Pieter Slegers — Challenging Times
The archive's most candid drawdown letter: Akre behind the index since inception, Smith underperforming for years, and the house portfolio's own spread — Games Workshop +100.8% against Novo Nordisk −39.5%.
One-line take: a letter written to keep subscribers from quitting, and unusually honest about the damage. Three examples establish that this is a factor problem rather than a personal one: Chuck Akre "is now even slightly underperforming the S&P 500 since inception"; Terry Smith (top three: SYK, MAR, L'Oréal) "underperformed over the past few years"; and Compounding Quality's own book is split — GAW.L +100.8% and MEDP +80.6% against EVO.ST −26.9% and NVO −39.5% — with the moral being sizing: "A few big winners (or losers) can make or break your return." The question is posed directly — "Does the strategy not work anymore? Or are we in a very strange market environment today?" — and answered with 1999, where Berkshire fell 19.9% against the S&P's +21%, a 40-point gap, immediately before the dot-com bust. The sentiment read is contrarian: nervous Community posts and a barber-style Novo comment make him "think the turning point is near." The constructive half sets out three things to watch instead of price — portfolio fundamentals, Owner's Earnings (EPS growth + dividend yield, guided to +13% a year over three years) and free cash flow — with the portfolio at a 17.1x forward P/E against the S&P's 22.0x, giving 7.6% + 5.8% = a 13.4% expected return against J.P. Morgan's 0–5% for the index. Disclosed housekeeping: $50,000 added monthly, portfolio now $1.38m.
1. Stocks & names mentioned
This is a drawdown letter, not a pitch — every name appears as evidence, so all rows are Neutral. Four are Compounding Quality holdings cited for their year-to-date performance; three are Terry Smith's top positions, reported to describe his strategy; Berkshire is the 1999 precedent. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis. Foreign primary listings keep this source's suffixed row ids — GAW.L (London), EVO.ST (Stockholm), OR.PA (Paris) — with research pointing at the US OTC/ADR line where one exists. The post writes Novo as $NOVO-B; the archive's row id is the US ADR, NVO. Chuck Akre's top-ten table is published as an image and its constituents are not named in the body, so no rows are created from it. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| GAW.L | Games Workshop | QT · SA · STK | Neutral | Best holding in the book: +100.8%. Disclosed as a performance data point rather than re-rated — "While some companies are doing well: Games Workshop ($GAW.L): +100.8%." Used to make the sizing argument: "A few big winners (or losers) can make or break your return." | read ↗ |
| MEDP | Medpace Holdings | QT · SA · STK · FA | Neutral | Second-best holding: +80.6%. Reported only. Notable against the rest of the archive — the CRO argued four days earlier as the "AI can't do science on real humans" case is also, quietly, one of the two positions carrying the book. | read ↗ |
| EVO.ST | Evolution AB | QT · SA · STK | Neutral | Among the strugglers: −26.9%. Disclosed with no defence and no thesis review in this issue — the post's argument is about the portfolio's aggregate economics rather than any single position. | read ↗ |
| NVO | Novo Nordisk | QT · SA · STK · FA | Neutral | Worst holding: −39.5% (written as $NOVO-B). Doubles as the sentiment indicator — a quoted reader comment on Novo prompts the contrarian read: "When your barber starts to give you investment advice, it's time to run away. When people are becoming desperate, it's usually a great time to buy more." A week later it is a Strong Buy on the Buy-Hold-Sell sheet. | read ↗ |
| SYK | Stryker Corporation | QT · SA · STK · FA | Neutral | Terry Smith's largest disclosed position. Named to illustrate that Fundsmith's "simple, but beautiful" strategy is being applied to unimpeachable businesses and still underperforming — the point of the section is the factor, not the stock. No Compounding Quality view offered here. | read ↗ |
| MAR | Marriott International | QT · SA · STK · FA | Neutral | Terry Smith's second-largest position. Reported as part of the Fundsmith top three; no analysis attached. | read ↗ |
| OR.PA | L'Oréal S.A. | QT · SA · STK | Neutral | Terry Smith's third-largest position, written as $OR — the Paris listing. Named only as part of the Fundsmith top three; the archive's own view on it comes later, in a dedicated L'Oréal write-up. | read ↗ |
| BRK.B | Berkshire Hathaway | QT · SA · STK · FA | Neutral | The historical control, not a pick. "$10.000 in 1962 → S&P 500: $6 million; Berkshire Hathaway: $3.6 billion… You could take away 99% of Berkshire Hathaway's return and you'd still have outperformed the index." Then the counterweight: "In 1999, Berkshire Hathaway was down 19.9% while the S&P 500 increased by 21%… lacked the index by 40% (!)" — immediately before the dot-com bust. | read ↗ |
Stance = how each name is framed in this post. No name is rated here; the argument is about the quality factor and about what to measure during a drawdown — that method is on the actionable insights page.
2. Talking points
Three pieces of evidence that this is the factor, not the manager
- Chuck Akre — "a very famous quality investor who owns some of the best companies in the world… lately, he has been underperforming the market. As a result he's now even slightly underperforming the S&P 500 since inception." That last clause is the strongest single data point in the letter: a multi-decade record erased on a relative basis.
- Terry Smith — top three Stryker, Marriott, L'Oréal; "he managed to report very attractive returns using this strategy. But recently, Terry Smith is struggling."
- Compounding Quality itself — the stated goal remains "to outperform the market by 3% per year on average," with the Portfolio, all transactions and the CAGR visible to Partners "24/7 with full transparency."
The book's own spread, and the sizing lesson
- Winners: Games Workshop +100.8%, Medpace +80.6%. Losers: Evolution AB −26.9%, Novo Nordisk −39.5%.
- "The above also shows you the importance of position sizing. A few big winners (or losers) can make or break your return." No weights are disclosed here, which is what would make the point measurable.
Desperation as a timing indicator
- Nervous Community posts are quoted rather than dismissed — "I feel you. Emotionally it's not easy to handle periods like this. But if I read things like this, it also makes me think the turning point is near."
- The inversion of the barber cliché is the memorable form: "When your barber starts to give you investment advice, it's time to run away. When people are becoming desperate, it's usually a great time to buy more."
- Napoleon, quoted: "A genius is the man who can do the average in when everyone else around him is losing his mind."
The question asked plainly
- "Does the strategy not work anymore? Or are we in a very strange market environment today? I think it's the latter." Stating the falsifiable version of the question is the part worth copying; the answer is then argued rather than assumed.
- The 1999 comparison is offered as precedent, not prophecy — but the sequence is left doing the work: a 40-point shortfall followed by the dot-com bust.
Two situations, two different problems
- Still accumulating: "If the stock market goes up, you make money. If the market goes down, you can add to your portfolio at cheaper prices." Compounding Quality adds $50,000 a month; the portfolio stands at $1.38m.
- The runway arithmetic, stated with the assumption exposed: at 12% for 66 years, $3.8bn without additions and $17.5bn with them — "Warren Buffett is 95 years old. Me? I'm 29 years old."
- Fully invested: acknowledged as genuinely harder, with no mechanism to offer beyond patience — "In the long term, stocks always go up."
Three things to watch instead of the price
- Portfolio fundamentals vs the index — forward P/E 17.1x against the S&P 500's 22.0x, on companies described as fundamentally better. Terry Smith's rule of thumb gives 7.6% + 5.8% = 13.4% expected return, against J.P. Morgan's 0–5% for the index. (Note the growth input has fallen from the 12% used four days earlier.)
- Owner's Earnings = EPS growth + dividend yield, guided to "increase by 13% annually" over the next three years, on the premise that "in the long term, stock prices always follow the evolution of the Owner's Earnings."
- Free Cash Flow — argued through the private-owner thought experiment: if you never intend to sell, the multiple someone would pay today is irrelevant and only the cash matters. "The stock prices will follow, eventually."
The framing device
- The guide-on-a-hike metaphor is unusually direct about the relationship: "right now, it's raining and very slippery. So what do you do now? Do you blame me? Do you return to the beginning of the hike? Or do you leave me…"
- The anchor offered is a document rather than a forecast: "the plan we already outlined in Our Owner's Manual in 2023."
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.