Hi, good write up thanks. What low quality companies are you signaling? As I know the companies that are moving the market are high quality companies like Nvidia, Google, etc., other different thinhg is valuation and expectation on their future earnings. Can you give some examples of low quality companies that investors are chasing today? I agree that there are companies that used to have a strong moat that are trading at historic low multiples, but the risk of disruption is on the table too. Just curious because I am not currently invested in the major companies in the S&P, looking for quality and higher predictability. Thanks
Pieter — this is the piece I needed to read, and I still can't fully settle. So let me push back in good faith.
My fear was never that I'd turn into a sheep chasing SpaceX. It's the opposite: "don't be a sheep" can become its own flock — the quality crowd reaching for the same Berkshire chart every time it underperforms. The honest alternative to our 18 names was never meme stocks. It was the index. And as Maria notes above, the names leading it — Nvidia, Alphabet, Microsoft — aren't junk; they're elite businesses. So the real question isn't quality vs. gambling. It's concentrated quality vs. the index — and since Jan '25 that's roughly −23% for us against +28% for the S&P. That gap compounds too.
Two things I can't get past:
— Berkshire is one survivor, and most of that ~20% was earned when it was small. "Price reconnects with value" is true on average — but it doesn't tell me whether Novo or Zoetis are mispriced, or simply re-rated for slower growth.
— "Hold or buy more" has no falsification test. Where's the line where patience becomes ego refusing to mark a mistake? I'm trimming my own oversized Novo and Evolution precisely because I can't find that line — so I'm asking you as much as myself.
Are we optimizing to compound capital, or to be proven right? Thanks for making me wrestle with it.
The complicating factor lies in the regulatory environment here in America. Rule changes specifically for company sponsored retirement plans created the conditions for a near universal adoption of market cap weighted passive index funds. Most people who participate in these plans have no other choices. Therefore, these funds have a constant inflow of cash that they shovel into the largest names disproportionately week after week as workers are paid and their retirement contributions are deposited. Active funds are almost all held by older generations who are not using company sponsored retirement plans and are being slowly distributed as their investors need cash for living expenses. This constant inflow into the top names has given these firms a giant unique advantage as they can use their stock as currency to pay employees and executives, and in the last year, sell shares directly to the market to fund extreme amounts of cap ex. When or if these rules will ever be reversed is unknown. I don't believe they will be changed until they cause extreme volatility, which is inevitable. In the meantime, there will be lots of companies that are terrific but their stocks may not reflect that if they are not a large enough component of the index. The question is, if the index sells off 30%, how much will the quality names decline since they haven't gone up as much in the lead up?
Being contrarian is not the same as being right. Most people who call themselves independent thinkers just join a smaller herd. Graham’s edge was not defiance, it was reading the filings everyone skipped. Process beats posture.
You mentioned a portfolio of $1.5M - I am new to the Substack - do you have the portfolio composition for us to follow? If yes, can you share / where do I find it?
The herd is not always wrong though. The hard part is knowing when consensus is lazy versus when it is correctly pricing a broken business. Independent thinking only pays when paired with the filings to back the variant view.
Hi, good write up thanks. What low quality companies are you signaling? As I know the companies that are moving the market are high quality companies like Nvidia, Google, etc., other different thinhg is valuation and expectation on their future earnings. Can you give some examples of low quality companies that investors are chasing today? I agree that there are companies that used to have a strong moat that are trading at historic low multiples, but the risk of disruption is on the table too. Just curious because I am not currently invested in the major companies in the S&P, looking for quality and higher predictability. Thanks
Pieter — this is the piece I needed to read, and I still can't fully settle. So let me push back in good faith.
My fear was never that I'd turn into a sheep chasing SpaceX. It's the opposite: "don't be a sheep" can become its own flock — the quality crowd reaching for the same Berkshire chart every time it underperforms. The honest alternative to our 18 names was never meme stocks. It was the index. And as Maria notes above, the names leading it — Nvidia, Alphabet, Microsoft — aren't junk; they're elite businesses. So the real question isn't quality vs. gambling. It's concentrated quality vs. the index — and since Jan '25 that's roughly −23% for us against +28% for the S&P. That gap compounds too.
Two things I can't get past:
— Berkshire is one survivor, and most of that ~20% was earned when it was small. "Price reconnects with value" is true on average — but it doesn't tell me whether Novo or Zoetis are mispriced, or simply re-rated for slower growth.
— "Hold or buy more" has no falsification test. Where's the line where patience becomes ego refusing to mark a mistake? I'm trimming my own oversized Novo and Evolution precisely because I can't find that line — so I'm asking you as much as myself.
Are we optimizing to compound capital, or to be proven right? Thanks for making me wrestle with it.
Use different ideas from books like one up on wall street to construct the portfolio.
The complicating factor lies in the regulatory environment here in America. Rule changes specifically for company sponsored retirement plans created the conditions for a near universal adoption of market cap weighted passive index funds. Most people who participate in these plans have no other choices. Therefore, these funds have a constant inflow of cash that they shovel into the largest names disproportionately week after week as workers are paid and their retirement contributions are deposited. Active funds are almost all held by older generations who are not using company sponsored retirement plans and are being slowly distributed as their investors need cash for living expenses. This constant inflow into the top names has given these firms a giant unique advantage as they can use their stock as currency to pay employees and executives, and in the last year, sell shares directly to the market to fund extreme amounts of cap ex. When or if these rules will ever be reversed is unknown. I don't believe they will be changed until they cause extreme volatility, which is inevitable. In the meantime, there will be lots of companies that are terrific but their stocks may not reflect that if they are not a large enough component of the index. The question is, if the index sells off 30%, how much will the quality names decline since they haven't gone up as much in the lead up?
Being contrarian is not the same as being right. Most people who call themselves independent thinkers just join a smaller herd. Graham’s edge was not defiance, it was reading the filings everyone skipped. Process beats posture.
The Best book ever written, BUT, very difficult to apply
You mentioned a portfolio of $1.5M - I am new to the Substack - do you have the portfolio composition for us to follow? If yes, can you share / where do I find it?
Hi,
Yes. All Partners can see the Portfolio with 100% transparency. It’s on the Portfolio section of our website!
The herd is not always wrong though. The hard part is knowing when consensus is lazy versus when it is correctly pricing a broken business. Independent thinking only pays when paired with the filings to back the variant view.