Argosy Investors Q1 2026 Letter: Navigating Market Currents with a Steadfast Long-Term Compass

Dear Valued Investors,

As we reflect on the first quarter of 2026, it's plain to see that it presented a rather formidable landscape for investors. You know, it's not exactly thrilling to report a negative return, but we at Argosy Investors are genuinely pleased to share that the fund delivered a net return of -1.0% for the quarter. While any decline isn't what we aim for, this performance significantly outpaced the broader market, which saw the S&P 500 drop by -2.0% and the Russell 2000 fall by a more substantial -4.0%. Frankly, outperforming in a down market isn't as headline-grabbing as delivering robust positive returns, but it speaks volumes about the resilience of our strategy and the quality of the businesses we're invested in.

Speaking of market dynamics, Q1 was undeniably tough across the board. From the sprawling giants of the S&P 500 to the nimble, smaller companies represented by the Russell 2000, indices saw declines. There’s been a lot of talk, and rightly so, about the concentrated strength of a few 'Magnificent Seven' stocks over recent years. While they’ve certainly driven index performance, this concentration also creates a particular kind of risk for passive index investors, exposing them disproportionately to the fortunes of a very select group. Our approach, by contrast, is far more about individual business quality than riding broad market waves or relying on what some call the 'Fed put.'

So, how did we manage to navigate these choppy waters with relative grace? It really boils down to our steadfast commitment to our investment philosophy: identifying and investing in high-quality, growing businesses at what we believe are reasonable prices. We're not chasing fleeting trends or speculating on unproven technologies. Instead, we're diligently focusing on companies with strong fundamentals, proven cash flow generation, and durable competitive advantages that we understand well – businesses firmly within our 'circle of competence,' as we like to say. This discipline, quarter after quarter, allows us to weather storms better than many.

Let's talk about some specific names that exemplify this philosophy. One significant contributor to our performance this quarter, and frankly, a core holding we have immense conviction in, is Alphabet (GOOG, GOOGL). Think about it: its sheer dominance in search, the growing might of Google Cloud, and the incredible reach of YouTube. These aren't just market leaders; they are cash flow machines that continue to innovate. We've been particularly impressed with their advancements in AI, especially with Gemini, which we believe will further cement their competitive moat. Add to that their proactive approach to shareholder returns through robust buybacks, and you have a company that, in our view, remains significantly undervalued for its quality and growth prospects. It’s exactly the kind of high-quality, high-growth business we love to own for the long haul.

Moving on to a different, yet equally compelling situation, let's discuss Stanley Black & Decker (SWK). Now, we acknowledge the road here hasn't always been smooth. This is a business that, over the past few years, has certainly faced its share of headwinds – think inventory issues, inflationary pressures, and some digestion from past acquisitions. We view SWK as a 'work-in-progress,' a situation where the underlying assets are incredibly valuable, but the operational execution needed a clear-eyed overhaul. What really excites us is the diligent work management has undertaken to right the ship. They’ve been relentlessly focused on improving free cash flow, aggressively paying down debt, and enhancing return on capital. It’s a classic turnaround story, one where we believe the market is still overlooking the immense value inherent in their iconic brands and their market-leading positions in tools and storage.

Looking ahead, our focus remains squarely on fundamental value. We sense a subtle but important shift in the market, one where investors are increasingly distinguishing between businesses that genuinely generate cash flow and those that rely more on narrative or speculative growth. We are certainly not chasing 'glamour stocks' for the sake of it. Our commitment is to seek out businesses with enduring competitive advantages, robust cash flows, and management teams dedicated to creating long-term shareholder value. We believe this disciplined, patient approach will continue to serve our investors well, regardless of the short-term market noise.

In closing, we want to express our sincere gratitude for your continued trust and partnership. We understand that investing is a marathon, not a sprint, and we are committed to applying our thoughtful, long-term strategy to help your capital grow. We're excited about the opportunities ahead and look forward to sharing more in our next letter.

Sincerely,

The Argosy Investors Team