HGI Newsletter #352

13. July 2026 | The Surrender of England's Warren Buffett | David vs. Goliath: People/IAC Wants to Take Over MGM

Dear readers,

Over the past week, there has been a lot of discussion among long-term investors about the latest semi-annual letter from British star investor Terry Smith to his fund’s investors. Known as the “English Warren Buffett,” Smith’s letter (read here) sent shockwaves through the value-investing community.

The background: For many years, Smith has been regarded as one of the most prominent advocates of “quality investing.” His famous mantra has always been:

“Buy good companies, don’t overpay, do nothing.”

However, it seems he is now abandoning this promise, at least in part. In the first half of 2026, his fund lost about 14% relative to the MSCI World benchmark, continuing a period of underperformance that has lasted several years.

Many investors were surprised by the drastic change in his portfolio. The fund’s turnover rate rose to over 50% in the first half of the year—a record high atypical of a long-term value investor. Frustrated, Smith sold or reduced numerous long-standing core positions and adjusted his strategy to be significantly more active.

This can certainly be seen as the “capitulation” of one of the most famous value investors, especially since Smith had long been a proponent of “buy and hold,” even through difficult market phases.

Smith does not primarily blame his own investment decisions for his portfolio’s poor performance. Instead, he argues that the dominance of passive ETFs and the AI boom have led to a stock market increasingly driven by momentum rather than fundamentals. Classic quality criteria for stocks, such as return on capital, profitability, and valuation, are hardly rewarded at all currently.

He’s probably right. The underperformance of my own investable sample portfolio in recent years is only slightly attributable to poor decisions and weak corporate performance. Rather, it is primarily due to the drastic decline in the valuation of these stocks.

But should one abandon one’s principles and a decades-old investment strategy and suddenly start chasing momentum after years of underperformance? I think that would be a huge mistake. After all, the decline in valuations has made the high quality companies in the portfolio even more attractive.

For many years, Terry Smith was something of a European counterpart to Warren Buffett - an investor with clear rules, a simple philosophy, and an impressive long-term track record. So when someone like Smith begins to radically restructure his portfolio after several years of underperformance and openly complains about structural market problems, many investors are left asking the fundamental question:

Has classic quality and value investing, which I also practice with my HGI strategy, simply fallen out of favor temporarily? Or, are we witnessing a moment in history when everything is truly different and stock prices will never return to the real value of companies outside the stock market?

Despite all the adversity, I’m betting that the world won’t fall completely apart and that, sooner or later, the financial markets will return to focusing on quality companies. I don’t think at all of abandoning my HGI principles (read here).

When even the most disciplined investors like Smith begin to doubt their approach and abandon their strategy amid billions in outflows from their value funds, I become more optimistic that the turning point might be near.

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Best,

Stefan Waldhauser

Disclaimer: This newsletter is an expression of opinion and does not constitute investment advice. Please note the legal information.