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(Return figures come from the December 31, 2025, edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. Nothing in the newsletter should be taken as an offer to buy or sell individual securities. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives.)
Football is the most-watched event in the United States. Over the next month, the NFL and College Football Championship Series will likely attract huge ratings across the streaming and cable landscape. Last year, seven of the top ten most viewed cable television shows in December were from college football games. The NFL championship games in January of 2025 attracted nearly fifty million viewers each. Linked to these events is the ability to make a wager on outcomes or activity in the contest. Sports betting used to be confined to the state of Nevada. Up until 2018, Las Vegas was the place where people would go if they wanted to ‘enjoy’ the thrill of watching and betting on a football game. On May 14, 2018, the Supreme Court struck down the Professional and Amateur Sports Protection Act (PASPA). By doing so, it allowed individual states to legalize and regulate sports betting. Today, thirty-eight states permit sports wagering in their areas. Now, another contender to eat into the gaming market has entered the fray. They are called prediction markets. Over the last year, the ability to make markets on events with outcomes in sports, politics, business, weather, travel, and anything you can imagine has gained surprising adoption. The overwhelming majority of prediction volumes involve sporting events, and specifically football. Why does this matter for the investment world?
Increasingly, the public uses its money to try to make a profit. Traditionally, the investment world was the domain where that took place. Over the last twenty years, as markets have become digitized, custodians and exchanges created products that provide easy access through various electronic devices, especially smartphones. Custodians like Interactive Brokers and Robinhood offer prediction markets to customers for this type of activity. If one looks at the explosion of related instruments like weekly options, levered ETFs, levered ETFs on single stocks, and ETFs related to any geography or activity, one can legitimately argue that the lines between investing and gambling are, at the very least, blurring.
The two largest entities in prediction markets are Polymarket and Kalshi. Both have partnerships with custodians and exchanges to offer prediction products. In October of 2025, Polymarket received a $2 billion investment at a $9 billion valuation from the Intercontinental Exchange (ICE) to provide access to prediction products for institutions. Kalshi, the leader in global prediction markets with a 60% share and annual trading volume of over $50 billion, obtained $300 million from large venture capitalists Sequoia, Andreesen-Horwitz, A16z, and Paradigm. Interestingly, one of the best-performing stocks across all markets over the last few years is Robinhood, the online broker. When any entity suddenly finds a one-hundred-million-dollar run-rate business in less than a year, especially one with massive profit margins and what appears to be numerous growth avenues, investors react favorably. As the prediction entities have gained adoption, the largest publicly traded sports betting entities like FanDuel and DraftKings have seen their values drop dramatically. More problematic for my hometown of Las Vegas, the number of visitors traveling to our city is estimated to decline by 6% in 2025 (perhaps one would like to predict that in 2026?)
Whenever there is a competitive alternative, incumbents will respond to protect their market share. FanDuel and DraftKings recently quit the American Gaming Association. The following week, both entities decided to offer prediction markets on their platforms (in partnership with the CME Group, the publicly traded futures exchange). Many of the publicly traded casino entities have also seen their values drop over the last year as live gaming is seen as a stagnant industry. From a regulatory standpoint, the oversight of prediction products has been left to the Commodities Futures Trading Commission (CFTC). Currently, it views the product as a financial derivative and not gambling. Anti-fraud and fair market practices are statutes that states are eyeing to ‘clarify’ the legal boundaries. In Congress, our on-the-ball representatives are increasingly noticing the issue as they attempt to pass a bill to prevent equity investment by its own members (The ex-madame speaker of the house has done well investing the last I remember). So how should investors view this whole situation?
The ability to weigh risk and reward is at the heart of investing and applicable to sports betting. However, betting and gambling are different. In gaming, there is a definite outcome, and the only thing one owns is the chance that one’s prediction, wager, hand, throw of the dice, or pull of the machine turns out correctly. When one invests, you own an entity that has assets and liabilities. In most cases, those assets and liabilities form operating businesses. The success of the entity to generate profits from its assets and then grow them determines the value of the underlying entity. From my perspective, and I have written this on numerous occasions, my preferred way to make money with casinos is to own equity of the casino. The principle can be applied to the custodians and exchanges, suppliers of gaming, and some underlying offshoot of both. Yes, Las Vegas and the casino industry are being challenged. It will be interesting to see how this evolves, and I certainly will be paying attention.
Spanning the Globe: Europe Holds, While the UK Eases, Japan Raises Rates, as Mr. Trump Turns Up the Heat Down South, and Finally, the Rial
As 2025 ends, investors increasingly allocated capital to geographies where economic conditions were moving more favorably. The primary case in point is in both the UK and Europe, where the central banks have decided to either repeatedly cut interest rates or keep them at pause for the near future. Accordingly, in 2025, banking stocks across both geographies have roared and bested their North American counterparts. One should be aware that over the last ten years, large US banking entities have dramatically higher returns than European banks. The focal point in Asia is Japan, where Japan’s Central Bank is raising interest rates to .75%, the highest level in three decades. China and India are similar in adopting central banking policies that support domestic economic growth and simultaneously keep inflation under control.
In the Western Hemisphere, President Trump continues his policy of attempting to change the political leadership of Venezuela. Mr. Trump expanded a shipping blockade to limit their flow of energy products. Here in the United States, a recent court order awarded Citgo, a large oil refiner and distributor, to a subsidiary of Elliott Investment Management. Venezuela previously owned it, but it defaulted on $21 billion of debt, so the assets were auctioned off. Naturally, Venezuela does not like the sale price, but the key point is that Venezuela is losing its largest foreign asset, one which produced plenty of cash for its ex-owners. With President Trump and Secretary of State Rubio continuing to ramp up the pressure on Venezuela, the outcome will have implications across the globe. Specifically, Cuba, China, Iran, and Russia are allies of Maduro and do not want him to relinquish power. In the case of Cuba, the country is dependent on Venezuela’s products, especially energy. With the emergence of a free market proponent in Argentina, a leadership change in Venezuela would dramatically impact economies in South America and across the globe. It is a foreign and economic dispute worth paying attention to, both today and over the course of the Trump Administration.
Let’s turn to the joy of the Middle East, specifically the sovereign nation of Iran. Long the instigator of many problems across the world, the Shia-based Mullahs are currently presiding over what can politely be called, ahem, an unmitigated disaster. The largest problems are water, energy, and the value of the currency, called the Rial. Our focus is the Rial. It currently trades at an exchange rate of nearly 1.5 million per dollar. Remind anyone of Germany Pre-World War II? As Harris Kupperman calls it, perhaps project Zimbabwe is more appropriate? Regardless, from a sustainability perspective, well, this is not going to work. The Revolutionary Guard can only do so much, and with ninety million people who are not very friendly at this point, Iran should be on your radar. Given that situation, maybe the political leadership in our country should be paying attention to our deficits and the debt on the balance sheet. Eventually, it affects the underlying currency. You might consider the price of gold and silver as the report card on that front.
Y H & C Investments Firm Update- Change of CEO at Big Oil, Another Buyout of a REIT, and Evaluating Microcap Position Performance
December was a busy period for positions across the portfolio. At a large integrated oil company, the first female leader replaced the existing CEO. It is the first time in history a female was chosen to lead a top five oil enterprise. Her background is stellar as she led an energy company with strength in mergers and acquisitions, especially in all forms of gas. She cut her teeth for many years at Exxon, assisting Rex Tillerson, and is known as particularly disciplined on the operational side.
The public auction of the second-largest media company continues with Mr. Malone playing one side off the other. Imagine that. If one were so inclined, you could turn to the prediction market and put down a few dollars on which company will wind up with those extremely valuable assets.
A second REIT was sold, this time, the leading owner of grocery-anchored commercial properties in Hawaii. One should notice the pattern of $2–3 billion buyouts of REIT’s where the stock has languished for a while. In both cases, the management teams have skin in the game and probably felt the equity was trading too cheaply. In the case of the integrated oil company, a large activist built a position of over five percent, and the Chair of the Board recently retired. In all three cases, the board of directors clearly felt compelled to find a way to create value, either by taking it private or changing leadership. The lesson for shareholders is that of our old friend, patience. Yes, it is frustrating when a stock languishes for a prolonged period of time. Directors who sit on the board of a public company know the performance of its stock. It is their job to find ways to generate value for owners. When they don’t, especially when fellow members have large ownership stakes, tough questions are usually asked about what needs to be changed. Just because it has not performed does not mean it will never perform. Over the last year, five positions in our portfolio have been taken private. The buyout premiums haven’t been excessive, but in nearly all cases, we will realize profits. Not in every case, but in most. These holdings paid dividends along the way, so in sum, we will take the wins.
Turning to the small and microcap holdings, quite a few of our holdings announced buybacks over the last month. In one case, it is up to ten percent of the available float. As a general observation, situations that worked well are companies posting operating results that display growth in revenues, margins, and profits consistent with what has been communicated to the investment community. It does not mean these results are what these companies are satisfied with. Evidence that they are moving towards their stated business plans helped investor sentiment. On the other side of the spectrum, entities with revenues or margins that fail to meet investor expectations are placed in the penalty box. Most companies experience this predicament at some point in their existence. At this time of year, investors engage in the annual rite of passage known as dog piling. Stocks performing well are bought for show, called window dressing. Everything else is shunned. In the small and micro-cap world, a lack of buyers is the largest obstacle. It is an excellent time to focus on companies discarded by the market for one obscure reason or another. The key question one must evaluate revolves around the original investment thesis. Is it still in place? We hold positions that are currently in the penalty box, and one has been there for longer than I ever imagined. It does not take much to leave the penalty box, and eventually, become a ‘goal scorer,’ if you get my drift.
Interactive Advisors GARP Models
With respect to the models, if you did not own ten stocks in the S&P over the last 15 years, it was exceedingly difficult to outperform. Both the reason for outperformance and the lack of accomplishment is the concentration weight of big positions. When they have big runs and become richly valued, the models look fabulous. Over the last few years, smaller positions have performed very well and helped bolster results. On the other hand, when your big weightings don’t do well, forget about beating the index. In GARP, our largest positions performed great for the first five years of the model, and over the last few years are fully valued. In Concentrated, a buyout of our largest position helped results and we will allocate the proceeds of all realized gains in 2026. Stay tuned.
For more information on the models-
Y H & C Investments: Concentrated GARP Investment Portfolio - Interactive Advisors
Y H & C Investments: Long Term GARP Investment Portfolio - Interactive Advisors
Looking forward to 2026, with GDP growth at 4.3% for Q4 2025, likely around 2.5% for the full year, inflation at 2.9%, and the 10-year Treasury trading at 4.0%, interest rates are probably headed to the mid-threes. Market conditions are ideal. Corporate profits have been resilient, headed by the terrific 10, simply the biggest and most profitable companies on the planet. I suspect the merger and acquisition climate will remain hot, so from a risk standpoint, it is an area that should support markets. As always, the theme of unloved and ignored is where there is opportunity (just look at silver in 2025- did anyone have that on their radar?) The most obvious sectors are cable and gaming entities. You might look at the prediction markets to see the odds on those outperforming!
With quite a few corporate executives and interested investors reading the blog, I thought I would give you a New Year’s Day present. Below are three videos of excellent investors. The first is from Henry Ellenbogen, who has long been featured in Barron’s. The second is from Tom Gayner, the CEO of Markel, which some believe is the next Berkshire Hathaway. It was built on the back of excellent investing. The last is from a good friend who is a top-notch investor, Chris Abbott of 1035 Asset Management. Very few do as much research into a company and are as courageous as Chris.
Finding The 1% of Stocks That Matter | Henry Ellenbogen Interview
Markel’s Tom Gayner on successes and mistakes in investing.
Chris Abbott (1035 Capital Man…–Value Hive Podcast – Apple Podcasts
I hope you have a great New Year’s and thank you for reading the January update. I really appreciate it. if you have any investment questions, please reach out to me at information@y-hc.com.
(Y H & C Investments may have positions in companies mentioned in this newsletter. Nothing in the newsletter should be taken as an offer to buy or sell individual securities. It is the responsibility of each investor to research the investments mentioned so it meets the return objectives, risk profile, liquidity needs, tax circumstances, and specific issues pertinent to the individual.
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