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Hi, sleep well owners,
I am very excited for this month’s Best Buys. This is the first time since last April that we have seen a broad, indiscriminate market sell-off in our global quality businesses. Last time was due to Trump’s tariffs; this time, it’s the risks AI may pose to software companies. Many call it the ‘SaaS’magedon. I briefly discussed which software companies are most likely to be disrupted during the January SW Portfolio review.
Nevertheless, stock decline in popular names can be unsettling.
Fico (FICO) is 30% off high,
Salesforce (CRM) is 43%
Intuit (INTU) is 46%
Service Now (NOW) is 53%
Axon Enterprise (AXON) is 54%
Constellation Software (CSU.TO) and the many vertical software serial acquirers are >50% off high
Even Netflix (NFLX) and Microsoft (MSFT) are at 38% and 28%, respectively.
If you are playing the short game, it must be painful. Here, SWI is calm. I see an opportunity to assess which sleep well picks are truly enduring in an AI-first world.
No doubt, AI is disruptive to incumbents. It helps build software much faster and at a lower cost, lowering barriers to entry. However, that’s only 1% of building enterprise software.
The other 99% is scaling, maintaining, iterating, and adding features. These tasks are a whole different ball game. That 99% of the work also requires years of proprietary data, changes to workflows, and an internal team for maintenance, compliance, and audit trails.
Just imagine building another Veeva Systems, which Salesforce has been trying to do for years with IQVIA (a leader in life science data) and has yet to patch up a competing product.
In addition to the points above, you would be closely monitored by regulators for handling sensitive, non-standardized health data. This leads to limited interoperability and poor data quality, which means incorrect or harmful clinical decisions by AI.
In the January portfolio review, I also alluded to the high cost and complexity of switching away from (and/or migrating to) an entrenched cloud solution as an additional layer of protection for some of our picks. For context, Gartner reports 55% of companies encounter data quality issues in system moves.
As such, the first Buy Buy this month is Veeva Systems (VEEV), the 10th SW pick. We have four others. Let’s find out the rest after a brief introduction about the Best Buys series.
Every month, Best Buys highlight which of my 23 sleep well picks I consider worth adding or trimming. It complements my quarterly thesis-tracking updates, in which I essentially ask, “Is the thesis intact?” for each company.
I also discuss my growing research list of ~40 businesses. In this series, I want to discuss Axon Enterprise (AXON) and General Electric (GE), both leaders in their own industries, and today, I am comfortable sharing my first notes.
Previously, I discussed Rubrik, FILA, and a leader in Food Safety (a direct competitor to SPS Commerce). Particularly, the decision to avoid Rubrik last October when we saw a host of bullish theses about it is very interesting to read again. The stock is now tracking a 50% decline from peak, far steeper than peers (CRWD, FTNT, PANW).
Best Buys for Jan 2026
Life science leader - 5.2% free cash flow yield with a decade of 15% growth
Public Safety SaaS leader - 5% yield with at least 20% 3-year forward growth guided
Commerce Infrastructure in South East Asia - 7% yield with a decade of 20% growth
Global logistics SaaS leader - 3% yield with a decade of growth runway
Robotic-assisted surgery leader - 1.5% yield with a decade of guaranteed revenue and many decades of 10% growth
Trimming candidate - none
Before we dive in, please be reminded that the average ‘investors’ holding period has shortened to just a few quarters, from 30 months in the 1990s. My holding period runs until 2037, when the portfolio passes to my daughters. As a result, my decisions are based solely on fundamental reasons.
The endgame of best buys
is to highlight high-quality, enduring businesses that trade at a slight premium to peers (they rarely trade cheaper, unfortunately).
My strategy -
Add to those with unique anti-fragility for specific events.
Balance the portfolio with businesses at different life stages.
Add to the winners who experience short-term setbacks.
For example, I have
17% of the portfolio that performs well in ‘security crisis’ [CrowdStrike, Fortinet, and Cellebrite], 27% does well in global logistic complexity [Wisetech, SPS Commerce, and Grab], 7% to buffer the portfolio if we have another health crisis - [Veeva Systems], 32% to navigate the digitalized world [Sea Limited and Mecardo Libre].
30% of the portfolio is in a more mature stage of its life cycle, 6/13 are US domiciled, and 12/13 have a net cash balance sheet (average of 6% of market cap).
The list is not based on the positive/negative newsflow for the following quarters. It is also not deliberately trying to be ‘active / beat’ the market; if it does, that’s the icing on the cake. It’s more about building knowledge and positioning in businesses that I think will yield stable and growing returns on capital through 2037.
Hence, best-buy lists are personal; to apply them according to your needs, I encourage you to review the deep dives and updates before taking action.
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