L3VLUP
ProSign in
Letters & Theses

Source Capital Portfolio Managers · FPA

Source Capital's 2025 letter to shareholders, on Microsoft and low credit spreads

Covers FY2025Published 10 Feb 2026Filed 9 Mar 2026Available at SEC.gov, link checked 8 Nov 2026Investor letter · Investment

The view as filed on 9 Mar 2026, not a statement of what the author thinks today.

What to notice

  1. 1

    For Microsoft to grow revenue at 10% a year from $293bn, it would need to add about $178bn by 2030, more than the roughly $100bn of combined sales of Oracle and SAP.

Continue the investment thesis

See the 4 remaining takeaways on what this investor is arguing and why, and every analysis across the Letters & Theses library.

Checking what you can open…

“we don't have any unique insight into American exceptionalism or whether we are in an AI bubble”
Source Capital Portfolio Managers, 10 Feb 2026

Why read it

A value manager showing, with figures, what an investor must believe to pay 30 times earnings for Microsoft, and why it would rather not make that wager.

About this letter

The portfolio managers of Source Capital, a closed-end fund listed in New York and managed by FPA, signed this letter on 10 February 2026. It opens the fund's annual report for 2025, filed with the SEC on form N-CSR on 9 March 2026.

The fund's net asset value rose 4.27% in the fourth quarter and 18.40% over twelve months. The managers review four holdings that moved performance, among them TE Connectivity, International Flavors & Fragrances and Vail Resorts, then set out their approach through a colleague's line that securities ask different questions at different prices. The longest passage concerns Microsoft, which they first bought in 2010 and sold in 2020, and what an investor must believe to own it at more than 30 times earnings. The letter then explains why the fund has been reducing its exposure to high-yield and other lower-rated debt at historically low spreads, and closes with the monthly distribution and the discount to net asset value.

Companies

  • Source Capital SOR
  • Microsoft
  • International Flavors & Fragrances
  • Vail Resorts
  • TE Connectivity
  • Safran
  • Alphabet
  • Meta
  • Analog Devices

Themes

  • valuation
  • investing philosophy
  • mistakes
  • credit cycles
  • risk

L3VLUP does not host this document. It belongs to FPA and is a public SEC filing; the notes above are L3VLUP’s reading of it.

The same argument, elsewhere