Q2 2026 Investor Audibles: Legacy Ridge Capital, Pernas Research, Greenlight Capital

Brandon Beylo (0:00)

All right, guys, this is Q2, Investor Letters. We'll do another one of these just before the Q3 session starts rolling in. And first one is Legacy Ridge Capital. I don't think I've ever done them. So let's dive into the letter.

The partnership returned 15.7% net of performance fees in the first half of 2026 Being the owner of only a handful of businesses that are cyclical and much less owned or followed by the cognizant of Wall Street or Reddit, we expect abnormal volatility, yet volatility was shockingly subdued for the past six months. The negative correlation between our largest allocations of capital helped, energy, airlines and cash. However, so far, the year can be best described by two distinct narratives and how they relate to our portfolio. The narrative over the first two months of the year, and the one leading to our best relative performance year to date, revolved around the threat of artificial intelligence to certain business models. And that narrative eviscerated the stock price of anything AI might render redundant. The spectrum spanned companies involving accounting, insurance, advertising, online travel, banking, and of course, most things SaaS related. All were under the assault as the durability of any model that could easily be replaced by AI was in question. Suddenly, hard assets were popular, and we own hard assets. It takes a real imagination to envision how Anthropic might create a substitute for carrying a traveler 940 miles from Cincinnati to St. Pete, negatively impacting an airline like Allegiant, or how open AI could possibly separate a central gas stream into its various molecules through processing and fractionation, then transport those hydrocarbons from the Midland Basin to the Gulf Coast, where they'd be loaded on whose ship and exported to Asia, negatively impacting an infrastructure company like Enterprise Products. However outlandish these potential outcomes might seem, we think about them a lot. How does AI kill our businesses? Beyond people staying home and living in the virtual world instead of the real world, and beyond AI somehow driving such high levels of global energy efficiency, the energy demand declines into perpetuity, which is the opposite of what AI is doing so far. Our conclusion is that for the next several years at least, our portfolio is not threatened by it. Up until the end of February, it seemed as if this might be the year our stocks got more credit, and therefore higher multiples on account of their lack of substitutes and the high replacement cost of their heavy asset basis. Then the other narrative unfolded over the past four months and counting. The Iran War. If Shakespeare's Macbeth were an investor today, he might look at the price of crude oil on February 27th, compare it to the price of mid-July, and then pat himself on the back and reaffirm his statement that life's but a walking shadow, a poor player that trusts and frets his hour upon the stage, and then is heard no more. It is a tale told by an idiot full of sound and fury, signifying nothing. He'd certainly feel validated after the war shut in 15-20 percent of global oil supply, drained inventories by close to a billion barrels, increased insurance costs for vessels traversing the Persian Gulf, and put over 20 percent of global supply in the crosshairs of a re-empowered regime that has hustled to US interests in the region. From a macro perspective, Macbeth must be right. Might be right. Nothing to see here. All of us energy experts were wrong for now at least. The most draconian scenario imaginable for global energy markets played out in the world stream to some degree, but yet survived. Brent oil prices peaked around 126, not the $200 popularly forecasted. Tank bottoms weren't hit, but may be perilously close, and the global economy, let alone stock markets, seemed to hum right along.

Depending on the day, we're within an earshot of oil prices seen before the war, $72 the day before it started, roughly $80 as I write. We're back to being oversupplied in the short term, despite continuing hostilities in the straight, and despite the daily back and forth over who controls what, and who can enforce transit fees, etc.

To us, the market's indifferent reaction defies logic.

However, from a microeconomic perspective, which is what we focus on infinitely more than the macro, we think there is something to be seen here. The sound and fury signified something, and for the vast majority of our portfolio, we think it's positive, medium to long term.

US. Airlines. The less obvious beneficiary to this quagmire is the US airline industry. Margins are already slimmed to non-existent for most airlines, and JetFuel usually comprises 30% of their operating costs. So when the price of fuel doubles, the problem for owners is obvious. To see this overlying, you have to look beyond the last quarter, perhaps beyond the next quarter, and potentially beyond this entire year. But if an investor can muster the courage to take longer than a one-year view on the airline industry, they might see that the higher fuel prices we saw on Q2, and the excessive volatility we'll probably continue to experience for the foreseeable future, has been and will continue to be good for the supply-demand backdrop and therefore pricing.