Perfect Stock Portfolio: October 2026 Edition

The world has become a more complicated place for investors over the past month. Interest rates have risen sharply in major markets, energy prices have remained elevated because of the Middle East conflict, trade policy continues to reshape supply chains, and governments everywhere are being forced to balance slower growth against higher borrowing costs. That is a lot for stock markets to digest. It is also exactly the kind of environment in which valuation, balance-sheet strength, and real asset values matter most.

The recent rise in global bond yields is not just a technical market event. It changes the value investors are willing to pay for every future dollar of earnings. It raises the cost of capital for governments, companies, homebuyers, and commercial real estate owners. It challenges highly leveraged businesses and makes speculative assets much less attractive.

A company selling at a premium valuation based on earnings it might produce years from now is more vulnerable when discount rates rise than a company trading below tangible book value with modest debt and present cash flow. That is the basic reason the Perfect Stock Portfolio remains focused on financially sound businesses selling at discounts to conservative measures of value. We own companies with real assets, capable management, manageable debt, and cash flow that can survive a less friendly economic environment. We do not need every macroeconomic issue to be resolved before those businesses can create value.

Europe: Attractive Valuations in a Challenging Economy Europe remains a particularly interesting opportunity set because valuations are still far lower than those of comparable U.S. companies. European banks, insurers, industrial businesses, shipping companies, energy companies, and selected consumer businesses can be purchased at prices that assume a great deal of bad news will continue forever. The European economy is growing slowly, but it is not collapsing.

The European Central Bank’s September projections called for euro-area growth of 0.9% in 2026, followed by growth of 1.4% in 2027. Inflation is the more difficult issue. The ECB expects headline inflation to average 3% this year and 2.5% next year, largely because the Middle East conflict has kept energy costs elevated. The energy issue is particularly important for Europe because the continent remains dependent on imported oil, gas, and industrial inputs.

Higher oil and refined-product prices affect consumers directly, but they also pressure chemicals, metals, manufacturers, transportation companies, and exporters. Shipping risk in the Red Sea and the Strait of Hormuz has added freight, insurance, and delivery uncertainty to the cost equation. European governments are responding by increasing defense spending, supporting energy security, investing in infrastructure, and encouraging more domestic production of strategic goods. Germany’s shift toward greater infrastructure and defense investment remains one of the most important developments in the region.

Europe is also spending more aggressively on power grids, semiconductors, defense equipment, data centers, and supply-chain resilience. The trade-policy problem has not disappeared. Tariffs may protect a domestic industry in the short run, but they also raise costs and complicate investment decisions. Europe’s automakers, machinery producers, chemical companies, and capital-goods exporters remain exposed to weaker global trade and a less predictable trading relationship with the United States and China.

The companies best positioned to manage this environment will have differentiated products, a global customer base, conservative financing, and the ability to pass along at least part of their cost increases. That is where we want to focus our attention. United Kingdom: Low Expectations and Higher Borrowing Costs The United Kingdom is experiencing a similar but more difficult version of the same balancing act. Economic growth has been modestly better than the dire forecasts that have dominated much of the discussion, but inflation and government borrowing costs remain uncomfortably high.

UK real GDP grew 0.5% in the second quarter, while the unemployment rate was 4.9% and CPIH inflation stood at 3.3% in August. The Bank of England has held Bank Rate at 3.75%, but its path is constrained by the energy shock. The Bank has warned that continued Middle East disruption could push inflation toward 3.75% late this year and slightly above 4% in early 2027. Higher gilt yields are tightening financial conditions even without another Bank Rate increase.

That pressure is being felt in housing, commercial real estate, consumer lending, and the government’s own fiscal position. The UK remains attractive to us because expectations are so low. Many British companies generate a large share of their revenue outside the country, trade at low valuations, own valuable real assets, and return capital to shareholders. We continue to prefer banks, insurers, global consumer businesses, energy companies, and selected housing-related businesses with strong balance sheets.

Barratt Redrow (BTDPY), for example, will remain tied to the housing cycle, but a company trading below tangible book value with low debt does not require a perfect housing recovery to become a successful investment. It requires conditions to become somewhat better than the market currently expects. That is a much more reasonable hurdle. Japan: Corporate Reform Remains the Catalyst Japan is still one of the most important long-term opportunities in global value investing.

Corporate-governance reform, higher dividends, share repurchases, pressure to reduce cross-shareholdings, and a growing focus on return on equity have changed the market’s character. Japan is no longer simply a place where investors wait for a weak yen and an export recovery. The Japanese economy is facing a more complicated period. The Bank of Japan expects moderate growth, supported by corporate profits, AI-related investment, and government measures, but it also expects high oil prices to weigh on activity.

The Bank has made clear that it expects to continue raising policy rates and reducing monetary accommodation as inflation and economic conditions permit. That is a major transition after decades of near-zero interest rates. A stronger yen may create a headwind for exporters, but it also reduces imported inflation and helps Japanese households. The larger investment case remains corporate reform.

Companies sitting on excess cash, low-return assets, and undervalued subsidiaries are increasingly being pushed to improve capital allocation. That is a powerful catalyst for investors willing to buy solid companies below intrinsic value and wait. We are not relying on Japan to become the fastest-growing economy in the world. We are relying on better corporate decisions to unlock value that has been overlooked for years.

Asia Outside Japan: Growth, Risk, and Opportunity Asia outside Japan remains diverse. China continues to struggle with weak property markets, low consumer confidence, and local-government financial stress. Beijing is supporting strategic industries, domestic technology, energy security, and advanced manufacturing, but targeted policy support is not the same thing as a broad recovery in private-sector confidence. That distinction matters.

We can recognize the strength of individual Chinese businesses without assuming the entire economy is about to recover. The region is also much more than China. India continues to benefit from infrastructure spending, digitalization, manufacturing investment, and consumer growth, although investors must remain careful about valuation. Southeast Asia is benefiting from supply-chain diversification as manufacturers seek alternatives to concentrated China exposure.

ASEAN attracted $244 billion in foreign direct investment in 2025, with manufacturing investment rising nearly 50%. The Philippines, Vietnam, Indonesia, and Malaysia are all positioned to benefit from rising regional trade, industrial investment, and expanding domestic financial systems. Higher oil and gas prices are a headwind for fuel-importing nations, and tariffs remain a risk. However, the IMF notes that Asian trade has held up better than expected because export markets have diversified and intraregional trade remains strong.

India, Korea, and some ASEAN economies have also benefited from technology demand. That is why the Perfect Stock Portfolio owns businesses across Indonesia, the Philippines, Hong Kong, China, Japan, and Singapore. PT Bank Negara Indonesia (PTBRY) offers exposure to a growing banking system at a low valuation and a substantial dividend yield. Megaworld (MGAWY) provides exposure to Philippine property at a deep discount to tangible book value.

Autohome (ATHM), Anhui Conch Cement (AHCHY), Yue Yuen Industrial (YUEIY), and Sun Hung Kai Properties (SUHJY) are all examples of businesses where the market has priced in a great deal of disappointment. We should respect the risks. We should also recognize that assets purchased cheaply can generate very attractive returns when expectations simply become less negative. That remains the foundation of our approach to international investing.

North America: Excellent Businesses, Demanding Valuations North America remains the global leader in innovation, capital formation, and corporate profitability. The U.S. economy has held up better than many investors expected, but it is no longer an economy without trade-offs. Employment was little changed in September, and unemployment held at 4.2%, suggesting a labor market that has cooled but has not broken.

The issue for the United States is not a shortage of excellent businesses. It is the price investors are being asked to pay for many of them. The largest technology and AI-related companies have become an enormous part of broad market indexes. Their businesses may remain exceptional, but high prices leave little room for execution mistakes, slower growth, or a sustained period of higher bond yields.

That is an important distinction. A great business is not automatically a great investment at any price. Trade policy remains a material risk. Tariffs can encourage investment in domestic manufacturing and provide leverage in negotiations, but they also raise costs for manufacturers, retailers, and consumers.

They make it more difficult for businesses to plan inventory, contracts, and capital investment. Recent Federal Reserve reports have repeatedly noted that firms are dealing with higher energy costs, tariffs, and pressure to pass costs through to customers. Canada remains sensitive to U.S. trade, commodity prices, and housing, although its energy, critical-mineral, and financial assets remain strategically valuable.

Mexico continues to benefit from nearshoring and North American manufacturing integration, but it remains exposed to the course of U.S. trade policy. The opportunity for us is to identify businesses that can withstand these pressures without sacrificing financial strength or long-term earning power. Energy and Shipping: The Global Wild Card The Middle East conflict remains the wild card in every region.

It affects oil, refined products, natural gas, fertilizer, shipping, insurance, and supply chains. Europe and Asia have the greatest direct vulnerability because of energy imports, but North America is not isolated from global pricing. Higher fuel and shipping costs can keep inflation elevated and make it harder for central banks to reduce rates. That creates a difficult environment for businesses dependent on inexpensive energy, predictable shipping routes, and low financing costs.

It also creates opportunities for companies that own valuable transportation assets, energy infrastructure, and essential resources. This is one reason the portfolio’s shipping, tanker, energy, and resource exposure is valuable. A.P. Moller-Maersk (AMKBY), Danaos (DAC), Scorpio Tankers (STNG), Genco Shipping & Trading (GNK), and K+S (KPLUY) are not risk-free businesses.

These industries are cyclical. Freight rates, commodity prices, and industry profitability can change rapidly when supply and demand conditions shift. We should never confuse favorable current conditions with permanent economics. What these companies do provide is exposure to hard assets and essential transportation or agricultural inputs during a period when logistics and energy security have become more valuable.

That exposure complements our investments in banks, insurers, real estate, industrial companies, and consumer businesses. It also reinforces why we continue to favor tangible assets, reasonable leverage, and businesses capable of generating cash under less-than-perfect economic conditions. Final Thoughts: Discipline Is Our Advantage The Perfect Stock Portfolio is positioned for a world where global growth remains uneven, interest rates remain higher than investors expected, and policy uncertainty does not disappear overnight. We have exposure to companies with low debt, asset values, dividends, and cash flow.

We have exposure to Japan’s corporate reform, Southeast Asian growth, European and UK valuation discounts, shipping assets, real estate, banks, insurers, and defensive businesses. There are risks in every one of those areas. Higher interest rates can pressure real estate values and refinancing costs. Tariffs can weaken margins.

Energy shocks can hurt consumers and manufacturers. Currency movements can reduce the value of overseas earnings. Shipping markets can reverse, and companies trading below book value can remain inexpensive for long periods. Those are not reasons to abandon the strategy.

They are reasons to remain disciplined about what we buy and what we pay. We do not need every economy to accelerate, every