There’s a good reason some stocks are down big in 2026.

Why have SaaS and growth stocks taken it on the chin in 2026 while boring businesses like Walmart and Coca-Cola rise?

It’s all about math.

I’m not going to make you do math today, but I do want to show why the math behind analyst models is driving the market to strange places so far this year.

Before we get to that, tomorrow morning I’ll be publishing my monthly stock buys for the Asymmetric Portfolio for premium subscribers. On Tuesday, I’ll have an AMA about my stock buys.

The market continues to move sideways this year. It’s possible that changes this week, given the news coming out of Iran, but it’s also possible the market pops. The weekend’s volatility is another reason I’m not a short-term investor.

Despite underperforming the market by 18.6% in 2026, the Asymmetric Portfolio has still beaten the market long-term. That’s what ultimately matters, but I’m getting a little uncomfortable with the shrinking margin.

I’ll be adding to the portfolio again tomorrow, and I think I’ll be buying some real values given the discounts in today’s market.

In Re-Rating the Stock Market, I wrote about how changing expectations for future free cash flow can cause investors to value stocks differently.

What that article missed was the tangible calculations behind how investors think about valuing companies…at least on an academic level.

In theory, stocks are valued based on the present value of all future free cash flows.

That’s an easy statement to make, but it’s fraught with assumptions that I generally think are BS because we can’t predict the future with the certainty of a spreadsheet.

That said, it’s worth going over why investors are selling some stocks and not others.

Let’s use a simple company as an example:

In this relatively simple model and I’ve shown a chart of the cash flows and terminal value below.

The value of a company generating $100 in free cash flow in 2026 and growing in scenarios above ranges from $944 to $3,303, depending on what you assume for the near-term growth rate, the terminal growth rate, and the weighted average cost of capital.

What I want you to notice in the second chart of each scenario is how much of the value comes from the terminal value, or the value in 2031 and beyond.

No matter how you run a financial model, the terminal value assumptions (growth rate and discount rate) are going to drive the valuation of the business.

If we assume a strong long-term growth rate, it increases the value of the company.

Assume a low or negative growth rate, and the value drops quickly.

It doesn’t take a big change in the valuation assumptions for the value of a company to drop by 75% or more.

This is why software stocks, in particular, are going through such a rough patch. Investors wonder not only what next year will look like, but also what results 5 or 10 years from now will look like.

If growth goes from exponential to linear, values drop quickly.

If there’s a risk of disruption, terminal value could be zero…

Make the wrong terminal value assumption, and you make a terrible investment.

And increased uncertainty means a higher cost of capital, which is the other big driver of the valuation calculation.

The good news for us is, lower growth assumptions and higher discount rates (WACC) mean greater upside for companies that do perform well. It’ll take time for the winners to emerge, but now will be a great time to accumulate growth companies that prove their value long-term.