Giverny Capital Asset Management’s Investment Thesis for Watsco (WSO)

Core Insights - Giverny Capital Asset Management's portfolio returned 0.01% in Q4 2025, underperforming the S&P 500's 2.66% return, and YTD returns were 12.58% compared to the Index's 17.88% [1] - The firm faced challenges due to its underweight in large technology companies and overweight in smaller niche leaders, which negatively impacted performance [1] - The market's focus on AI investments has overshadowed the earnings growth and capital returns of portfolio companies, leaving the actual benefits unclear [1] Company Highlights - Watsco, Inc. (NYSE:WSO) was highlighted as a new portfolio holding, being the largest distributor of HVAC systems in the U.S. [2][3] - As of January 30, 2026, Watsco's stock closed at $386.45 per share, with a one-month return of 9.51%, but a three-month loss of 19.05% [2] - Watsco has a market capitalization of $15.72 billion [2] Investment Position - Giverny Capital initiated a 3.5% position in Watsco, emphasizing its important relationship with Carrier and distribution of products from other manufacturers like Rheem and Daikin [3] - Watsco is not among the 30 most popular stocks among hedge funds, with 34 hedge fund portfolios holding it at the end of Q3, unchanged from the previous quarter [4] - While Watsco is acknowledged as a potential investment, the firm believes certain AI stocks present greater upside potential and less downside risk [4]