The More Things Change, The More They Stay the Same

Sometimes, we sound like a broken record.

In our last several letters, we highlighted relevant economic and market statistics, in part because we thought such abnormal data points were unlikely to persist.

Last July,(1) we lamented stubbornly high inflation and its role in shaping future monetary policy decisions:

Inflation, although tempering, has remained persistently high, forcing the [Federal Open Market Committee] to maintain the federal funds rate (which serves as a basis for many other short-term lending rates) at current levels. Recent inflationary trends are both complex and perplexing, and we do not purport to entirely understand all the drivers of inflation…we expect easing inflation to lead to a lower interest rate environment; the timing and implications of this are all but certain.

At the time, the Consumer Price Index for All Urban Consumers (“CPI”) had risen 3.3% for the 12 months ending May 2024, and excluding food and energy (“Core CPI”), the index rose 3.4% over the same period. Today, the most recent measurement of inflation reveals that CPI rose 2.9% for the 12 months ending August 2025, and Core CPI advanced 2.7%.(2) As a reminder, the Federal Open Market Committee (“FOMC”) targets annual inflation of 2.0%.

In January,(3) we flagged the cyclically adjusted price-to-earnings ratio (“CAPE” ratio), musing about the emerging risks from broad-based equity valuations that we viewed as stretched:

During the trailing 10-, 20-, and 30-year periods, the CAPE ratio has averaged 30.4, 26.7, and 28.0, respectively. As of November 2024, it was 37.4 While this is not a screaming indicator of overpriced markets, the elevated current measurement relative to historical averages represents heightened risk of a broad market correction, in our opinion.

Today, the CAPE ratio stands at 39.5 the highest such value since September 2000, when the dot-com bubble was in the process of bursting. While the January 2025 reading was “not a screaming indicator of overpriced markets,” the September 2025 value suggests far less ambiguity that irrational exuberance appears to have gripped capital markets.

By April,(4) we turned our attention to the rapidly developing topic of trade policy:

Looking ahead, these trade policy developments introduce significant uncertainty to economic forecasts. The Federal Reserve Open Market Committee, which had been expected to begin lowering interest rates later this year, now faces a more complex environment with the potential for tariff-induced inflation occurring simultaneously with slowing economic growth.

While some progress has been made in striking bilateral trade agreements (or at least agreeing on the framework for such agreements), recent political rhetoric has reminded capital market participants that trade policy remains anything but predictable.

For the time that has passed, and the attention these topics attracted, little has changed. However, there are some bright spots amongst an otherwise bleak economic backdrop: at its meeting concluded September 17, 2025, the FOMC lowered the target range for the federal funds rate by 0.25%, to a range of 4.00% to 4.25%, and looks poised to continue easing monetary policy to preempt a possible slowdown. In its written statement following the meeting, the FOMC argued:

Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated…The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment have risen…The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.(5)

In summary, inflation that has consistently clocked in above the FOMC’s long-term target suggests that interest rates will remain elevated for the foreseeable future; that is, we don’t believe aggressive interest rate cuts are imminent, and we expect the FOMC to toe a fine line between forestalling a recession and taming inflation by gradually lowering rates in a measured way. The direction of trade policy, and the eventual ramifications of an emerging tariff regime, are largely unclear; similarly, significant uncertainty has emerged around fiscal policy as the recent government shutdown highlights the far-reaching economic consequences of diminished government spending.

Equity markets are increasingly characterized by euphoric activity that, in our view, is becoming more and more disconnected from sound financial analysis (and economic reality). Anecdotally, this seems to be driven by excitement around investments in artificial intelligence. While we recognize the enormous potential of this technology, we are skeptical of projections of its contributions to economic productivity, and downright dismissive of the moonshot valuations ascribed to companies involved in its development. Debt markets demonstrate similarly puzzling behavior, as participants seem to have an insatiable appetite to lend; corporate bonds that provide an attractive return profile while offering fundamentally sound underlying financial characteristics are few and far between.

Our current asset allocation across client portfolios reflects our assessment of heightened economic and market risks. Over the past year, we consistently noted high cash levels in client portfolios and explained this as a consequence of implementing our disciplined process: we aspire to buy low and sell high. As professional investors, our discipline rejects chasing fads or intellectually rationalizing risky investment decisions out of fear of missing out on returns. As market cycles mature, we are content to forego marginal investment returns to protect against mounting downside risk.

During a recent episode of the podcast Value Investing with Legends, host Michael Mauboussin offered the following: “Value investing is hard. You have to be able to do quality analysis to identify gaps between price and value, you may need to agitate executives to better manage the business, and contrary views can also lead to controversy.”(6) We couldn’t agree more.

Price discipline is among the most critical aspects of our investment process. As we noted in our most recent quarterly letter, “We let the markets tell us when to be in and when to be out.”(7) When the price of a stock or bond reaches our valuation target, we make the disciplined decision to sell, even if the underlying business is working well and senior management is capable. A long-serving maritime shipping executive once quipped to us, “You never name a ship after your kids, because when someone offers the right price for it, you must sell it immediately without emotional attachment.” The same goes for owning shares of a publicly listed company. We have recently sold multiple positions that reached our appraisal of fair value.

During the third quarter, we exited an equity investment in Allient Inc. (ALNT). This is the fourth time we have invested in ALNT since 2012; in each instance, we purchased shares trading at a significant discount to our appraised value due to negative investor sentiment, then sold shares at or above our appraised value on the back of investor enthusiasm. Chart 1 shows the variability in ALNT’s price over the past 13 years. While the business has demonstrated remarkable financial strength over that period, reoccurring bouts of negative investor sentiment caused several rapid price declines. This short-term mispricing (which we believe is largely reflective of short-term investment horizons) and presented opportunities for informed investors (many, like us, with long-term investment horizons) to purchase shares of an attractive business at a compelling valuation.

Chart 1: Allient Inc. stock price, August 2, 2012 to September 15, 2025.

From time to time, we become actively engaged in the corporate governance of a portfolio company. This was the case with Climb Global Solutions, Inc. (CLMB), formerly Wayside Technology Group, Inc. We first invested in CLMB in 2012, and after a period of stagnant financial performance, concluded that change was needed at the highest level to develop and implement an effective corporate strategy. In February 2018, GVIC founder and board chairman Jeff Geygan was appointed to CLMB’s board. From 2018 to 2025, he drove significant improvements, including recruiting new directors with deep industry experience, hiring new executives, and instilling a shareholder-friendly mindset across the company. These changes resulted in CLMB’s first acquisition in more than 15 years and a subsequent series of acquisitions that drove significant value creation for shareholders. We exited the position earlier this year when it reached our appraisal of fair value.

On August 4, Steelcase, Inc. announced an agreement to be acquired by HNI Corporation for approximately $2.2 billion in total consideration, a transaction which is expected to close by the end of 2025. The price of the Steelcase 5.125% notes, due January 18, 2029, which we own in client portfolios, rallied on the news.

Finally, on October 6, Heidrick & Struggles, Inc. (HSII) announced an agreement to be acquired by a private consortium for approximately $1.3 billion, or $59.00 per share. The transaction price reinforces our long-held appraisal of HSII’s value. We first invested in HSII in May 2020 and have consistently valued the business at a level above that implied by the trading price of its stock. We frequently observe that our appraisal of value is disconnected from market pricing until a catalytic event closes that gap (often quickly). Our investment in HSII once again reinforces the validity of this observation. The transaction is expected to close in the first quarter of 2026.

While we have been net sellers of late, we continue to relentlessly review new investment ideas to identify opportunities to purchase securities at significant discounts to our appraised value. Regardless of prevailing broad market sentiment, we maintain our price discipline, grounding our decisions in thorough analysis and fact-based thinking while remaining mindful of risk, and recognizing that the capital we invest on behalf of our clients often represents a lifetime of hard work.

We recently completed Common Stocks and Uncommon Profits by Philip Fisher. Mr. Fisher was a respected investor widely known for the “scuttlebutt” method, which calls for a relentless gathering of qualitative data around a company in which one is contemplating investment. His investment philosophy – and investment returns – were renowned, even attracting the praise of Warren Buffett at the 2018 annual meeting of Berkshire Hathaway. We find the following passage particularly relevant today.

There are fads and styles in the stock market …These investment fads and misinterpretations of fact may run for several months or several years. In the long run, however, realities not only terminate them, but frequently, for a time cause the affected stocks to go too far in the opposite direction. The ability to see through some majority opinions to find what facts are really there is a trait that can bring rich rewards in the field of common stocks.

While his text is nearly 75 years old, capital markets still seem to suffer from the fads and misinterpretations Mr. Fisher advised to guard against. We wholeheartedly agree that investors often misappraise companies or entire industries for what turn out to be temporary and emotionally driven reasons, and groupthink can be extremely strong. Successful investors must instead steel themselves against rash judgement and engage in critical analysis to arrive at sound conclusions.

The firm celebrated its 18th anniversary on August 12, 2025. We extend a sincere thank you to all of our clients for your continuing trust in Global Value Investment Corporation. As we have shared in the past, we have a 100-year vision for the firm.We look forward to continuing to work with our current clients and future generations alike.

Kathy Geygan and Tom Molosky celebrated their 17th and 11th anniversaries, respectively, with the firm this quarter. Each has played an integral role in helping drive the continuous improvement of our public relations and advisory processes. Please join us in congratulating Kathy and Tom!

Finally, we are excited to continue expanding our client base through a combination of referrals from existing clients and outreach efforts. We are in the process of onboarding an institutional client based in Atlanta, GA, and we look forward to growing with them for many years to come.

If your investment objectives or financial situation have changed, please let us know. We’re happy to discuss your investment objectives and planning for both current financial needs and long-term goals.

As always, we are deeply grateful for your ongoing trust and confidence.

Your Investment Research and Advisory Team
Global Value Investment Corporation