First Half 2026 Letter to Investors

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Dear GreenWood Investor:

A Flat Start 

“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.” -John Kenneth Galbraith 

Our accounts and fund had a generally flat first half performance, with accounts down 3.6% vs. +11.7% for the MSCI ACWI index. This comes after a torrid pace of more than 100% net returns for our funds and accounts in less than 3 years. To maintain this medium-term pace, the mediocre short-term performance was an unintended side-effect of the new journeys that we’ve rotated into, the new portfolio returns we’ve underwritten, and the new board missions that we’ve signed up for. While our sense of urgency is high to deliver robust performance, we are defiantly staying away from the AI hype-cycle that continues to dominate overall market performance. 

As heavy AI users ourselves, we believe we understand the opportunities within the sector quite well. In fact, in the first half of the year, we’ve trained some AI agents to help us dramatically widen the number of opportunities we are able to look at. With years of search work now getting compressed into weeks, we are optimistic about the value of the services and capabilities of artificial intelligence. 

However, we believe the demand growth in compute capacity cannot sustain the supply-side growth expectations. The investment cycle is far outpacing, both in speed and magnitude, any previous technology cycle. In many cases it is getting funded with significant doses of leverage. Those investment cycles cannot continue forever, and while we’re staying away from shorting anything in the space, we don’t believe it is an attractive time to commit capital to this late stage bull cycle. 

We have rarely been more active in seeing tremendous opportunities, with fairly material and extreme dislocations in valuations, behavioral dynamics, and real-time tests for business quality. This environment favors our constructivist investment approach, as assertive owner-oriented boards typically create the most value when underlying dynamics are in accelerated change. 

Catching Up 

“The impediment to action advances action. What stands in the way becomes the way.” -Marcus Aurelius

When we hosted our first investor day in 2019, we articulated our long-term mission: to generate a minimum of 100x returns. We figured that meant we’d need to double our investors’ capital every 6-7 years. Of course, global value has been largely moribund since we put that target out — and despite that, we refused to change our stripes. 

Over the past three years, performance has caught up, as we’ve been able to double client portfolios in half the time. But that doesn’t mean we want a dead three to four years coming up. In fact, we aim for the opposite. We aspire to double again in the next few years. 

For that to happen, we needed to underwrite new missions, find new catalysts, and engage in fresh transformations. While there is some newness to the portfolio, this certainly doesn’t mean we created a whole new portfolio. In fact, in the first half of the year, we even brought back an old investment that we had sold down in prior years. 

When portfolio constituents returns have materially outgrown their future earnings returns, we do believe some recycling of capital to more opportunistic areas is necessary to plant the seeds of future return growth. No matter how bullish we were on Leonardo, the next three years were never going to replicate the 9x returns we realized over the prior three years. The company had reached “Compounder” status and its relative attractiveness was falling within our Ranking Framework — even as we had significant conviction in the long-tail of European defense spending. 

We are on an ever revolving treadmill of allocating capital to its highest and best use, just like our company managers. We learned a core lesson from Julian Robertson on sell discipline, in that there are no “holds.” Every day we must decide if a portfolio company is worth adding to at the current price, because if it isn’t, then we should redeploy into something that deserves incremental capital. 

We are never short on ideas, but it is often painstaking to find the confluence of factors that derive a great investment setup: heads we win, tails we don’t lose much. Finding these setups leads us to our most interesting new journeys. Thankfully, we believe we have found new investments that are more than capable of replicating the Leonardo performance from the past few years. The latest SPV rhymes well with the Leonardo journey, but we’re still not in a place to publicly discuss it, as we’re actively building that position. 

We have recently allocated to other names that we’re very happy to discuss here — and share with you why we’re well prepared to continue the “catch-up” that started a few years ago. And the first place we’d like to start is indeed a journey that has paid off decently well, but is more opportunistic today than it has ever been. 

Unlock, Recycle

“Time is the friend of the wonderful business.” — Nick Sleep

Our interest in CTT started by being highly attracted to the value unlock and simplification that a bank sale or spin-off would bring. Unfortunately, European interest rates going negative for a prolonged period delayed that catalyst. While patiently waiting for that environment to change, there was ample work to do in creating an e-commerce flywheel off the back of CTT’s low-cost and ultra-dense mail network. 

With a mixed collection of assets, and a couple well-priced acquisitions, the company has been able to rebuild earnings beyond historical highs — driven nearly entirely by the secular growth in e-commerce. While the board and executives were busy focusing on that flywheel, which we consider to be very much in tact today (despite regulatory volatility), the European banking market quietly entered a bull market. Valuations have returned to pre-GFC (Global Financial Crisis) levels, making it a highly opportunistic market for the company to discuss strategic alternatives. 

Exhibit 1: Iberian Bank Valuations  

Data Source: CapIQ

While e-commerce is experiencing some volatility in the wake of regulatory changes (removal of deminimis tax) in Europe, the company continues to expect to grow through the most unprecedented change in e-commerce for the continent since it all started. 

We believe that the e-commerce business will become more and more attractive over the coming quarters, as it grows through this volatility, introduces new e-commerce services, and keeps reinforcing its competitive advantage vs. peers. Meanwhile, shares remain historically very cheap, and the company has been actively shrinking the share count, with buybacks as high as 1% of shares outstanding in just a few weeks. 

That’s exactly why despite some e-commerce volatility, we think the company is more attractive today than ever: because the accretion factor when considering a partial or full monetization of the bank is transformational. We don’t know yet what valuation multiples are available for BancoCTT, but we do know that if it can catch anything remotely close to Iberian peers, and that capital is redeployed into logistics assets or company shares at similar valuation levels to today, this next year will break another record for being the most transformational one in CTT’s 506-year history.

Exhibit 2: EPS Accretion Factor for CTT Capital Redeploy of Half of Bank

It is an honor to be able to be a continued part of this ongoing transformation. 

Unboxing Transformation 

“We take the hamburger business more seriously than anyone else.” — Ray Kroc

As investors, you will know, we’ve long been believers in the value of “skin in the game” in helping influence the governance and strategy of our companies. And yet, that doesn’t always have to be one of us. A key initiative for us has been to find new partnerships with active owners that can bring the same sense of urgency, accountability and hunger for performance that we could bring. 

That urgency was on full display at Jack in the Box, as the board voted in May to install Mark King as interim CEO at Jack in the Box. As you may recall, Mark and his colleague Alan Smolinisky joined the JACK board last fall in a friendly settlement with the company. While we greatly appreciate former CEO Lance Tucker taking important steps to strengthen the company’s balance sheet, we are re-assured that a seasoned restaurant leader is at the helm to drive the company to do “whatever it takes” to get same-store-sales (comps) back in the black. 

To that end, Mark is continuing the progress Lance was making in getting comps back to above breakeven, with a strong May and resilient results thus far in July. These results are before the impact a die hard operator will have, for  while at Taco Bell, Mark lived the brand so deeply that he shaved the logo into his hair. 

Exhibit 3: Jack in the Box Same Store Sales (Alternative Data)  

Data source: M Science 

There are plenty of reasons we can point to as to why JACK sports a staggering 35% of shares outstanding short, but it is surprising to us that it has continued to increase considering a major overhang was removed in the first half. In early June, the company confirmed it had completed the refinancing for all near-term maturities, thus giving the company breathing room through 2029 for which to execute its operational-led turnaround. 

Given our strong belief in Mark’s ability to build and lead an executive team, and Alan as lead director in the board room, we are excited to watch proper governance unlock major upside leverage to positive same-store-sales and further cost-out initiatives which will drive re-investment in the brand. 

We used weakness in the first half of this year to materially add to our position in Jack in the Box, and are excited about the company’s primary focus transforming from over a decade of financial engineering back to surprising and delighting customers. If transformations at Arby’s, Chili’s and Burger King have been able to deliver staggering resurgences in their customer appeal, we can only imagine what happens when a brand that has the right to push the innovation envelope and a historic 75-year legacy get its mojo back.

Swiss Governance On Trial 

“Power tends to corrupt, and absolute power corrupts absolutely.” — Lord Acton

While we believe in family and owner-controlled firms so much that we spent years of our free-time authoring a white paper on the behaviors and fundamentals of this class of securities— as asset managers we firmly believe in accountability. Our entire lives revolve around staying accountable to performance. 

While constant accountability is demanding, we wouldn’t have it any other way. We learned this lesson the hard way when we invested in Sprint. While the outcome ended up highly profitable, thanks to the SoftBank take-out, the experience taught us about the importance of firm cultures and the role it plays in determining outcomes. The zoned out “work-life balance” culture of Overland Park really couldn’t compete with the New-York-based culture of Verizon.  

This is the same context of our efforts to improve the governance at The Swatch Group. We were truly humbled this year to have received 71% more votes than the prior year — with an increased bearer shareholder turnout, and a robust 80% support for us being the representative of this share class on the board. 

The company’s own nominee failed to win support of this share class, in a sign that shareholders want better accountability. That accountability can’t be self-directed by a board that has answered only to one shareholder group. Instead of allowing us to participate in that accountability mission, the Board instead plucked a non-nominated director to serve as the class representative. 

The company and its counsel are always tongue-tied when asked legally how it believes it can keep us off the Board. It used to be the directorship at Leonardo, but now with that no longer being a factor, it’s truly at a loss. In Swiss courts, we have three ongoing actions against this demonstration of a cavalier disregard not just for shareholders, but for accountability. We can hardly wait for our next day in court, as we believe our chances of holding an unaccountable Board answerable to shareholders are very good. 

As our last six years have shown, small changes in governance can have dramatic impacts in board rooms that have not had the sense of urgency, drive and accountability to results. Any progress we can achieve at Swatch couldn’t come at a better time. 

Exhibit 4: Swiss Watch Fundamentals   

Data Sources: Swiss Watch Federation, watchcharts.com  

Residual values of secondary watches have been improving for over a year, which is a forward-indicator for future demand. Although China’s recovery has taken longer than luxury bulls wanted, watch demand has been stable in the Middle Kingdom. As such, the industry’s secular growth drivers were able to overcome a major geopolitical event in one of its most important markets, and US-dollar based sales continue to compound in double-digit ranges. 

With Gen Z 2-4x more likely to buy a traditional watch than other generations, and this demographic coming into higher earnings power, we like the secular and cyclical demand levers for Swiss watches.

With improving fundamentals, rock bottom margins that have a high sensitivity to incremental revenue growth, coupled with a very high short interest (at times, the most shorted in Europe) and conviction that the governance of the company — long the weakest part of the Swatch Group investment case — will evolve, we are encouraged by the impact that we can have in the coming months on top of the solidly improving industry dynamics. 

Many More Shots on Goal 

“The best way to have a good idea is to have a lot of ideas.” — Linus Pauling

Not all of these transformations need to hit for us to replicate the satisfactory performance from the past few years. But one thing we felt conviction about — we needed to underwrite new journeys, new catalysts and new transformations if we had hopes of continuing the higher pace of performance we have come to expect of ourselves. 

We have more shots on goal with the rest of the portfolio, and have been active at re-allocating to existing and new positions where we believe the market is under-weighting the timing and magnitude of the ongoing transformations.

Whether it be Genus with its PRP gene-edit game-changer, NexGen Energy with its industry-changing uranium mine now federally approved and under construction, Rentokil with its customer service overhaul in the US, or our most recent coinvestment, all of these positions have conservative balance sheets, but extremely high upside leverage to their ongoing initiatives to improve the quality, mix and drivers of their businesses. We are not just honored to be able to play a role in many of these, but we go forward with much enthusiasm for the possibility embedded in our portfolio. 

We are grateful for the opportunity to build your capital alongside ours.  

Onward,  

Steven Wood & Chris Torino

Disclaimer:

This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

Past performance is no guarantee of future results.