Q1 2026 Investor Audibles: Open Square Capital, JDP Capital

Episode Summary

Executive Summary: The episode summarizes two investor letters: OpenSquare Capital argues that the U.S.-Iran conflict has created a major oil supply shock that permanently raises the floor for crude prices and benefits energy equities, while JDP Capital frames Q1 selloffs as a buying opportunity in durable “survivor and thriver” businesses and highlights Mercado Libre as a standout compounder. Both letters emphasize volatility, macro fear, and selective long-term investing over short-term headlines.

Main Topics: OpenSquare’s oil shock thesis (Priority: 5/5): OpenSquare argues the Iran conflict and Strait of Hormuz closure created a massive supply disruption that is larger than the COVID oil mismatch and will structurally lift oil prices and energy equity cash flows. Energy market reset and higher oil floor (Priority: 5/5): The letter claims the war accelerated a multi-year reset: lower inventories, reduced OPEC spare capacity, muted U.S. shale growth, and elevated geopolitical risk will keep prices and premiums higher. Portfolio positioning in energy names (Priority: 4/5): OpenSquare discusses Oxy, Transocean/Valaris, and warrant exposure, arguing that higher oil prices, deleveraging, and offshore consolidation offer upside despite near-term volatility. JDP’s survivor-and-thriver framework (Priority: 5/5): JDP explains its investment filter for businesses with adaptable models, pricing power, strong capital allocation, and aligned management, using it to separate fear-driven selloffs from true intrinsic value damage. Mercado Libre as a long-term compounder (Priority: 5/5): JDP highlights Mercado Libre’s e-commerce, fintech, and logistics platform as a rare Latin American survivor-and-thriver business with large reinvestment runway and strong growth metrics. Macro fear vs. fundamentals (Priority: 4/5): Both letters stress that market panic around war, tariffs, AI disruption, and consumer weakness has pushed many quality names down even when long-term fundamentals remain intact. Exits and reallocations (Priority: 3/5): JDP describes exiting Caesars on buyout-risk concerns, fully exiting Peloton after weak results, and reallocating toward more durable growth opportunities like Mercado Libre.

Key Arguments: OpenSquare argues the Iran-related supply disruption is a supply shock, not a temporary headline event, and therefore oil prices should reprice higher for longer. The closure of the Strait of Hormuz creates an enormous logistical bottleneck; even after reopening, tanker repositioning and restart constraints will keep production impaired for months. The firm believes the market is underestimating the amount of production lost and the time needed for producers to restart output, leading to a higher long-term oil floor. Higher energy prices should materially increase free cash flow for leveraged but improving energy companies such as Occidental Petroleum. RIG/VAL consolidation should improve balance sheet strength, fleet utilization, pricing power, and long-term economics in offshore drilling. JDP argues that the S&P 500 has changed structurally: many major constituents are now less energy-intensive and more software/compute driven, making oil shocks less damaging than in the 1970s. JDP’s survivor-and-thriver screen is designed to identify businesses that can keep compounding through macro stress because of adaptable models, pricing power, disciplined capital allocation, and aligned management. Mercado Libre is presented as a textbook survivor-and-thriver business because it combines e-commerce, fintech, logistics, and a large reinvestment runway in underpenetrated Latin American markets. JDP believes many growth spenders are being wrongly punished by the market, and that companies reinvesting aggressively at high incremental returns can become the biggest winners. The letters both emphasize that fear-driven selling often creates extraordinary long-term entry points for high-quality businesses.

Data Points: OpenSquare quarterly return: 47.7% - Fund return for Q1 2026 S&P 500 quarterly return: -4.3% - Benchmark performance for the same quarter U.S. strike date: February 28, 2026 - Date cited for the U.S. attack on Iran Supply disruption at Strait of Hormuz: 14 million barrels per day - Estimated size of the blocked energy flow COVID oil mismatch: 12 million barrels per day - Peak demand/supply mismatch during COVID used as comparison Typical ships through strait: About 135 ships per day - Pre-war traffic through the narrow passageway Oil and products flowing before closure: Roughly 20 million barrels per day - Approximate volume moving through the strait daily Pipeline rerouting capacity: 2 million barrels per day - Saudi Arabia and UAE rerouting via pipelines Strategic reserve release capacity: 2 to 3 million barrels per day - OECD and non-OECD inventory release capacity Residual gap after rerouting and SPR releases: 11 million barrels per day - Estimated unsolved deficit Lost production estimate for March: 200 to 250 million barrels - OpenSquare estimate of cumulative production loss Lost production estimate for April: 300 million barrels - Base case if disruption persists through April 21 Restart-related production loss: 200 million barrels - Estimated additional loss during ramp-up Total lost production estimate: 700 to 800 million barrels - Cumulative estimate across shutdown and restart period IEA reported March loss: More than 360 million barrels - Quoted from April 2026 Oil Market Report IEA projected April loss: 440 million barrels - Quoted from April 2026 Oil Market Report OpenSquare fair value oil price: $100 per barrel - Estimate if 20% of lost barrels hit OECD inventories Post-discount oil price assumption: $90 per barrel - Assumes a $10 per barrel policy discount Oxy free cash flow at $65 WTI: $5.2 billion - Base case free cash flow estimate for Occidental Petroleum Oxy free cash flow per $10 oil move: $2.5 billion - Estimated incremental free cash flow effect Oxy warrant strike price: $22 per share - Warrants discussed as leveraged exposure to Oxy OpenSquare Oxy share price example: $50 to $65 to $120 per share - Illustrative valuation outcomes under higher oil-price scenarios Valaris assets: 15 drill ships and 31 jackups - Description of the company acquired to gain exposure to Transocean-like assets RIG/VAl exchange ratio: 15.235 RIG shares per VAL share - Merger terms announced February 9 New combined company market cap: About $13 billion - Valuation of the post-merger RIG/VAL entity Combined net debt: $5.5 billion - Post-merger leverage profile Combined projected free cash flow: $1.4 billion - Projected cash flow after synergies Merged company FCF yield: 11% - Free cash flow to market cap yield estimate JDP quarterly return: -15.1% net - Fund result for Q1 2026 JDP benchmark return: -4.3% - S&P 500 performance for comparison Mercado Libre market cap / equity value: $85 billion - Approximate equity valuation cited Mercado Libre share price: $1,600 per share - Price cited when stake was acquired Mercado Libre valuation: Less than 1x GMV and 18x estimated 2026 earnings - Metrics used to justify purchase Mercado Libre countries: 18 countries - Geographic footprint Mercado Libre GMV growth: 37% - Latest earnings highlight Items sold growth: 43% year-over-year - Acceleration in marketplace activity Unique active buyers growth: 24% - User growth metric Brazil GMV growth: 35% year-over-year - Key regional growth measure Mercado Libre revenue growth since IPO: Over 55,000% - Long-term growth since 2007 IPO Mercado Libre overall growth rate: Over 30% annually - Current growth pace noted in the letter Latin America e-commerce penetration: Approximately half of U.S., U.K., and China levels - Structural growth runway argument Population of Melly’s market: 650 million - Size of Latin American market Mexicans with credit cards: Fewer than 20% - Evidence of underbanking Argentines with credit cards: About 40% - Evidence of underbanking Mexicans with bank accounts: About half - Financial inclusion context Mercado Pago credit cards issued in Q4 2025: 3 million - Credit growth example Mercado Pago fintech growth: Over 40% - Fastest-growing segment Payment volume growth: 30% annually - Mercado Pago payment activity AUM and savings/investment products growth: More than doubled in 2025 - User adoption of financial products

Pivotal Quotes: "A commodity void. A physical mismatch between sharply curtailed supplies and incessant demand." — Nelson Wu: OpenSquare frames the oil thesis as a dramatic supply shock "If the U.S. can no longer easily secure free flow of energy, then they'll all need to develop their own buffers, which increases demand." — Nelson Wu: Argues the conflict permanently raises precautionary inventory demand and oil prices "The survivor and thriver criteria." — Jeremy Deal: JDP’s core framework for evaluating businesses through market volatility

Implications: The letters suggest higher geopolitical risk and energy scarcity may reset oil markets upward while rewarding resilient compounders. For investors, the message is to expect volatility, favor balance-sheet strength, and buy durable businesses when fear compresses valuations.