline. It is to buy good businesses at prices that leave room to be wrong and then allow time, cash flow, and sound management to work in our favor. September Portfolio Review That philosophy continues to show up clearly in the portfolio. The September 13 portfolio snapshot contains 26 holdings across North America, Europe, and Asia.

The portfolio remains globally diversified, with meaningful exposure to Japan, China and Hong Kong, Europe, the United Kingdom, Southeast Asia, and the United States. 2% year to date. This is a portfolio snapshot rather than a measure of actual account performance, since individual position sizes and purchase dates differ. More important than a single month’s market movement, the portfolio still has the characteristics we want.

20. Those figures will move over time and should never replace individual analysis, but they tell us that we continue to own assets and cash flows at prices that leave room for error. Shipping Takes the Lead The portfolio’s strongest contributors during the month were tied to a theme that has become increasingly important as the Middle East conflict has increased risk in global shipping lanes. P.

6%. Danaos (DAC) gained 18%. 6%. 9%.

These companies are direct or indirect beneficiaries of a world where shipping capacity, transit routes, and energy transportation have become more valuable. That does not mean we should suddenly treat shipping as a one-way trade. Shipping remains cyclical, and freight markets can change quickly. It does mean that strong operators with sound balance sheets, disciplined capital allocation, and tangible asset value can offer meaningful upside when global trade patterns become stressed.

Danaos still stands out as a particularly interesting asset-value situation, trading at a substantial discount to tangible book value despite a strong balance sheet. Scorpio Tankers also remains tied to the global movement of refined petroleum products at a time when energy logistics matter more than they did just a few months ago. 4% for the month. This is the position we added to the portfolio in the August edition, and it remains a classic example of why we search globally.

4% indicated yield, and exposure to an economy with better long-term demographic and development prospects than many developed markets. 8% year to date, which illustrates the difference between a good underlying franchise and a stock price that has yet to fully reflect it. That is often where opportunity begins. 8% year to date.

The German fertilizer and minerals company continues to benefit from the fact that agricultural inputs are strategic assets. Food demand does not disappear, and the world needs dependable supplies of potash and other crop nutrients. The company is cyclical, but the shares remain inexpensive relative to the underlying asset base. 7% year to date.

Higher UK borrowing costs, uncertainty around the Bank of England, and a difficult housing environment have all weighed on the shares. 9%. Housing cycles can take longer to turn than investors want. That does not make the underlying asset value disappear.

7% for the month. Hong Kong real estate remains out of favor, and that is precisely why a premier property owner can trade at just half of tangible book value. The balance sheet is manageable, liquidity is strong, and the company owns a collection of assets that would be almost impossible to replicate. The market is discounting a great deal of bad news.

We do not need conditions in Hong Kong to become perfect for the shares to work. We need the company to remain financially sound and its asset values to be recognized over time. Low Expectations Across Deswell, Swatch and TV Asahi Deswell Industries (DSWL), Swatch Group (SWGAY), and TV Asahi Holdings (THDDY) were also weaker over the month. These are very different businesses, but the investment cases have a common thread: significant balance-sheet or tangible-value support.

Deswell trades at less than half of tangible book value with no debt and a healthy indicated yield. Swatch has an exceptionally strong balance sheet, although luxury demand remains cyclical and its reported trailing price-to-earnings ratio is not presently useful because earnings have been depressed. TV Asahi trades below book value and carries no debt. We own these businesses because the market has low expectations, not because the next quarter will necessarily be exciting.

Japan Remains a Core Portfolio Theme Japan remains one of the most important areas in the portfolio. Subaru (FUJHY), Dai Nippon Printing (DNPLY), TV Asahi Holdings (THDDY), and Central Glass (CGCLF) provide exposure to Japanese corporate reform and companies still trading at reasonable asset values. Japan’s economy has been helped by wage growth and a gradual improvement in domestic demand, but the stronger yen and slowly changing Bank of Japan policy create a more complicated backdrop for exporters. The larger point is that corporate governance is improving.

Japanese companies are increasingly under pressure to improve returns on capital, reduce idle cash, and explain why they trade below book value. That does not make every Japanese company a buy, but it creates a constructive long-term environment for patient owners. Dai Nippon Printing, for example, remains a low-debt company with a reasonable valuation and positive year-to-date performance. Central Glass and TV Asahi offer more direct asset-value opportunities, while Subaru combines a solid balance sheet with a meaningful dividend.

China and Hong Kong: Buy the Balance Sheet China and Hong Kong remain difficult but potentially rewarding areas for value investors. Anhui Conch Cement (AHCHY), Autohome (ATHM), Sun Hung Kai Properties (SUHJY), and Yue Yuen Industrial (YUEIY) all reflect the market’s caution about China’s property sector, consumer confidence, and broader policy uncertainty. We should not dismiss those concerns. China’s property adjustment has been long and painful, and government support has not restored broad private-sector confidence.

The portfolio companies, however, are not all the same. Anhui Conch is a low-debt building-materials company with a substantial dividend yield. 6% indicated yield. 2% indicated yield and a valuation below tangible book value.

The key is to own the financially strongest businesses at prices that recognize the risk. We do not need a dramatic China recovery to make money from assets purchased cheaply. North America: Cash Flow, Income and Asset Backing Our North American holdings continue to provide a mixture of cash flow, income, and asset backing. 1% indicated yield and a valuation below tangible book value.

The shares were essentially flat over the past month. Higher rates can delay housing activity, but Millrose’s model is designed around land assets and capital discipline rather than the economics of a traditional homebuilder. Assured Guaranty (AGO) remains one of the portfolio’s most attractive financial holdings. The shares trade at roughly 58% of tangible book value, with modest leverage and an established business in municipal and infrastructure credit enhancement.

7% year to date. Nothing in that performance changes the core investment case. A financially strong insurer trading at a large discount to intrinsic value is exactly the sort of situation we want to own while waiting for capital deployment, investment gains, and improved recognition of book value. Ingles Markets (IMKTA), Del Monte (DMC), and NACCO Industries (NC) give us exposure to defensive retail, consumer staples, and energy-related real assets.

Ingles is a valuable collection of grocery operations and owned real estate. Del Monte provides defensive food exposure and an asset-based valuation. NACCO remains a less obvious business, but its low valuation and balance-sheet strength fit our approach. Getting Paid to Wait The portfolio continues to pay us while we wait.

Several holdings offer unusually high indicated yields, including Millrose, Yue Yuen, PT Bank Negara Indonesia, Autohome, Genco, Deswell, Barratt Redrow, Anhui Conch, and Megaworld (MGAWY). Yield is never a substitute for analysis. A high dividend can be cut, and a low valuation can stay low longer than anyone likes. However, a well-covered dividend backed by assets and cash flow is a useful part of total return.

Final Thoughts The global outlook remains unsettled. Europe faces slow growth, higher energy costs, and trade risk. The UK must balance inflation and elevated borrowing costs. Japan is navigating a gradual shift away from ultra-easy monetary policy.

China is still working through its property and confidence problems. S. growth stocks leave little room for disappointment.