Pieter Slegers — Quality always wins
The style-drawdown letter: quality is the worst-performing factor of 2026, the 1998-2000 analogue is laid out with the numbers, and the reported metric becomes the portfolio's look-through cash flow rather than its price.
One-line take: almost no securities and a great deal of method — the letter a manager writes when the style is losing. The admission is unhedged ("Quality is the worst-performing factor of 2026 so far"; "Yes, I feel personally responsible for that"), and the defence has three parts. The historical analogue: from 1998 to 2000 the Nasdaq rose 75% while Berkshire fell 18.9% (underperforming by 93.9%) and Fairfax fell 64% (by 139%) — and both then "outperformed the index by a wide margin" afterwards. The substituted metric: rather than track price, he reports what the book earns him — $65,520 a year, $5,460 a month, $1,260 a week, $179.5 a day, $7.5 an hour, $0.12 a minute — because "in the short term, the market is a voting machine. But in the long term, it's a weighing machine." The behavioural pre-commitment: a set of base rates stated before they are needed — "one year out of three, the stock market will go down at least 10%; one stock out of three that we buy will be a disappointment; one year out of three, we will underperform the index" — and an explicit warning against style-switching at the extreme: "if you switch from Quality to Momentum or ETF investing right now? You'll probably do it at exactly the wrong time." The breadth reading underneath it all: "the riskiest stocks are hitting all-time highs relative to the S&P 500; the safest stocks are hitting all-time lows relative to the S&P 500."
1. Stocks & names mentioned
Two names only, and both are historical illustrations of the argument rather than new positions — Berkshire and Fairfax as the quality managers who lagged badly into 2000 and then led out of it. The Nasdaq is an index reference; no individual AI or momentum names are cited. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| BRK.B | Berkshire Hathaway | QT · SA · STK · FA | Positive | The historical proof of the argument. "From 1998 to 2000, the Nasdaq surged 75%. Over the same period: Berkshire lost 18.9% (underperforming by 93.9%)." Then the resolution: "Just look at what happened after the Dot-com bubble. Both Berkshire Hathaway and Fairfax Financials outperformed the index by a wide margin." Cited to establish that a severe, multi-year style drawdown in a quality manager is a recurring event rather than evidence of a broken process — and, in the preceding July update, as the live proxy for a rotation back into quality. | read ↗ |
| FFH.TO | Fairfax Financial Holdings | QT · SA · STK · FA | Positive | The more extreme half of the same analogue. "Fairfax even lost 64% (underperforming by 139%)" over the 1998-2000 window in which the Nasdaq rose 75% — and it too "outperformed the index by a wide margin" after the bubble broke. A January 2026 Best Buy on this hub in its own right; used here for the magnitude of the drawdown a disciplined underwriter can suffer while being right. | read ↗ |
No transactions, no new names and no valuation work — this is a communication issue, not a research one. Its content for the archive is the behavioural framework and the disclosure of the portfolio's look-through free cash flow, which is a figure this source has not published before in this form.
2. Talking points
The provocation, and the refusal to hedge
- "Someone recently called us 'stupid' for investing in quality stocks. They said we're missing a bull market that's creating intergenerational wealth."
- The admission comes before the defence: "Quality is the worst-performing factor of 2026 so far… Mr. Market has entered into an exaggeration phase. Everything linked to AI is skyrocketing. The fundamentals just don't seem to matter anymore." And later, plainly: "Yes, I feel personally responsible for that. Yes, these are genuinely tough times."
The 1998-2000 analogue, with numbers rather than a vibe
- "From 1998 to 2000, the Nasdaq surged 75%. Over the same period: Berkshire lost 18.9% (underperforming by 93.9%). Fairfax even lost 64% (underperforming by 139%)." The 1999 headlines mocking those managers are reproduced.
- The resolution is the point of citing it: "Just look at what happened after the Dot-com bubble. Both Berkshire Hathaway and Fairfax Financials outperformed the index by a wide margin." The framing is careful — "History doesn't repeat itself. But it often rhymes."
The breadth reading
- "The riskiest stocks are hitting all-time highs relative to the S&P 500. The safest stocks are hitting all-time lows relative to the S&P 500."
- The inference is contrarian by construction: "Nobody seems to care about quality right now. That's usually when it matters most."
Substituting the metric: what the portfolio earns, not what it is quoted at
- "Rather than watching daily price movements, I focus on just one thing… How much money are our companies making for us?" The answer is given at six frequencies — $65,520/year, $5,460/month, $1,260/week, $179.5/day, $7.5/hour, $0.12/minute — with a chart of the figure's evolution.
- The justification is Graham's: "In the short term, the market is a voting machine. But in the long term, it's a weighing machine. Eventually, stock prices always follow the evolution of the intrinsic value. So if our companies keep generating more and more cash, the stock price will follow."
- Restating cash flow per minute is a deliberate reframing device: it converts an abstract portfolio into something that visibly accrues while nothing is happening.
Base rates, stated in advance
- "One year out of three, the stock market will go down at least 10%. One stock out of three that we buy will be a disappointment. One year out of three, we will underperform the index."
- The purpose is stated too — the concern is not the portfolio but the holder: "The thing I'm a little bit concerned about? You… Investing can be brutal. You are doing it with your hard earned money. You need to be mentally prepared for both the upside and downside."
The switching warning
- The temptation is acknowledged in full: "ETFs are crushing it. Momentum stocks are soaring. Almost everything exciting is working."
- And then the timing argument: "if you switch from Quality to Momentum or ETF investing right now? You'll probably do it at exactly the wrong time. This could be very harmful for your long-term wealth."
- Napoleon supplies the closing frame: "a genius is the person who can do the average while everyone around him is losing his head. We're at such a moment today."
What is claimed, and what is not
- Claimed: competitive advantages intact, balance sheets healthy, earnings still growing, and cash generation rising. No claim is made about when the market re-rates them — "This can continue for a while."
- Not claimed: any prediction about AI stocks falling, any change to positioning, or any tactical response. The letter's only action item is to hold: "Stick the course, Partners."
3. In plain English
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
BRK.B — Berkshire Hathaway Positive
Berkshire appears in this letter as evidence rather than as a recommendation, and the evidence is uncomfortable on purpose. Between 1998 and 2000, while the Nasdaq rose 75%, Berkshire's shares fell almost 19%. Buffett — by then already the most respected investor alive — spent two years being written about as a man who no longer understood the modern economy. Newspapers said so in print, and Slegers reprints the headlines.
What happened next is why the example is worth keeping. When the technology bubble broke, Berkshire went on to beat the index by a wide margin, and the people who had switched out of it near the bottom of its relative performance took the loss twice — once by leaving, and again by not being there for the recovery.
The point being made is about the shape of quality investing rather than about Berkshire specifically: a strategy built on durable, unexciting businesses will periodically look foolish for years at a stretch, and the moment it looks most foolish is statistically the worst moment to abandon it.
FFH.TO — Fairfax Financial Holdings Positive
Fairfax is the Canadian insurer run by Prem Watsa, sometimes described as a smaller Berkshire: it underwrites insurance and invests the premiums it holds before claims are paid. It is used here as the more extreme version of the same lesson.
Over the identical 1998-2000 window in which the Nasdaq gained 75%, Fairfax's shares lost 64% — an underperformance of roughly 139 percentage points. That is not a rough patch; that is a collapse in the share price of a business whose underwriting and investing discipline was, in hindsight, entirely correct. And like Berkshire, it went on to beat the index by a wide margin once the bubble deflated.
Slegers is not making a valuation case for Fairfax in this letter — it is separately a Best Buy on this hub — but citing the size of the drawdown deliberately. The honest version of his message is not "quality never hurts"; it is that quality can hurt by 64% and still be right.
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.