Byte # 43: The Case I Made Then – And How the Market Is Playing It Out
Dear readers,
This week’s market action offered a fresh reminder of why I built a core around midstream energy, preferred stocks, and a curated set of high‑quality growth names, instead of chasing whatever factor is hottest in the moment.
While indexes whipsaw on data and Fed chatter, my core holdings deliver lower volatility, steady income, and controlled upside amid stagflation risks.
For readers who want to revisit the original theses behind these positions, see Byte No. 25 and Byte No. 39 for preferred stock and energy portfolio frameworks.
In those issues, I laid out a simple structure:
Midstream companies (the “toll roads” of the energy world) earn primarily fee‑based cash flows tied to volumes, not commodity prices.
Preferreds sit above common equity in the capital structure and typically offer attractive yields relative to cash instruments, especially when purchased below par to reduce volatility.
Together, those sleeves provide a stabilizer against drawdowns in growth stocks, while still participating in upside through distributions and modest capital appreciation.
So far, the real-world test has been encouraging. The structure is delivering what it was designed to do: smaller pullbacks, reliable income, and more stable capital compared with the boom-bust swings often seen in glamour tech.
Stagflation Risk: Why These Buckets Still Matter
One macro scenario investors are watching closely is stagflation...typically characterized by slow growth and persistent inflation.
A rough rule of thumb:
GDP growth below ~2%
Core inflation above ~3%
In such environments, markets tend to reward assets with near-term cash generation and inflation resilience, including:
Real assets and infrastructure (pipelines, energy transport)
Contracted or regulated cash flows
Pay-now securities such as dividends and distributions
That’s exactly the role my midstream and preferred allocations are meant to play.
They’re not designed to be the stars of the show. They are meant to be the ballast that:
Holds up better on red days
Keeps income flowing when valuation multiples compress
Gives me psychological and financial room to lean into opportunities created by growth sell-offs
Value Surge: Recycling Capital into AI and Quality Growth
Recently, value and defensive sectors have outperformed AI and tech, with many previously unloved names rerating sharply as investors rotated toward inflation-resilient assets.
My rebalancing playbook in this environment is straightforward:
Trim where valuations are full (e.g., I recently took gains in Canadian Natural Resources (CNQ), the best-in-class energy name; plan to re-enter when price resets to fair value).
Note AI/growth's meaningful de-rating creates prime entry points for proven quality compounders.
Harvest strength from outperforming value to systematically fund long-term AI/automation leaders.
In other words, let factor cycles work for you, not to you – i.e. by trimming what’s extended and adding where quality is intact, but sentiment is temporarily sour.
Putting Dry Powder to Work: NOW, PANW, and SPGI
Here’s how I’ve already started to execute on that rotation:
ServiceNow (NOW)
A core enterprise platform for workflow automation and AI-augmented productivity. Its strength comes from deeply embedded enterprise workflows and the ability to layer AI on top of a sticky subscription base. After the recent compression in AI-related multiples, I began deploying fresh capital into NOW.
Palo Alto Networks (PANW)
Cybersecurity spending is largely non-discretionary. Companies may delay projects, but they rarely stop defending their networks. PANW’s platformization strategy and shift toward higher-margin software revenue create both growth and improving economics. The recent volatility appears driven more by expectations than by any change in the long-term demand for security.
S&P Global (SPGI)
SPGI is a different kind of AI beneficiary...one tied to data, analytics, and financial infrastructure. AI enhances its ability to deliver richer insights and workflow tools rather than defining the entire investment thesis. The broader sell-off in quality growth pulled the stock down from its 2025 highs, creating a more attractive entry point.
For readers interested in a deeper dive on SPGI’s moat and long-term compounding potential, revisit Byte No. 30 and Byte No. 31.
In all three cases, I’m not trying to pick the exact bottom.
Instead, I follow a rules‑based mindset: when my income and value buckets outperform sharply, I peel some gains and redeploy into durable, high‑quality growth names, especially those tied to AI, automation, and data...that have been marked down by sentiment rather than broken fundamentals.
How the Pieces Fit Together Now
Pulling it all together:
Midstream and preferreds (see Byte No. 25 and Byte No. 39) remain structural stabilizers, delivering income and relative resilience during inflation or stagflation scares.
Value and defensives have done their job in this phase of the cycle rather than chasing them after a strong run, I’m comfortable trimming where valuations look full.
AI and quality growth (NOW, PANW, SPGI) are where I’m selectively leaning in - businesses with real earnings power, durable moats, and clear long-term AI or automation tailwinds.
Discipline over prediction
I’m not trying to forecast the precise path of inflation or the Fed. Instead, I’m letting portfolio construction do the work: use the boring, cash-generating sleeves to stay resilient and to fund incremental moves into quality growth when fear creates opportunity.
If there’s one core message for this week’s letter, it’s this:
Diversification across cash-flow profiles and time horizons allows you to act decisively when opportunity appears.
I hope this felt meaningful to you. Once again, please keep reading, subscribing and sharing with others.
A Quick Reminder:
This isn’t a recommendation to buy or sell or financial advice - it’s about revisiting the process and stress-testing whether the original thesis still holds.
Thank you for following Invest Smart With Pooja
See you next week😊
