My Alternative Magnificent 7 — Down 15% in Q1 2026 and Why I'm Not Worried

TL;DR S&P 500 fell 4.33% in Q1 2026, the original Magnificent 7 dropped 11.85%, and my alternative Magnificent 7 fell 15%. I was leading until late February before Adobe and Alibaba dragged performance down. Since inception, I've gone from beating the Mag 7 by 7 percentage points to trailing by 21. None of this changes my thesis — price is lower, which means expected returns are higher.

The first quarter of 2026 was the most turbulent quarter markets have seen in years.

The US-Iran conflict escalated into active military strikes. Oil prices surged. The Strait of Hormuz became front-page news globally. The NASDAQ entered official correction territory, and the S&P 500 closed the quarter down 4.33%.

The original Magnificent 7 — the group that carried the entire market for two straight years — fell 11.85%. Some of those names dropped 15-30% from their highs.

My alternative portfolio of seven stocks? Down 15%.

Why I Built an Alternative Magnificent 7

Over a year ago, I ran the original Magnificent 7 through a valuation analysis with reasonable growth and margin assumptions. The 10-year expected returns were disappointing across the board.

Most were priced for absolute perfection. Meta was the best of the group at roughly 11.5% expected returns. Tesla, under my assumptions, was looking at negative returns over a decade. The companies weren't the problem. The prices were.

So I assembled a different list: Ulta Beauty, Southwest Airlines, PayPal, Alibaba, Adobe, Nike, and Sprouts Farmers Market. Seven companies with stronger valuation setups, real competitive advantages, and better long-term return potential. I currently own six of the seven — the seventh was assigned away through covered calls, and I'm now selling cash-secured puts to re-enter at lower prices.

Q1 2026 Scorecard

Portfolio	Q1 Return
S&P 500	-4.33%
Magnificent 7 (Original)	-11.85%
My Alternative Mag 7	-15.00%

The S&P 500 is outperforming both concentrated portfolios. The original Mag 7 had a bad quarter, but my picks were hit harder.

Here's what's interesting: through the end of February, my portfolio was actually leading. Then Adobe and Alibaba crashed hard, and the entire quarter's advantage evaporated in weeks.

The cumulative picture since inception is even more dramatic. At one point, I was beating the original Magnificent 7 by 7 percentage points. Now I'm trailing by 21. That's a 28-point swing in less than a year.

Why Short-Term Performance Is Meaningless

Ulta Beauty dropped 30% in six weeks, from $715 to $517. Did its business fundamentals deteriorate 30% in that time? No. Same-store sales are still up 5.4%, loyalty members still exceed 44 million, and revenue keeps growing.

Alibaba went from $60 to $190 and then pulled back 35%. Did Alibaba's enterprise value triple and then shrink by a third in six months? Of course not.

This is how markets work in the short run — driven by sentiment, not substance.

If I were buying bad companies at bad prices, that would be cause for concern. If I were buying good companies at inflated prices, that would also be a problem. But when the thesis is good businesses at reasonable or attractive valuations, price declines are an invitation to add more.

When performance was strong last year, my message was the same: this is a marathon. Consistency when winning, consistency when losing. The process doesn't change based on the scoreboard.

What to Watch Going Forward

I can't guarantee these seven names will outperform the original Magnificent 7 over the next decade. What I can say is that they sit at more favorable valuations.

My portfolio is down 12% from inception. That mathematically means expected forward returns have increased, not decreased. Lower prices, higher future returns. That's the relationship between price and value.

What matters in investing isn't one month or one year. It's the next decade and beyond. I'll keep publishing quarterly scorecards, but the day-to-day movements won't change the process.