Adding a new Gem & 2 Things I learned this week - 8 Feb 2026
Lessons from Howard Marks and the big software sell-off
Welcome back!
It was a wild week for the stock markets (not to mention the bloodbath in crypto…)
Alphabet’s earnings were stellar, PayPal’s earnings were dismal (CEO out) and Constellation Software got caught up in the SaaS-meltdown driven by the “AI will kill all software”-narrative (which I’m not 100% buying).
New Gem 💎
Uber was one of the many companies reporting earnings this week, and while a modest EPS miss caused market disappointment, the overall results were strong.
The recent pullback and further drop after earnings were a perfect opportunity to add an impressive business with attractive growth profile and significant cash flow to the portfolio.
I wrote about Uber in my 2026 watchlist post and I’m preparing a deep-dive on Bill Ackman where I will cover the stock in more detail.
For today, I’m sharing 2 interesting insights I came across this week. Here is the 2 minute version if you’re short on time:
New to Guru Gems? Start here.
1️⃣ Howard Marks: “I’ve been risk averse all my life”
Howard Marks is co-founder and co-chair of Oaktree Capital Management. He is famous for his legendary memos on markets, contrarian thinking, and risk management.
A few months ago, I shared my 5 key takeaways from Marks’ investing classic ‘The Most Important Thing’.
Marks was recently invited by Pepperdine University for a fireside chat with Pepperdine’s CIO Jeffrey Rohde.
The interview is packed with investing wisdom, and I'll highlight a few takeaways that stood out to me.
Learning from disaster: The Nifty Fifty bubble
Marks started his career in September 1969, a time when the so-called Nifty Fifty (50 popular growth stocks) became more and more poplar until they reached astronomical valuations.
“If you bought the Nifty Fifty stocks the day I got to work in September of ‘69 and if you held them loyally and faithfully, within five years you lost 95% of your money.”
This experience scarred him early and taught him a fundamental lesson: It’s not what you buy, it’s what you pay.
“Good investing is not just a function of buying good things, but of buying things well.
When he got the chance to move into high-yield bonds in 1978, he embraced an asset class that almost everyone else despised:
“There is no such thing as a bargained-priced asset that everybody loves—that’s an oxymoron. But if they say ‘I hate it,’ [...], sounds good to me. That was my process.”
But Marks admits that this early scarring made him overly conservative:
“I’ve been risk averse all my life. And given that, from 1980 when the inflation was solved, essentially to date, generally speaking, the more optimistic you were, the more money you made. So that was the downside of that.”
Volatility is not risk
When asked how risky an investment is based on its volatility, Marks calls it “a softball question” and explains one of his most important concepts:
“Risk is the probability of an undesirable outcome. It is not the volatility of the asset. Buffett said he would rather have a lumpy 15 than a smooth 12. And if you can survive long enough to enjoy the long-term benefit of the lumpy 15, it beats the hell out of the smooth 12. But you have to survive.”
This distinction is crucial. Many investors confuse volatility (price fluctuations) with risk (permanent loss of capital). A volatile but fundamentally sound investment that returns 15% annually is superior to a smooth but lower-returning investment at 12%.
Current Market Cycle and the Mag7
When asked where we are today in the market cycle, Marks says it is helpful to look at intrinsic value, which grows steadily, and compare it to asset prices, which can fluctuate wildly due to psychology.
In the real world things fluctuate between ‘pretty good’ and ‘not so hot’, but in the mind of investors they go from ‘flawless’ to ‘hopeless’, and so prices fluctuate enormously around the intrinsic value.
He believes that asset prices are currently above intrinsic value, indicating a precarious market that requires an "intelligently prudent" approach.
Asked about the valuation of the Magnificent Seven stocks (now representing close to 40% of the S&P 500), Marks believes the high valuations are somewhat justified given these are “some of the greatest companies I’ve ever seen”.
He drew a comparison to the Nifty Fifty:
“The Nifty Fifty were selling at multiples between 60 and 90 as I recall. So 30 looks like a bargain to me for a truly great company. And I think they’re probably okay.”
But he points out that the problem isn’t necessarily with the Magnificent Seven, it’s with everyone else:
“What I’m a little more troubled about [are] the other 493 companies in the S&P 500 because they’re selling on average at I think 18 or 19 times earnings. Why should the other 493 be selling at a higher multiple than the average historical multiple of the S&P 500 [which is around 16]?”
The interview is well worth watching in full as Marks also discusses Bitcoin, gold, commodities, what he reads daily, and his philosophy on giving back.
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In my latest deep-dive I covered Dev Kantesaria, one of the great quality investors, who runs a very concentrated portfolio with FICO as his largest position.
2️⃣ Software businesses are radioactive
My second learning of the week comes from Giverny Capital Asset Management’s Q4 Letter
A few weeks ago, I wrote about my favorite investor letters and why François Rochon is my absolute favorite.
While I’m still patiently waiting for Rochon to publish his 2025 letter, David Poppe, who runs the US Giverny Capital Asset Management fund (a partnership between Rochon’s Giverny Capital and David Poppe), has just released his Q4 letter.
AI, AI, AI
Like many other value investors, Poppe starts his letter by calling out the continued outperformance by a handful of technology giants relative to all other stocks.
Our companies are performing well in terms of earnings growth and capital returns, but the market is focused on AI players investing hundreds of billions of dollars without a clear sense of what the return on that investment will look like.
I am not smart enough to predict whether those returns will delight or disappoint, much less opine whether we’re in a bubble. But any student of economic history knows that the rapid construction of railroads in the second half of the 19th century and of communications infrastructure at the end of the 20th century did not end well for their investors. Those technologies changed the way Americans live, but the real winners were the users of the new infrastructure, not the builders of it.
For now, the opposite is true. The builders of AI infrastructure are the most valuable companies in the world.
Poppe then goes deeper into the overall performance of his fund, starting with the five most positive contributors in 2025.
Alphabet, the ultimate Guru Gem, was one of their best performing stocks in the portfolio and contributed most to the portfolio’s overall return.
Alphabet obviously benefits from AI enthusiasm, but its earnings also rose about 30% in 2025 and have compounded in the high teens since 2021. It has a portfolio of businesses that are performing well: Internet search and its Gemini AI model, YouTube, Waymo, Google Cloud and others. This is an exceptional collection of assets.
Radioactive software
The next section in the letter is reserved for the bottom 5 contributors.
One of them is Constellation Software, a stock I added to the Guru Gems portfolio in October and which is now my worst performer, as it is one of many software stocks being sold off due to fears of disruption by AI.
Here is what David Poppe wrote:
Constellation declined 22% for the year, even though I believe earnings will rise by nearly 20% for the full year. […] Software businesses are perceived as facing an existential threat from AI models that can write software faster than humans can. AI-written software cannot yet replace existing products, but the market is looking ahead and saying: that day is coming.
But Poppe argues that Constellation is a ‘particular flavor of software company’:
It owns hundreds of small firms that have created bespoke products that customers use to run their operations. Scores of golf courses around the country run on various permutations of Constellation products, as do public transit systems, truck fleets, food service operations, hospitals and medical offices, and many others. No one product or customer represents a hefty amount of revenue. Each customer tends to have a unique operating system, even when they are in a similar enterprise. The software is not necessarily complex, but it is specific to its user. Most users also depend on Constellation for support, as a golf course or city bus system typically lacks sophisticated tech resources in house.
His conclusion:
In sum, Constellation strikes me as one of the last places AI entrepreneurs will target. […] Constellation now trades at the cheapest price relative to earnings that I can recall. We’re very much living in a momentum-based market environment, but if Constellation’s earnings keep growing 15% to 20%, the stock price eventually will reflect that. For now, software businesses are radioactive.
The lesson here
This is a perfect example of how markets can overreact to threats and sell off an entire industry without too much nuance.
Constellation Software is currently down 35% in my Guru Gems portfolio. Not exactly a great feeling, but the market seems to be pricing in a worst-case scenario that I don’t believe will materialize.
As Poppe points out, Constellation’s highly specialized, bespoke software serving fragmented markets may actually be among the most defensible businesses against AI disruption.
The challenge, of course, is having the conviction to hold when everyone else is selling, especially when the stock has fallen 35% and the narrative is overwhelmingly negative.
But as we just learned from Howard Marks: “There is no such thing as a bargained-priced asset that everybody loves.”
Perhaps this is one of those moments when what everyone “hates” might actually sound pretty good…
That’s it for this week! Please like or share if you find these insights valuable.
You can follow me on X @guru_gems and Substack @gurugems for more insights.
Until next week!
