Pieter Slegers — How To Mentally Handle Tough Times
The month closes with the archive's most explicit market call — "more and more proof that we're in a bubble" — four named managers down 11% to 21%, and three holdings shown at their lowest forward multiples ever.
One-line take: written in answer to a subscriber's question, and it goes further than any other March issue. The peer evidence is now numbered — Chris Hohn −11%, Bill Ackman −19%, Dev Kantesaria −20%, Chuck Akre −21% year to date — and the diagnosis is stated outright: "I think we're seeing more and more proof that we're in a bubble… What usually happens at the peak of a bubble? Momentum and high-beta stocks massively outperform the market while quality stocks underperform by a significant degree," with a Baron Capital chart as the evidence and 1999 as the precedent (Berkshire −19.9% against the S&P's +21%, a 40-point gap, immediately before the dot-com bust). The behavioural observation is the sharpest thing in it: investors "give up on" individual stocks and switch to ETFs precisely "when individual stocks are trading at very attractive valuation levels," then switch back after the recovery. Against the bubble reading, three holdings are shown at their cheapest forward multiples on record — Constellation Software, Brown & Brown and Fair Isaac. Then five rules: don't look at prices daily (he blurs the portfolio value in his own broker; his parents have not logged in since 2017 and the account is "probably 3x higher than what my parents think it is"), discomfort is the price (Rochon's Rule of 3), pick a strategy that suits you — "you can copy someone's stock idea, but you can never copy someone's conviction" — focus on what you control (buy wonderful companies, run by managers with skin in the game, at fair prices; track fundamentals, Owner's Earnings and free cash flow), and zoom out on mean reversion. Note the archive's own tension: the same issue that says quality outperforms in the long run also concedes the ETF book is where a nervous reader is being pointed.
1. Stocks & names mentioned
Three holdings are named — with no words, only their forward-P/E histories — under the sentence "some companies are trading at one of their lowest valuation levels ever." They are Positive: the charts are offered as the reason to keep buying quality through the drawdown. Berkshire is the 1999 precedent and is Neutral. Research legend: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis; Constellation keeps its Toronto row id with research at the US OTC line (CNSWF). The four managers named with their drawdowns (Chris Hohn, Bill Ackman, Dev Kantesaria, Chuck Akre) are people, not securities, and are left to the talking points. Written post with no timestamps — the At link opens the article.
| Ticker | Name | Research | View | What he said | At |
|---|
| CSU.TO | Constellation Software | QT · SA · STK · FA | Positive | First of three names shown at "one of their lowest valuation levels ever." No commentary is offered beyond the forward-P/E chart itself — the argument is entirely visual, placed directly after the bubble diagnosis as the counterweight: "While the market is trading at very rich valuation levels, some companies are trading at one of their lowest valuation levels ever." Consistent with the rest of the month: a Strong Buy on the 19 March sheet at 16.6x forward against a 31.5x five-year average, and added to on 15 March at CAD 2,600. | read ↗ |
| BRO | Brown & Brown | QT · SA · STK · FA | Positive | Second of the three forward-P/E charts. Again no text — the chart is the whole argument. It is also one of the seven Strong Buys on the 19 March portfolio sheet (15.3x forward against a 24.7x five-year average, 38.1% under) and a category holding under "Where Rules and Humans Still Win" in the Portfolio Update. | read ↗ |
| FICO | Fair Isaac Corporation | QT · SA · STK · FA | Positive | Third of the three charts — and the most interesting inclusion. FICO is not a portfolio holding: it was written up and explicitly passed over on 1 March at 21.6x expected 2028 earnings ("this is still not very cheap"), then upgraded only Sell → Hold on 19 March. Here, twelve days later, it appears among the names "trading at one of their lowest valuation levels ever" — the visible waypoint on the path to it becoming a Best Buy in April. | read ↗ |
| BRK.B | Berkshire Hathaway | QT · SA · STK · FA | Neutral | The precedent, used for the third time this month. "$10.000 in 1962 → S&P 500: $6 million; Berkshire Hathaway: $3.6 billion… you could take away 99% (!) of Buffett's returns and he would still have outperformed the market." Then 1999: "Berkshire Hathaway was down 19.9% while the S&P 500 increased by 21%… lagged the index by 40% (!)," followed by the dot-com bust. No view on Berkshire itself. | read ↗ |
Stance = how each name is framed in this post. The five rules and the bubble diagnostic are on the actionable insights page.
2. Talking points
The drawdowns, named and numbered
- "Chris Hohn is down 11% · Bill Ackman is down 19% · Dev Kantasaria is down 20% · Chuck Akre is down 21%." This is the third peer-evidence exercise of the month and the first with figures attached to individuals.
- Ackman's own response is reported approvingly: "His advice? Invest in quality stocks!"
The behavioural observation — and it is the best thing in the issue
- "Every time stocks fall for a little while, investors give up on them. They switch to investing in ETFs. This always happens when individual stocks are trading at very attractive valuation levels. Then when everything goes back up, investors switch their focus again to individual stocks."
- The prescription is one line: "you should do exactly the opposite… Great investors don't optimize for performance over short time periods. They optimize their portfolios for long-term outperformance."
- Two caveats worth recording. The passage is printed twice, near-verbatim, in the published article. And the same publication runs a parallel ETF portfolio — so the "switch to ETFs" it describes as the error is also a product it sells.
The bubble call, stated plainly
- "I think we're seeing more and more proof that we're in a bubble." The diagnostic offered is a factor spread rather than an index level: "at the peak of a bubble… momentum and high-beta stocks massively outperform the market while quality stocks underperform by a significant degree," with Baron Capital's update as the evidence.
- "This is dangerous. Very dangerous." — followed immediately by a hedge: "I don't want to make you afraid or very negative about the market right now. But I do think it's important to understand where we are today."
- The 1999 parallel does the rest of the work, and the sequencing is left implicit: a 40-point shortfall for the best investor alive, then the bust.
Rule 1 — remove the number from view
- "During tough as well as good times, I blur the statistics of my portfolio in my broker" — so neither the value nor the daily profit is visible on login. Note the symmetry: it applies in good times too, which is what makes it a rule rather than a coping mechanism.
- The house analogy: "how many people wonder each year how much the value of their house went up or down? I doubt very many."
- The anecdote that carries it: his parents' account, opened in 2017 and never logged into since, is "probably 3x higher than what my parents think it is."
Rule 2 — discomfort is the price, not the exception
- "If you do the same as everyone else, you'll get the same result as everyone else. Tough periods aren't exceptions. They're the price you pay for long-term gains."
- Rochon's Rule of 3, stated in full: one year in three the market falls at least 10%; one stock in three disappoints; one year in three you underperform the index.
Rule 3 — conviction cannot be borrowed
- "You can copy someone's stock idea, but you can never copy someone's conviction." The strategy has to suit you personally and have a proven long-run record; either alone is insufficient.
- Read against the cloning issue three weeks earlier, this is the necessary correction: copying the position without the conviction is exactly what fails in a drawdown.
- "Not all quality is created equal" is flagged but delivered only as an image.
Rule 4 — the controllables, and the three dials
- "In the short term, the market is a voting machine. In the long term, it's a weighing machine." You cannot control sentiment; you can control what you buy.
- Three things you can control: "Buy wonderful companies · Led by amazing managers with skin in the game · Trading at fair valuation levels."
- And the same three measurement dials as Challenging Times: portfolio fundamentals versus the index, Owner's Earnings (EPS growth + dividend yield), and the free cash flow the portfolio generates. All three are shown as charts only in this issue — no figures are printed.
Rule 5 — zoom out
- "History doesn't repeat itself, but it often rhymes… One of the most powerful concepts in finance? Reversion to the mean. Extreme performance… whether unusually good or bad… tends to drift back toward average over time."
- "After rains comes sunshine. Always. After every bear market comes a great bull market." The claim is stronger than the evidence elsewhere in the archive supports — the Kaplan Pain Index issue two weeks earlier documents an eight-year crawl back from the oil crisis and three lost decades since 1900.
3. In plain English
A jargon-free summary of the thesis behind each argued name. (Renders on each name's consolidated page.)
CSU.TO — Constellation Software Positive
Constellation appears here with no words at all — just a chart of what investors have been willing to pay for its earnings over the past decade, with today's level at the bottom of the range. That is the whole argument, and in context it is a strong one: the issue has just argued that the market as a whole is in a bubble, and this is the counter-example.
The business is a collection of hundreds of small software companies that run one specific type of organisation each and are almost never replaced. Nothing about that changed this quarter; the price did. Compounding Quality added to the position two weeks before this article was published.
BRO — Brown & Brown Positive
Brown & Brown is an insurance broker: it finds the right cover for businesses and takes a commission, without carrying the risk itself. Revenue recurs because policies renew, and it needs very little capital to grow.
Like Constellation, it appears in this article as a chart rather than a paragraph — its shares are at one of the lowest earnings multiples in their history at a moment when the index is at one of its highest. Twelve days earlier the same publication rated it one of only seven Strong Buys in its own portfolio, at about 15 times forward earnings against a five-year average near 25.
FICO — Fair Isaac Corporation Positive
Fair Isaac owns the FICO credit score, licensed to the three American credit bureaus, so it collects a small fee every time someone applies for a mortgage, a car loan or a credit card. It also sells the decision software banks use to automate those approvals.
What makes its appearance here worth noting is the sequence. On 1 March this archive published the full bull case for FICO and then declined to buy on valuation. On 19 March it was upgraded only from Sell to Hold. Here, on 31 March, it is one of three companies shown "trading at one of their lowest valuation levels ever" — and the following week it becomes a Best Buy. The chart is the visible step between the pass and the purchase, which is exactly the discipline the March issues keep arguing for: write the case, name the price, and wait.
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.