The third quarter has concluded, marking our second quarter of active investment. I find it is a good habit to write to you at the end of each period, not because business value is built in ninety-day increments, but because it enforces a discipline of clear thinking and candid reporting.

By the measure of our brokerage statement, the quarter was a poor one, showing a decline of 23% on the capital we repositioned. This figure is the result of a single, significant decision we made to prune our holdings in the stock market, which I will explain shortly. If we were in the business of predicting short-term market movements, this result would be a failure. But we are not. We are in the business of thoughtfully allocating capital into businesses, and by that more important measure, the quarter was one of significant and, I believe, intelligent transition.

The truth is, I grew increasingly uncomfortable with the antics of our old friend, Mr. Market. Over the last few months, he became increasingly manic, offering us prices for some publicly-traded businesses that bore little resemblance to their underlying earning power. It felt as though we were being offered a king's ransom for our prize-winning Hereford bull, with the buyer intending to enter him in a beauty contest rather than use him for breeding. When the price of an asset becomes completely detached from its utility, a prudent owner must consider selling. And so, we sold a portion of our holdings. We did not do so out of fear, but out of a simple aversion to participating in a game where the odds, this past quarter, were no longer in our favor.

From Public Squares to Private Pastures

This action left us with a healthy pile of cash, and cash is only useful when it is put to work. We have since redeployed that capital into two distinct business operations.

The first was an enterprise born of careful observation: Sena Student Rental Services. We noticed that many industrious international students, often limited by their visa status to working for food delivery services, faced a simple but significant barrier: they could not afford the transportation needed to do the job well. The business, then, was straightforward: we provided them with reliable motorcycles, widening their delivery radius and increasing their earning power. In exchange, we received a subscription fee, an hourly rental rate, and a small percentage of their delivery earnings.

The business produced a very satisfactory stream of cash. However, our principal investor, Newfel Harrat, whose disposition leans far more toward the tortoise than the hare, grew uncomfortable with the high-wire nature of the operation. The risks, though remote, were not insignificant. Therefore, we made the decision to sell the entire enterprise for $2,000.

Our second, and far more significant, investment made this quarter is in a young enterprise called AskEden. I must confess, this business is more exciting than our usual fare. AskEden is tackling a problem that will become increasingly important as the world adopts artificial intelligence: the tendency for these new machines to, for lack of a better word, tell fibs. An AI that hallucinates is like a calculator that sometimes insists 2+2=5; it is not only wrong but dangerously unreliable.

The management of AskEden, a bright and driven individual in whom we have great confidence, is not merely hoping to solve this problem but has developed a proprietary tool to do so. This tool is called EVEs (Eden's Verification and Encryption System). Think of EVEs as a fact-checker and a notary public rolled into one, living inside the machine. It is the company's moat, the durable competitive advantage that we believe will protect it from competitors.

Our Publicly-Traded Businesses – The Permanent Holdings

While we trimmed our exposure to a frothy market, we did not abandon it entirely. Doing so would be foolish. Our partnership continues to own several wonderful businesses that we believe still trade at reasonable prices. The majority of our capital that remains in public markets is concentrated in four positions, with the rest held in U.S. Treasury bonds.

First, we own Coca-Cola. You cannot build another Coca-Cola. The company owns a piece of real estate in the minds of billions of people worldwide. It is a simple, durable business that will likely be selling more beverages ten, twenty, and fifty years from now.

Second, we own Amazon. Here we have two remarkable businesses under one roof. The retail operation is a flywheel of ever-increasing selection and convenience, while Amazon Web Services is the modern-day equivalent of the power company, providing the essential infrastructure for the digital world.

Third, we own Taiwan Semiconductor (TSMC). This is a more complex business, to be sure, but its position is simple to understand: it is the indispensable foundry for the world's most advanced computer chips. For the foreseeable future, nearly every great technological leap will be built on a foundation that TSMC provides.

Finally, we hold a small position in the SPDR S&P 500 ETF (SPLG). This is our stake in the general prosperity of American business as a whole. It ensures we participate in the broad upward march of the economy.

The remainder of our capital is not sitting idle, but is instead parked in short-term U.S. Treasury bonds. While these instruments will not make us rich, they offer a modest return that provides a partial shield against the corrosive effects of inflation. We view this position just as we would cash: it is a strategic asset. It is "optionality," patiently waiting for the day when Mr. Market becomes despondent once more and offers us a wonderful business at a silly price.

What We're Looking At

We are always on the hunt, and our cash position has us looking with interest at a few businesses we'd be happy to own for the long term, should the price be right. Towards the end of the calendar year, we will be looking closely at two in particular.

First is JPMorgan Chase. A well-run bank is a fantastic business, and JPMorgan is arguably the best-run large bank in the world. It is the circulatory system of American capitalism, and we would be delighted to own a piece of that essential artery at a fair price.

Second, we are looking at Berkshire Hathaway. This may seem peculiar, but the logic is sound. Buying shares in Berkshire is akin to hiring the finest capital allocators in history to work for our partnership. It is a form of intelligent delegation, providing us with ownership in a diverse collection of wonderful businesses managed by a team that thinks exactly as we do.

The Arithmetic of Taxes – A Productive Fallow Quarter

Now, let us return to that 23% loss on the securities we sold. On the surface, it is a rather unpleasant figure for a quarterly report. However, viewing it through the lens of long-term capital allocation, it represents a significant, tangible asset we created this period.

Think of it this way: a farmer who lets a field lie fallow for a season is not losing money; he is investing in the future fertility of his soil. By selling our holdings at a loss this quarter, we have effectively created a "tax coupon." This coupon can be used in future years to offset taxes on capital gains.

This is not a trivial matter. The day will come when we will need to sell some of our appreciated holdings to pay for important family expenses, such as Malik Harrat's higher education. When we sell a winning investment, the government ordinarily extends its hand for a share of our profits. Because we have this coupon from our loss this quarter, we can present it to the taxman and significantly reduce his take.

A Note on Patience and Compounding

The significant repositioning of our capital this quarter, which resulted in a 23% loss on the securities we sold, was not a decision made lightly. It prompted a great deal of thought about the kind of partnership we want to be. It is tempting in the investment world to always be active, to swing at every pitch. After much reflection, we have decided to do the opposite. We are formally adopting an investment philosophy that is best summarized by a powerful story from Warren Buffett. He once explained his approach this way:

This idea of a "punch card" is the perfect description of our go-forward philosophy. We have sold our miscellaneous holdings to preserve our punches for the truly wonderful businesses. This approach requires patience, but the rewards of such patience can be extraordinary. The chart below is not a prediction, but rather an illustration of the arithmetic of compounding. It shows what happens when a sum of capital is left to grow at a satisfactory rate over a number of years. It is this simple but powerful force that we aim to harness for our partnership.

The Power of Compounding: An Illustration

The following table demonstrates the growth of $48,500 compounding at an average annual rate of 12% over 8 years. This rate is chosen as a reasonable, long-term expectation for a portfolio of quality businesses.

To provide some context for this illustrative return, here are the approximate average annual total returns for several well-known businesses over the last eight years (2017-2025):

• TSMC (TSM): ~28%
• Berkshire Hathaway (BRK.B): ~15%
• JPMorgan Chase (JPM): ~14%
• S&P 500 (SPLG): ~13.5%
• Coca-Cola (KO): ~8% (with dividends reinvested)

Disclaimer: These figures are based on historical data. It is essential to remember that past performance is no guarantee of future results.

In Conclusion

We are building this partnership to last for decades, not quarters. This requires a certain temperament. The significant repositioning of our capital this quarter, and the unpleasant but temporary 23% loss that came with it, has been an early test of that temperament. We believe our actions have increased the long-term intrinsic value of our enterprise, but we also know that the ride will not always be smooth.

It is essential that we are all in the same boat and rowing in the same direction. If our strategy of accepting short-term paper losses in the pursuit of long-term, tax-efficient gains causes you genuine discomfort, then we have likely failed to communicate our core philosophy. To that end, any partner who is not at ease with our approach should know that we will happily and without any hard feelings arrange for the return of your capital at your convenience. We would much rather have satisfied former partners than uncomfortable current ones.

For those of you who choose to remain, know that our objective has not changed. We are not planting a garden for a single season's bloom; we are planting oak trees. This requires patience and is not always a tidy process, but the results, we believe, are worth the wait. We remain confident in our permanent holdings, excited about our new private enterprises, and patient with our Treasury bonds. The field has been fertilized, and we look forward to the harvests of the years to come.