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The Proteus take a look at
Expensive companions,
Not all unknowns of the longer term are equal.
The economist Frank Knight differentiated between threat and uncertainty.
Danger pertains to unknowns by which outcomes may be assigned chances.
Inside dangerous unknowns, the character of the longer term lies inside expectations.
Uncertainty describes unknowns by which outcomes can’t be imagined and chances can’t be utilized.
Inside unsure unknowns, the character of the longer term is sudden.
As an instance, the end result of a coin toss is dangerous, however that of a world battle is unsure.
Dangerous and unsure issues even have totally different options.
A dangerous downside is solved by understanding bounded outcomes primarily based on chances and historical past.
However an unsure downside doesn’t have historical past.
With out historical past as a information, uncertainty presents unbounded outcomes.
Correct positioning is the answer to unbounded outcomes.
In case you undergo a battle and don’t know when it should finish, it’s best to preserve meals, water, and different primary requirements.
Saving as a lot sources as potential to climate the battle is sensible positioning. It’s unwise to guess when the battle would finish and optimize saving-consumption combine till then.
The instance illustrates that unsure issues can’t be solved with risk-solutions.
The answer should match the character of the issue.
Investing could map neatly onto Knight’s framework.
Buyers could play the elemental recreation of threat. Grounded by the gravity of fundamentals, they emphasize historical past and concrete proof that time to an anticipated vary of outcomes.
They might additionally discard the elemental recreation of threat and be engaged within the sentimental recreation of uncertainty as a substitute. These buyers depend on clever forecasts of the longer term which have few parallels with historical past. With out historical past as a concrete information, outcomes range extensively and alter rapidly primarily based on prevailing sentiment.
As an instance, investing in synthetic intelligence (AI), which has little to no parallels in historical past, appeals extra to buyers of the second than the primary nature.
As mentioned, an unsure downside can’t be solved with a risk-solution.
Equally a recreation of sentimental uncertainty can’t be gained with a fundamental-risk resolution.
Buyers in AI rely way more on creativeness and sentiment than on historical past to evaluate outcomes.
Drawing parallels of AI to prior technological advances or different historical past is foolhardy from the beginning. One shouldn’t depend on historical past when there isn’t any.
Every recreation calls for distinctive methods which can be inapplicable to the opposite.
To win is to select the best recreation first, then devise the suitable technique.
Your supervisor spends as a lot effort choosing the right securities to investigate as he does in analyzing their underlying companies.
As a result of the way forward for most issues is unsure, your supervisor firmly elects to play on the elemental court docket of threat, and engages solely in companies whose futures are dangerous slightly than unsure — companies the place outcomes may be bounded and assessed.
Your supervisor strives to keep away from mistaking uncertainty for threat.
The Proteus Take a look at
Your supervisor has no perception as to when and the way two wars, disruptions in power provides, and the unknown impacts of AI will resolve, however is reminded of a narrative which will shed slightly gentle on what to do.
In The Odyssey, Menelaus (king of Sparta) recounted being stranded on the island of Pharos on his means house from Troy.
He must know how one can get house however solely Proteus, the previous sea god who herds seals on the seaside, has the reply.
The issue is that Proteus will solely communicate reality if bodily restrained. The second anybody grabs him, he shape-shifts violently via each kind to flee.
Proteus’s daughter Eidothea takes pity on Menelaus and tells him the trick:
You need to maintain on via each transformation, regardless of how terrifying, and easily not let go.
When Menelaus and his males ambush Proteus, the ocean god turns into a lion, then a serpent, then a leopard, then a boar, then working water, then a tree.
Menelaus holds on via all of it. Ultimately Proteus exhausts his kinds, returns to himself, and solutions Menelaus’s questions honestly.
The wars, power disruptions, and AI panic are akin to Proteus’s transformations if they’ve little bearing on the underlying companies of shares.
They’re the worth of reward.
Menelaus holds via terror for solutions. Buyers should endure volatility for rewards.
Whereas Menelaus is for certain about Proteus’s solutions, buyers should make certain that they’re holding the best issues.
Your supervisor confirms by underwriting positions once more with a particular emphasis on the macro occasions underlying volatility.
The purpose of selecting securities with restricted draw back and important upside is to make sure few methods to lose and some ways to win.
When completed proper, positions are well-defended in opposition to the vicissitudes of the market.
Nonetheless, glorious protection loses all that means if the homeowners abandon ship for the flawed causes.
It’s one factor to leap ship due to a breach in protection.
It’s one other to take action due to a lack of bearings from sea-sickness.
Buyers should try to observe the previous and keep away from the latter. It is rational to promote when the thesis is damaged, however harmful to take action as a result of the drawdown is uncomfortable.
Portfolio replace
SSC is at present invested in 4 shares which can be listed in public markets in Hong Kong, Malaysia, United States, and Japan.
The 2 major contributors to the drawdown are Ascentech and Protasco.
Ascentech is the Japanese operator of Citrix, one in every of two main international VDI (digital desktop infrastructure) suppliers. The inventory declined about 30% from its 2026-high due to fears of AI disruption and weak steerage.
The “SaaS is useless” narrative issues AI displacing software program incumbents by favoring AI-native software program or making software program so low-cost to construct that clients construct their very own.
However the narrative is about application-layer disruption. Ascentech operates on the infrastructure layer — the plumbing that sits beneath all of those purposes.
Whether or not an organization makes use of Salesforce (CRM) or an AI-native CRM different, they nonetheless want what Ascentech sells — safe distant entry for his or her staff, zero belief safety for his or her knowledge, and VDI or skinny shopper infrastructure for his or her endpoints.
If something, the AI-disruption thesis will increase demand for Ascentech merchandise. As organizations undertake AI-native options, they’re including complexity to their IT environments with extra purposes and cloud providers. That complexity drives demand for Ascentech’s merchandise from VDI to DLP (Knowledge Loss Prevention for shielding knowledge because it strikes between extra purposes) and {hardware} essential to run AI securely on-premise.
As for steerage, next-year steerage appears to be like weak as a result of the corporate guided for flat revenues and decrease margins (~16% in 2026 to ~11% in 2027). These appear alarming on the floor however aren’t so as a result of revenues and margins had been inflated in 2026.
A surge of consumers in 2026 from a convergence of business drivers (Home windows 10 EOL, VMware migration, monetary establishment hardening) led to massive upfront funds for deployment which can be typical for Citrix contracts. The upfront funds won’t be repeated and clients are accountable just for license charges after deployment. The high-margin nature of the upfront funds inflated margins as properly.
Ascentech earns 20-25% ROE, and trades at 12x 2027 earnings and eight.4x 2028 earnings from steerage, supported by 46% insider possession together with founders, the CEO, and a SoftBank (SFTBY)-affiliated PE fund that purchased its stake at a worth roughly 40% larger. Dividend payout has been raised twice up to now yr, and roughly 76% of its market cap sits in money.
Administration has by no means missed steerage and often beat-and-raise. Steering ought to therefore be handled because the baseline.
Protasco is one in every of 3 firms that keep roads below federal contracts in Peninsular Malaysia. The inventory is down 21% from its 2026-high.
The decline is probably going brought on by the uncertainty of its most essential “Roadcare” contract. Protasco owns 51% of the contract, which accounts for 60% of revenues. The contract is at present in a 1-year bridge settlement, so it’s unsure as as to whether the contract will probably be prolonged previous February 2027 (expiry of bridge settlement).
The percentages seem overwhelmingly in favor of an extension. First, historical past is on the facet of shareholders.
No federal highway upkeep incumbent has ever been displaced via aggressive tender in Peninsular Malaysia. Roadcare has additionally operated for 25 years with no performance-related termination or public criticism of service high quality.
The second-largest proprietor of Roadcare after Protasco is KOP Mantap, wholly owned by the Royal Malaysia Police Cooperative. The contract advantages the police union immediately and will face political friction if not prolonged.
The smallest proprietor is Muhibbah Engineering, which is a public firm 3x the scale of Protasco with a 50+ yr monitor document and no historical past of presidency contract cancellation.
All three companions have been aligned for 25 years.
Second, switching prices are important. A brand new entrant would want to duplicate Roadcare’s depot community, highway stock knowledge, monitoring system integration, relationships with JKR district workplaces throughout 4 states, and the supervisory capability of ~380 sub-contractors.
The one highway upkeep incumbent to be almost displaced is CMS. CMS was awarded a 15-year upkeep contract concession in 2003. However the renewal in 2019 got here with diminished scope and possession.
Nonetheless, the end result could also be deserved as a result of it belonged to the Taib dynasty, which was the topic of huge worldwide corruption allegations.
If politically-toxic CMS that’s most deserving of displacement was solely punished with diminished scope, it’s most unlikely {that a} functioning private-public consortium will probably be met with displacement.
However the market seems certain that Protasco will probably be displaced by punishing its inventory to the purpose of 1.3x trailing earnings (not a typo) and 0.2x ebook worth.
This isn’t all. Internet money is now roughly 2.5x market cap. And Protasco has land on the stability sheet that was final appraised in 2002 and sure price considerably extra at present market values.
The draw back seems well-protected with potential for important upside after the uncertainty of the concession is cleared.
Your supervisor welcomes questions and feedback at mg@stonescap.com.
At your service,
Marcel Gozali
Editor’s Observe: The abstract bullets for this text had been chosen by Searching for Alpha editors.
