2026 Third Quarter - Aspen Grove Quarterly
- 11 minutes ago
- 6 min read
- Why recent volatility hasn’t changed our long-term investment thesis –
Dear Friends,
The third quarter has reminded investors that markets can be both rewarding and challenging.
Market performance this year has been decidedly mixed. While companies tied to the buildout of artificial intelligence infrastructure have continued to deliver exceptional results, many other sectors have produced much more modest returns. The recent increase in volatility simply reminds us that markets rarely move in a straight line.
Headlines have focused on higher oil prices, uncertainty surrounding future Federal Reserve policy, and the unwinding of several highly leveraged institutional investment positions. While these events understandably captured investors' attention, they also provided an important reminder that short-term market movements are often driven by forces very different from the long-term value of the businesses we own.
Recent reports suggest that one of Wall Street's most successful AI-focused hedge funds experienced significant losses in July after relying heavily on borrowed money to amplify its investments. As positions were liquidated, forced selling spread across portions of the market, placing pressure on many companies whose underlying businesses had changed very little.
This is hardly a new story.
Every generation of investors experiences periods when exceptional returns attract increasing amounts of capital, leverage quietly builds, and confidence gradually gives way to complacency. Eventually, some unexpected event forces leveraged investors to sell. The result is often a market decline that appears far more dramatic than the underlying economic reality.
Veteran investor Daniel Loeb recently reminded investors of this timeless lesson by referencing When Genius Failed, the classic account of the collapse of Long-Term Capital Management nearly three decades ago. While history never repeats itself exactly, it often rhymes.
Fortunately, these episodes also tend to be temporary.
Forced selling eventually ends.
Outstanding businesses continue building products, serving customers, generating earnings, and creating value long after the headlines have disappeared.
That distinction lies at the heart of our investment philosophy.
Looking Beyond the Headlines
One of our primary responsibilities is separating temporary market noise from meaningful long-term change.
Over the past several years we have consistently discussed three major themes that we believe will shape investment returns for years to come:
The gradual decline of inflation toward more normal levels.
Artificial intelligence as the next great productivity revolution.
The companies providing the infrastructure that makes that revolution possible.
Despite recent market volatility, none of those themes have fundamentally changed.
If anything, the evidence supporting them continues to strengthen.
Inflation Continues to Move in the Right Direction
Each week we publish an internal Inflation Progress Report that evaluates the many forces influencing future inflation.
Our latest report reached a cautiously encouraging conclusion.
Recent inflation data continued to improve, particularly in the core measures that economists monitor most closely. Housing-related inflation continues to moderate as rental markets stabilize, while wage growth is becoming increasingly consistent with long-term price stability.
At the same time, energy prices remain elevated, federal deficits continue to support demand, and massive investment in AI infrastructure is temporarily increasing demand for electricity, construction, semiconductors and power equipment.
These forces suggest that inflation's journey back toward the Federal Reserve's 2% objective is likely to be gradual rather than immediate.
Our conclusion remains unchanged: The direction is encouraging. The destination simply may take longer than many investors hoped.
Why Productivity Matters More Than Inflation
While inflation receives most of the headlines, productivity may ultimately prove to be the more important story.
Simply put, productivity measures how much value workers can produce for every hour they work.
When productivity improves:
Businesses become more efficient
Workers can earn higher wages without creating inflation.
Corporate profits grow
Living standards improve
Our research continues to indicate that productivity growth has accelerated meaningfully compared with the years before the pandemic, particularly in industries making significant investments in artificial intelligence and digital technologies.
This is precisely why we continue to believe AI represents far more than another technology trend. It has the potential to become one of the largest productivity transformations of our lifetime.
Artificial Intelligence Is Creating Two Different Economies
One of the most important conclusions from this quarter's research is that AI is currently producing two very different economic effects simultaneously.
Phase One: Building the Foundation
Today, companies are investing hundreds of billions of dollars building the infrastructure required for artificial intelligence.
· New data centers
· Electric power generation
· Semiconductors
· Networking equipment
· Cooling systems
· Fiber optic networks
This enormous investment creates jobs, increases demand for electricity and construction, and places pressure on certain supply chains.
In the short run, this investment is actually, modestly inflationary because it requires tremendous amounts of capital and scarce resources.
Phase Two: Harvesting the Benefits
The second phase has only recently begun.
Increasingly, businesses are using AI to automate repetitive tasks, improve customer service, accelerate software development, streamline operations, and allow employees to accomplish more in less time.
Our latest research found growing evidence that companies are beginning to realize measurable labor savings and operating efficiencies through AI adoption. While these improvements have not yet significantly reduced national inflation, they are becoming increasingly visible at the company level.
In other words...
Today's investment spending is laying the foundation for tomorrow's productivity gains.
That is precisely the type of long-term trend we seek to invest behind.
How We Use Artificial Intelligence at Aspen Grove
At Aspen Grove, we believe artificial intelligence is transforming far more than the companies we invest in—it is also transforming the way thoughtful investment research can be conducted.
Every day our team is confronted with an overwhelming amount of information. Economic reports, earnings releases, Federal Reserve speeches, Wall Street research, academic papers, industry publications, and financial news collectively produce thousands of pages of new material each week.
The challenge today is no longer finding information. The challenge is determining what truly matters.
We have found AI to be remarkably effective at helping us organize this information, identify meaningful relationships, compare competing viewpoints, and distill an enormous amount of research into coherent investment themes worthy of further analysis.
Artificial intelligence does not replace experience.
It does not replace independent thinking.
And it certainly does not replace our fiduciary responsibility to exercise sound judgment on behalf of our clients.
Instead, AI allows us to spend less time gathering information and considerably more time evaluating what that information means.
In our view, combining disciplined human judgment with thoughtfully supervised artificial intelligence provides one of the most powerful research capabilities available to investors today.
As AI continues reshaping the global economy, we intend not only to invest in many of its beneficiaries, but also responsibly harness its capabilities to better serve the families who have entrusted us with their financial future.
What We’re Watching
Rather than reacting to daily headlines, we continue monitoring the factors that truly determine long-term investment outcomes.
Among them:
Productivity growth
Unit labor costs
Corporate earnings
Inflation trends
Energy prices
Federal Reserve policy
Long-term interest rates
Continued evidence that AI investments are translating into measurable productivity improvements
These indicators provide a far clearer picture of the economy's long-term direction than any single day's market performance.
Final Thoughts
Benjamin Graham once observed that:
"In the short run, the market is a voting machine, but in the long run, it is a weighing machine."
This quarter reminded us how true those words remain.
Fear…
Leverage…
Forced selling…
Headlines…
These forces can dominate markets for days—or even weeks.
But eventually, markets return to weighing businesses based on earnings, innovation, competitive advantages, and long-term value creation.
That is where we choose to keep our attention.
We cannot eliminate market volatility.
We cannot predict every correction.
But we can remain disciplined.
We can continue investing in outstanding businesses positioned to benefit from powerful long-term trends.
And we can remain focused on helping our clients achieve the financial goals that matter most.
Thank you for the trust you continue to place in Aspen Grove. We remain honored to serve you and your family.
Dave Crouch
CEO & Chief Investment Advisor
Aspen Grove Asset Management
P.S. Each week I prepare a comprehensive Inflation Progress Report that examines dozens of economic indicators, Federal Reserve developments, productivity trends, and the evolving impact of artificial intelligence on inflation and the economy. While it is too detailed to include in this quarterly letter, I would be delighted to provide a complimentary copy to any client who would like to read it. Simply give us a call or send us an email, and we'll be happy to forward the latest edition.
Disclosures:
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor."
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
AGP Franklin, LLC ("AGP Franklin") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where AGP Franklin and its representatives are properly licensed or exempt from licensure.
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