Dear readers,
Over the past week, there has been a lot of discussion among long-term investors about the latest semi-annual letter from British star investor Terry Smith to his fund’s investors. Known as the “English Warren Buffett,” Smith’s letter (read here) sent shockwaves through the value-investing community.
The background: For many years, Smith has been regarded as one of the most prominent advocates of “quality investing.” His famous mantra has always been:
“Buy good companies, don’t overpay, do nothing.”
However, it seems he is now abandoning this promise, at least in part. In the first half of 2026, his fund lost about 14% relative to the MSCI World benchmark, continuing a period of underperformance that has lasted several years.
Many investors were surprised by the drastic change in his portfolio. The fund’s turnover rate rose to over 50% in the first half of the year—a record high atypical of a long-term value investor. Frustrated, Smith sold or reduced numerous long-standing core positions and adjusted his strategy to be significantly more active.
This can certainly be seen as the “capitulation” of one of the most famous value investors, especially since Smith had long been a proponent of “buy and hold,” even through difficult market phases.
Smith does not primarily blame his own investment decisions for his portfolio’s poor performance. Instead, he argues that the dominance of passive ETFs and the AI boom have led to a stock market increasingly driven by momentum rather than fundamentals. Classic quality criteria for stocks, such as return on capital, profitability, and valuation, are hardly rewarded at all currently.
He’s probably right. The underperformance of my own investable sample portfolio in recent years is only slightly attributable to poor decisions and weak corporate performance. Rather, it is primarily due to the drastic decline in the valuation of these stocks.
But should one abandon one’s principles and a decades-old investment strategy and suddenly start chasing momentum after years of underperformance? I think that would be a huge mistake. After all, the decline in valuations has made the high quality companies in the portfolio even more attractive.
For many years, Terry Smith was something of a European counterpart to Warren Buffett – an investor with clear rules, a simple philosophy, and an impressive long-term track record. So when someone like Smith begins to radically restructure his portfolio after several years of underperformance and openly complains about structural market problems, many investors are left asking the fundamental question:
Has classic quality and value investing, which I also practice with my HGI strategy, simply fallen out of favor temporarily? Or, are we witnessing a moment in history when everything is truly different and stock prices will never return to the real value of companies outside the stock market?
Despite all the adversity, I’m betting that the world won’t fall completely apart and that, sooner or later, the financial markets will return to focusing on quality companies. I don’t think at all of abandoning my HGI principles (read here).
When even the most disciplined investors like Smith begin to doubt their approach and abandon their strategy amid billions in outflows from their value funds, I become more optimistic that the turning point might be near.
People Stock: From a Holding Company Discount to a Casino Bet
The investment case for People Inc. has fundamentally changed. Until now, People Inc., formerly IAC Holding, was a relatively straightforward “sum-of-the-parts” story. However, Barry Diller now wants to acquire a majority stake in the much larger MGM Resorts Group, thereby transforming People into one of the world’s largest hotel and casino holding companies. Here is my updated assessment of the new opportunity/risk profile…
Zoom Stock: Is It Time for Me to Buy Back In?
Three years after the end of the pandemic, the former COVID-19 star has evolved into a highly profitable cash flow machine with AI potential. Zoom’s early pre-IPO investment in Anthropic also provides a sort of safety net for the valuation. But is that enough for me to buy back in?
Airbnb Stock: Will Airbnb Become a Travel Super App?
It seems that Brian Chesky, the CEO of Airbnb, read my article from a year ago about Airbnb. At that time, I suggested that rental cars and boutique hotels would be logical additions. Now, these offerings are finally coming to the Airbnb app. The next step could be a partnership — or even a merger — with Lyft. Here’s my latest update on the Airbnb stock in my portfolio…
HubSpot Stock: Ready for a Comeback After SaaSMageddon?
Successful contrarian investing requires not only experience but, above all, a strong conviction in a stock. The best way to develop this conviction is through in-depth knowledge of the company and a clear investment case. In the following, I’d like to share my current assessment of HubSpot. The market has been a bit too quick to label the company as a supposed AI loser.
UiPath After Q1 FY27: Is the Comeback for the AI Age Finally Underway?
Following Q1, the investment case for UiPath is becoming increasingly clear. If Agentic Automation leads to sustained growth acceleration, UiPath stock is clearly undervalued. Otherwise, UiPath remains a profitable enterprise software stock with substantial share buybacks and high net liquidity.
monday Stock After Q1 2026: Strong Results, but Not a Breakthrough Yet
One example of a SaaS stock in my portfolio that has fallen far too low is monday. Although the stock has already rebounded by 40% since April, it is still trading 70% lower than it was a year ago. Investors are treating this profitable growth story as if it were that of a dying legacy software company.
Thank you for your interest! If you would like to support my work, please forward this free newsletter to friends or acquaintances who are interested in investing in tech and growth stocks.
Best,
Stefan Waldhauser
Disclaimer: This newsletter is an expression of opinion and does not constitute investment advice. Please note the legal information.
