Pieter Slegers — Quality vs Momentum ("Are You Just A Sheep?")
The style-drawdown letter, free edition: why quality underperforms for behavioural rather than fundamental reasons, the Berkshire 1999 analogue, and the arithmetic of adding $50,000 a month for sixty-six years.
One-line take: the first full statement of the argument the archive will repeat all summer —
quality's underperformance is a behavioural phenomenon, so it is self-correcting, and the correction is violent. Four supports, each a number rather than an assertion.
(1) The setup: "high-quality stocks are trading at all-time lows. Whereas low-quality stocks are trading at very lofty premiums," with the SpaceX IPO named as the emblem of "GAMBLING."
(2) The precedent: Berkshire in 1999 — Buffett "refused to buy mediocre businesses at unreasonable prices," was declared finished, and $10,000 invested at that moment "would be worth around $400,000 today. A 40-bagger (!)… you would have outperformed the S&P 500 2x."
(3) The mechanism: quality falls less in crises and, on a cited study, "quality stocks recover 9x faster than other stocks."
(4) The response: not waiting — "we add around $50,000 to our Portfolio every month. Currently, our positions are worth $1.5 million," and the compounding arithmetic that follows (12% for 66 years = $3.8bn frozen, $17.5bn with the monthly additions). The seven-criterion definition of quality is restated in full. Two securities appear and neither is a recommendation: Berkshire is the historical proof, SpaceX the counter-example. This is the free-post twin of the paid
"Quality always wins" letter four weeks later, which adds the 1998-2000 numbers and the portfolio's look-through cash flow.
1. Stocks & names mentioned
Two names — the article is a style argument, not a stock issue, and no name is put forward as a purchase. 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 | Neutral | The proof of the argument, not a pitch. "Since 1962, Berkshire has returned over 5 million percent… a compounded annual return of nearly 20%," about double the S&P 500; $10,000 in 1962 becomes $6m in the index and $3.6bn in Berkshire; "you could erase 99% of Berkshire's returns and still outperform the S&P 500." The load-bearing part is the drawdown: at the 1999 dotcom peak, "Berkshire refused to buy mediocre businesses at unreasonable prices. People were saying Buffett had lost his magic touch" — and $10,000 invested then is "around $400,000 today. A 40-bagger (!)". Stated as the template for what the archive is living through now; no valuation and no buy call here. | read ↗ |
| private | SpaceX | — | Negative | The emblem of the mania. "Speculative behavior is now worse than ever before. For most investors, business fundamentals don't matter anymore. Just look at the SpaceX IPO." No figures here — those come two days later in the 18 June Buy-Hold-Sell issue, which prices the same listing at 90x revenue against a $4.9bn 2025 loss. Used to define the behaviour being warned against: herd instinct, ignoring the risk factors in the annual report, and "embracing the greater fool theory." | read ↗ |
2. Talking points
The provocation
- "18-year-old TikTok Influencers say: 'Quality investing is dead.' They tell you the advice in Graham's Intelligent Investor is outdated. And they confidently suggest, 'If you want to get rich, just follow the trend.'"
- The framing matters: the opposing case is presented as a real market position with real evidence behind it — quality at all-time-low relative valuations — rather than as a straw man.
Gambling, from the Omaha meeting
- Fourth consecutive year at the Berkshire AGM — "it's like a yearly pilgrimage." The takeaway is a single word: "The keyword here is GAMBLING."
- Three symptoms named: focusing on short-term price movement, ignoring risk factors in the annual report, and the greater fool theory — "who cares if a company can't pay off its debt?"
Why quality underperforms in the short run
- "Smart management teams prefer waiting for the right opportunities instead of making average investments just to show growth" — the discipline that produces long-run returns is what makes the near-term numbers look dull.
- "Short-term underperformance is often more about investor behavior than business fundamentals." This is the sentence the rest of the summer's letters rest on.
How quality behaves in a crash
- Dotcom, GFC, COVID: "they fell less than the broader market. And they recovered faster."
- The cited study: "quality stocks recover 9x faster than other stocks" — attributed only to "an investor," with no name or source given.
The seven criteria, restated
- A strong moat · high profitability · low capital intensity · great capital allocation · high management integrity · attractive historical growth · benefiting from major economic shifts.
- The same list appears in the hub thesis and in the July "Next Berkshire" letter, where it is credited to Will Thorndike's The Outsiders.
Two responses to a falling price
- "When you don't understand a business, a falling stock price looks like a warning. However, when you know the business fundamentals are still intact? You don't panic." The options are then only two: hold, or buy more.
- Note what is absent: selling is not offered as a third option anywhere in the article.
The monthly-addition arithmetic
- Disclosed: "We add around $50,000 to our Portfolio every month. Currently, our positions are worth $1.5 million."
- At 12% for 66 years: $3.8bn with no further purchases, $17.5bn if the $50,000 a month continues. The point is that the contributions, not the return assumption, do most of the work.
- "Warren Buffett is 95 years old. Me? I'm 29." (The 15 July letter gives his age as 28 — the two are a month apart.)
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 Neutral
Berkshire is used here as the historical evidence for a claim about the present, not as something to buy today. The claim is that buying good businesses at sensible prices works, but works unevenly — and that the uneven stretches are what stop most people from collecting the result.
The long numbers make the first half: since 1962 the shares have returned about 20% a year, roughly twice the American stock market, and $10,000 put in then would be worth about $3.6 billion now against $6 million in the index. The vivid way of putting it is that you could delete ninety-nine per cent of Berkshire's gains and still have beaten the market.
The second half is the part that matters for anyone holding an out-of-favour portfolio in 2026. At the peak of the internet bubble in 1999, Buffett refused to buy technology companies at the prices being asked, the shares fell badly, and newspapers asked whether he had lost his touch. Someone who bought at that exact moment of maximum ridicule made forty times their money and beat the index twice over. The parallel being drawn is explicit: the same thing is happening now to the same kind of business, and the discomfort is the price of the return.
SpaceX Negative
SpaceX's stock-market listing is used as the single example of what the article calls gambling: buying because the price is rising and other people are buying, without reference to what the business earns. No figures are given here — they arrive two days later, when the same archive works out that the listing valued the company at ninety times its sales while it was losing money.
The point being made is about the buyer rather than the company. The behaviours named — watching the price instead of the business, skipping the risk section of the annual report, and assuming someone else will pay more later — are what the author means by herd instinct, and they are presented as the reason good businesses can stay cheap for a long time.
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.