In today’s edition:

• 🕴️ The Guru: Marc Werres — founder of Hinde Group, one of the best investors you’ve probably never heard of

• 🏛 The Playbook: The Hinde Way — The 5 Pillars of a great business

• 📺 The Playbook in action: A Netflix case study (a 4× return in under four years)

• 💎 The Gem: Interactive Brokers Group (IBKR) — Werres’s decade-long compounder

2-minute AI audio version of today’s post:

Guru in the spotlight: Marc Werres

Marc Werres is the founder and Managing Partner of Hinde Group, a San Francisco–based investment firm he launched in August 2015.

His performance over the past decade has been outstanding. Since inception in 2015 through the end of Q1 2026, the portfolio has compounded at ~20% net per year, significantly outperforming the S&P 500’s ~13% return.

He has done this with a concentrated portfolio of less than ten names, no leverage, and through periods where he held meaningful cash when nothing looked attractive.

I came across Hinde Group thanks to a reader recommendation, and the more I read, the more convinced I became that this is a ‘hidden master’ worth highlighting.

Like other great investors, Werres focuses on the long horizon. Hinde holds many positions for years (some since inception) and places almost no weight on short-term benchmarks.

The team’s information edge comes from deep primary research and alternative data, but above all it is the investment discipline characterized by concentration, patience, and strict quality filters that defines the ‘Hinde Way’.

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The Hinde Way

Hinde Group’s investment approach is built on a small number of clear principles.

1️⃣ Two categories: Compounders & Special Situations

Hinde Group’s investments fall into two categories:

🟡 Compounders are great businesses that are out-of-favor, misunderstood, or underappreciated. The intended holding period is indefinite. Most positions get held for many years.

⚫ Special Situations are less-than-great businesses trading at a meaningful discount to intrinsic value, where a specific catalyst like a spin-off, merger, restructuring, or litigation outcome, is expected to close that gap within two years.

That’s the entire universe. Just compounders to own (most of the portfolio) and special situations to harvest (smaller part of the portfolio).

2️⃣ The 5 pillars of a great business

According to Marc Werres, a great business has all five of the following characteristics

🏰 1. Meaningful & Durable Market Power

Great businesses are those that create large amounts of value for their owners over time. One of the essential elements to achieving that, is meaningful and durable market power.

These businesses are characterized by pricing power, high returns on investment (ROE of 15–20%+), and barriers to entry that protect those returns from competition over the long term.

Pricing power and barriers to entry are also at the core of Chris Hohn’s investment framework:

🔮 2. Predictable Performance

It is hard to overstate how unpredictable the future is. Precisely forecasting the performance of any business over an extended period of time is a fool’s errand.

[…] But it is more reasonable to make such forecasts for some companies than it is for others.

Some companies have certain characteristics that make their performance relatively predictable: a stable market demand, recurring revenue, long product cycles, diverse sources of demand, limited dependencies, flexible operations, high profit margins and conservative financing.

The point is not to forecast quarterly EPS but to be confident that the business will look meaningfully bigger and more profitable in 5–10 years.

Predictability is also the #1 criteria Dev Kantesaria looks for in a business:

🚀 3. Abundant Growth Opportunities

Great businesses have abundant growth opportunities from multiple sources that should allow them to grow earnings per share at a compound annual rate in the high single digits or more over the next decade.

While there are different ways a business can grow (Improving existing products, enhancing pricing effectiveness, reducing costs … ), the most noteworthy way is to develop new products and services, which when done successfully “can create abundant growth opportunities for decades.”

Hinde looks for systematic innovation: maintaining a ‘stock and flow’ of products and services across Core, Emerging, and Viable horizons.

Amazon is a prime example of a company whose ability to successfully develop new products and services seems to provide it a nearly limitless source of growth.

🧠 4. Talented, Honest & Driven Leaders

Leaders who embrace reality, move fast, advocate simplicity, and obsess over attracting top talent. Similar to what I have seen with many other Gurus, they look for owner-operators whose incentives are aligned with long-term shareholders.

🔥 5. A Cult-Like Corporate Culture

Great businesses have cult-like corporate cultures that play an essential role in their success. Those cult-like corporate cultures share three fundamental characteristics:

• Clear & Compelling Vision

• Permeating & Guiding Ideology

• Zealot Employees

You can read more about each of these pillars on Hinde Group’s website.

3️⃣ Concentration with a margin of safety

Hinde Group typically holds about 10 positions or less.

This is a deliberate concentration that focuses capital on their best ideas. At the end of Q1 2026 the portfolio was just seven long positions plus cash.

At the same time, they insists on a margin of safety for every position: a discount relative to a conservative appraisal of intrinsic value. The combination of high concentration and high selectivity is the engine.

We do not need every investment to be successful for the overall portfolio to deliver exceptional results. We only need to limit unsuccessful investments in number and magnitude. Hinde Group’s investment process is designed to target a 90% success rate over time and to ensure unsuccessful investments are not disasters. Even if everything is working exactly as planned, 1 in 10 of our investments will fall short of our 15% hurdle rate when all is said and done.

At the same time, just because we expect to have some unsuccessful investments does not mean that we should just brush them off when they occur. One of Hinde Group’s principles is ‘Own the Outcome’. Putting that principle into practice means recognizing unsuccessful investments when they occur, critically examining what mistakes may have been made, and learning whatever we can from the experience.

🎬 The Hinde Playbook in Action: Netflix (2022–2026)

Before we get to the current portfolio, I want to take a brief detour through what I believe is a brilliant illustration of The Hinde Way.

Werres has a favorite Warren Buffett quote:

“A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem.”

Netflix in early 2022 was, in Werres’s words, an “archetypal example” of that pattern.

Act 1: Building a position into a 75% drawdown

Hinde began building its NFLX position in Q1 2022, when the stock had fallen sharply from its November 2021 high. They kept adding right through the brutal April 2022 earnings crash that ultimately took the stock to nearly 75% off that all-time high.

The investment community had largely written Netflix off after just a couple of quarters of softer membership growth.

Werres ran Netflix through the 5-pillar framework and concluded it was the rare company that scored well on all of them: meaningful and durable global-scale market power; predictable, low-churn subscription revenue; a vast unpenetrated TAM (only ~6–7% of US TV viewing time, even in its most established market); an elite founder-led management team in Reed Hastings and Ted Sarandos; and a famously cult-like corporate culture.

Some of the challenges that were feared by the market he saw as solvable.

A key signal for Werres was also the fact that Reed Hastings personally bought $20 million of stock in the open market at roughly the same time Hinde was building its position.

Act 2: A strong contrast with Bill Ackman

Werres was not the only great investor who saw Netflix in early 2022 as a “marvelous business with a one-time, solvable problem.”

Bill Ackman saw exactly the same setup.

In January 2022, at almost the same moment Werres was building his Hinde position, Pershing Square put over $1.1 billion into Netflix at similar prices, for almost identical reasons.

Then came the April 2022 earnings report.

Netflix announced it had lost 200,000 subscribers (its first decline in over a decade) and forecast a steeper drop ahead. The stock crashed more than 25% in a single day.

Ackman sold the entire position the very same day, locking in a ~$400 million loss after just three months of ownership.

I covered this full episode in Bill Ackman & The Pershing Square Playbook 👇

As I highlighted in my Ackman post, being “right” about the quality of a business clearly doesn’t help if you sell too soon.

[Quick sidenote: it looks like Bill Ackman and Marc Werres have a very similar investment framework since quite a few names have appeared in both investors’ portfolios at similar times: Netflix, Alphabet, Amazon, Uber, …]

Final act: The payoff

The stock fell further in 2022 before having one of the greatest recoveries of the decade.

By early 2025, NFLX had climbed above $1,000 and became Hinde’s second-largest position at just under 18% of the portfolio.

And this is when Werres started reducing his position:

“Netflix remains a great business with a bright future, but its stock clearly offers a notably lower prospective return above $1,000 than it did below $300.”

Hinde began trimming at the start of 2025, and by the end of Q2 the position was down to just ~2% of the portfolio.

Over a 41-month holding period, the Netflix investment delivered a 62.7% IRR and a 4.1x MOIC (Multiple on Invested Capital, i.e., Hinde got 4.1× their money back).

Bought when the business was great but the market was terrified. Held while the thesis was proven out. And trimmed when the prospective return no longer cleared the hurdle.

Perfect execution…

The sequel: Act 1, Take 2

As I was finishing this piece, Hinde Group released its Q1 2026 letter and Werres has started buying Netflix again.

NFLX is now down more than 30% from its June 2025 high, weighed down by AI-related disruption fears and the company’s failed bid to acquire Warner Bros. Discovery.

The Q1 2026 letter confirms that Werres used the weakness to increase both his Netflix and Amazon positions.

He is not alone. As I covered last week in What Gurus are buying and selling — Q1 2026 13F updates, several other long-term Gurus were also adding to Netflix during the quarter:

• Josh Tarasoff initiated a new ~8% position

• Thomas Russo added +12%

• Bill Nygren significantly increased Oakmark’s stake

The shared thesis is that Netflix is entering a new phase of pricing power and margin expansion, with or without transformative M&A.

In other words, we are watching the Hinde playbook run a second time on the same business with the same framework, but as a new opportunity.

The Hinde Group Portfolio

At the end of Q1 2026, the Hinde portfolio consisted of just seven long equity positions and ~10% cash.

There are no exact weightings available of the positions, but from the letters we can get a pretty good idea of what the portfolio looks like:

Interactive Brokers Group (IBKR), Uber Technologies (UBER), Northeast Bank (NBN), Alphabet (GOOG)

• At the start of 2025 these 4 companies accounted for most of the portfolio’s equities

• Werres mentioned some trimming and adding during 2025, but it looks like these are still significant positions in the current portfolio

• In the Q1 2026 letter, Werres mentions that IBKR “still represents a mid-teens percentage of the portfolio’s value”

Amazon.com (AMZN), Netflix (NFLX)

• Positions that had been trimmed during 2025

• Werres has been adding again to both names in Q1 2026

Becton, Dickinson and Company (BDX)

• BDX is a ‘special situation’ stock added in Q3 2025

• It was their first new position since 2022.

Three observations from this portfolio:

1/ Having the patience to wait for 2 years before buying something new, reminds me of Norbert Lou’s Punch Card mindset:

2/ Several names overlap with the Guru Gems portfolio (GOOG, UBER, AMZN), which is obviously a great validation of what I have done so far :)

3/ Finally, the portfolio’s evolution over the past decade is also quite fascinating.

• Werres bought IBKR at inception in 2015.

• He added Alphabet in 2017 and UBER in 2020.

• He initiated Netflix during the 2022 valuation collapse and harvested most of it in 2025.

• Werres is comfortable holding meaningful cash when attractive opportunities are scarce. In Q1 2017, after some big wins, cash was nearly at 48% of the portfolio.

In summary: The discipline is to ride winners while constantly hunting for the next mispriced great business or special situation and having the patience to wait if nothing good shows up.

💎 The Gem: Interactive Brokers Group (IBKR)

Werres has owned IBKR since Hinde Group’s first day. The position has delivered a ~27% compound annual return over more than a decade.

IBKR is the position he keeps returning to in his letters, and IBKR was the largest single contributor to Hinde’s 2025 performance.

So if there is one Gem worth studying from this portfolio, this is this one.

A brief callback: Bryan Lawrence

Long-time readers may remember that I touched on IBKR last summer in The Lawrence Method, where Bryan Lawrence’s Oakcliff Capital held it as their largest position at over 22% of portfolio (now 30%).

Lawrence’s four-question framework gave IBKR a green check on three of four boxes (Business We Understand, Good Business with Durable Cash Flows, Shareholder-Aligned Management) and a question mark on valuation.

When I wrote about Lawrence in July 2025, I concluded that while IBKR looks like a high quality business, I should do a bit more research on this company, and that’s exactly what I did when researching for today’s Guru Gem.

What does Interactive Brokers actually do?

IBKR is a highly automated global electronic brokerage firm founded by Thomas Peterffy. It provides ultra-low-cost trading across stocks, options, futures, FX and other assets in 150+ markets.

Key customers are primarily professional traders, hedge funds, and financial advisors, but also include active retail traders.

The business has two main revenue streams:

• Commissions earned on trades. In 2025, commission revenue grew 26%.

• Net interest income earned on customer credit balances and margin loans. In 2025, this grew 13% despite multiple Fed rate cuts, because customer credit balances grew 28% and margin loans grew 31%.

IBKR’s Q1 2026 results show how impressive this business really is:

• $1.7 billion in net revenue (+17% YoY)

• $1.3 billion in pre-tax income (+22% YoY)

• 77% pre-tax margin (highest profit margin in the industry)

• 4.8 million customer accounts (+31%)

• $789 billion in client equity (+38%)

Why IBKR is a ‘great business’ by Hinde’s 5-pillar framework

🏰 1. Meaningful & Durable Market Power ✅

IBKR’s automation-first cost structure lets it offer what Werres calls “the least expensive brokerage services while maintaining the highest profit margins in the industry.”

In his Q3 2019 letter he highlighted that IBKR was charging 3.40% on a $25,000 margin loan while Schwab and Fidelity each charged 8.82% for the same loan. Today, per IBKR’s Q1 2026 investor materials, US margin rates are 4-5% for IBKR Pro, still well below larger retail brokers.

When Schwab and TD Ameritrade went to zero-commission in late 2019, Werres argued in that same letter that while this would hit some online brokers hard, IBKR would be “relatively unscathed”, which turned out to be a correct analysis.

🔮 2. Predictable Performance ✅

IBKR’s ‘Total Customer Equity’ has grown at a 25% annualized rate over the last decade, proving its intrinsic value grows regardless of the macro environment.

This is the metric Werres started emphasizing in his 2023 letters because it captures intrinsic value growth without the noise of interest rates and trading volumes.

Customer accounts have grown alongside it at a similar high pace.

🚀 3. Abundant Growth Opportunities ✅

IBKR has penetrated less than 1% of its addressable market.

Growth levers include introducing-broker partnerships (the “white-label” model that fueled Asian growth), new geographies and new products (crypto, prediction markets via ForecastEx, overnight trading, mutual funds, bonds, event contracts).

🧠 4. Talented, Honest & Driven Leaders ✅

Founder Thomas Peterffy is still chairman, still owns roughly 73% of the underlying LLC, and still drives the company. Senior management is dominated by software engineers, not bankers. And the company emphasizes long-term growth over short-term metrics.

🔥 5. A Cult-Like Corporate Culture: ✅

The mission has not changed since 1977:

“Create technology to provide liquidity on better terms. Compete on price, speed, size, diversity of global products and advanced trading tools.”

Every product decision like the recent push into prediction markets and AI tools, runs through that same lens. This is the kind of cultural continuity that tends to survive the founder.

Five out of five… looks like we found ourselves a ‘good’ business :)

To Buy or Not to Buy

Now that we’ve established that IBKR is a great business, let’s look at the valuation

IBKR was up 113% in 2024, 46% in 2025 and currently trades at roughly 36x earnings.

Has it become too expensive?

The fact that IBKR is still a significant position in the portfolios of Bryan Lawrence and Marc Werres, indicates that they still expect to earn a decent return from this stock, even at the current levels.

Here is what Werres wrote in his Q4 2025 letter:

“Interactive Brokers should still grow its earnings at least at a mid-teens annual rate. […] Interactive Brokers also aims to pay out a dividend equivalent to a 0.5% to 1.0% yield. Between earnings growth and its dividend yield, IBKR seems poised to deliver a high teens or better annualized return over the coming years. IBKR would need to trade at more than $100 per share today to offer a market-level return.”

At the price IBKR traded at end of 2025 ($65-70), Werres is implicitly saying IBKR still offers above-market prospective returns, even after the recent run.

At the same time, Werres indicated in his latest letter that he sold some IBKR (probably in the $75-80 range), not because the thesis broke, but because the price had run hard:

While IBKR gained only 4.3% for the quarter as a whole, we trimmed some of our position early in the quarter at prices notably higher than where IBKR ended the quarter

Final decision

📌 Keeping IBKR on the watchlist (but moving it to the top of the list)

The business is exceptional, the long-term thesis is intact, but entry price matters as we have shown with the Netflix case study.

The long-term thesis is supported by two of the most disciplined long-term investors I have studied, who have both built their portfolios around this stock:

• Bryan Lawrence (Oakcliff Capital): IBKR held since 2017, now 30% (!) of portfolio

• Marc Werres (Hinde Group): IBKR held since 2015, ~15% position, ~27% CAGR over the holding period

That is a meaningful long-term endorsement.

My entry trigger: I will initiate a position if IBKR pulls back to around $65 or below, which is the Q1 2026 closing level and would put it materially below Werres’s trim range and meaningfully below his $100 market-level-return threshold.

That’s it for this week’s edition!

Thank you for reading and following along.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Friday was the deadline for Superinvestors ($100M+) to report their US positions held on 31st March 2026 (13F filings).

In this post I share my takeaways from the latest changes in the portfolios of my favorite Gurus.

• 👑 Does Alphabet keep its crown as ultimate Guru Gem?

• 💾 Software recovery continues

• 👀 Other names worth watching

Below is a table listing most of the Gurus covered so far in the Guru Gems series as well as some other interesting Gurus.

→ For the full table with more names and additional comments, access the Guru Master Google Doc, which also contains my full portfolio and latest activities

1️⃣ Alphabet, Amazon, and the GOOG vs MSFT debate

Alphabet is still the ultimate Guru Gem

Alphabet continues to dominate Guru portfolios.

• Li Lu holds it at a massive 45% of his US portfolio.

• John Armitage tripled (!) his position (+221%), making it his second-largest holding.

• Seth Klarman added +9%.

• Berkshire Hathaway dramatically increased their stake (+204%, though from a small base).

• Chris Hohn further increased his Alphabet stake.

Looking across the full table, Alphabet appears as Gem 1 or Gem 2 for more Gurus than any other stock.

Amazon remains the clear second favorite

Last quarter, Gurus were loading up on Amazon because it was the laggard of the Magnificent 7, with barely a 1% return over full 2025. That thesis hasn’t gone away.

Seth Klarman made Amazon his #1 position this quarter (+47%). Bill Ackman holds it as his #2 (+19%). David Rolfe added aggressively (+72%). Samantha McLemore increased by +16%. And Josh Tarasoff holds it as his largest position at nearly 19% of his portfolio.

The picture is more mixed than Q4 however. Berkshire sold their full Amazon position, Armitage cut by 60%, and Druckenmiller exited entirely.

But the buyers are some of the most conviction-driven, long-term oriented names in the business.

The thesis: Amazon’s return on invested capital has recovered strongly from its 2022 lows, AWS and advertising continue to grow, and the valuation (particularly on EV/EBITDA) remains attractive relative to the business quality.

When Gurus disagree: the GOOG vs MSFT debate

Two high-profile investors just made almost exactly opposite bets on Google and Microsoft.

Bill Ackman announced a new position in Microsoft, calling it a “highly compelling valuation.” At the same time, Chris Hohn was selling more than 80% of his Microsoft stake, citing “uncertainty over Microsoft’s competitive position in the future.”

Ackman’s move was not just a buy of Microsoft, he effectively sold Alphabet to fund his purchase.

On X (Twitter), Bill Ackman reacted to Chris Hohn’s move and later also clarified why he sold Alphabet.

Finally, John Armitage made an even bolder move: he sold his entire Microsoft position (which was Egerton Capital’s largest holding just two quarters ago), reduced Amazon by 60% and tripled his Alphabet stake.

Three exceptional investors, with very different conclusions on the same companies.

This is the kind of divergence that makes pattern-finding hard, but it is also a fascinating debate worth following closely over the coming quarters.

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2️⃣ Software recovery: the SaaSpocalypse buying continues

In last quarter’s edition, I wrote about how we were probably reaching ‘peak fear’ in software stocks following the AI agentic tools scare.

The data from Q1 13Fs suggests that some Gurus have acted with conviction.

Salesforce (CRM) is the clearest signal. Oakmark increased their position by 52%, making it their single largest holding at ~3.7% of a $75 billion portfolio. Akre Capital initiated a new position. The stock has been a frequent target of “AI disruption” fear, and both firms are effectively saying that the fear is overblown.

Bill Nygren’s Oakmark, who published a letter ‘Why we’re buying software today’ in February, has clearly acted on that thesis. In addition to CRM, they added a new position in Roper Technologies (ROP) as well as Adobe (ADBE). Samantha McLemore at Patient Capital Management also bought Adobe.

Akre Capital initiated ServiceNow (NOW) as a new position, in addition to CRM. This follows their letter to shareholders in February, where they expressed high frustration, but even higher conviction in the face of fear-driven selling.

On the smaller end, Bryan Lawrence (Oakcliff Capital), who rarely makes changes to his highly concentrated portfolio, increased his Guidewire Software (GWRE) position by 73%. As I discussed in the Q4 update, Lawrence views Guidewire as an ‘AI-Resilient’ software company, and this addition seems to double down on that conviction.

Finally, Gurus seem to also double down on CCC Intelligent Solutions (CCC), one of the most beaten down stocks in my Guru Gems portfolio. Akre Capital (+27%), Peter Keefe (+47%) and Triple Frond Partners (+13%) all significantly increased their position in this SaaS company operating in the insurance industry.

3️⃣ Multi-Guru accumulation: the names worth watching

One of the most useful signals in 13F analysis is when the same name appears in multiple portfolios at the same time. This quarter there are two distinct groups worth highlighting. I’ll be adding these to my watchlist.

The under-the-radar names

These are lesser-known companies that most people on X and Substack won't be writing about, but where multiple long-term investors are quietly building positions.

Linde Plc (LIN)

This industrial gas & engineering giant shows up across three different Guru portfolios.

• John Armitage initiated a new 6% position (making it an immediate top-5 holding for Egerton Capital);

• AKO Capital also added a 1.3% position;

• Tom Gayner at Markel holds a 0.9% stake.

Linde is a high-quality compounder with global scale and pricing power. It could be considered the industrial equivalent of the quality compounders these Gurus typically love.

Lennar Corp (LEN)

Lennar, a homebuilder, is another convergence.

• Berkshire Hathaway significantly increased their holding (they now own approximately 5% of Lennar);

• Greenhaven Associates has it as a 15% position;

• Bryan Lawrence holds a 4.5% position.

One of the main argument for owning homebuilders is that the US housing market is undersupplied. This supply/demand imbalance will take years to address and should support ongoing pricing power for homebuilders.

Sunbelt Rentals (SUNB)

Sunbelt Rentals, an equipment rental business, might be the most intriguing name.

Looking at the 13Fs, it looks like Thomas Russo, AKO Capital, Bill Nygren at Oakmark, François Rochon and Tom Gayner all initiated a new position.

However, the company has been public for decades, but was previously trading primarily on the London Stock Exchange, and recently moved their primary listing to the U.S. because the vast majority of their operations and revenue are generated in North America.

Therefore it is possible that all the Gurus above already owned the company through the UK listing and it just looks like they now have a new position.

In any case, it’s an interesting name to have a closer look at, as it may be one of those unglamorous compounders that fits the Guru playbook well.

Well-known names, but with a new story

Uber (UBER)

Uber continues to attract serious Guru conviction. Bill Ackman holds it as a core 16% position, and John Armitage increased his stake by +74% this quarter, making it one of his largest additions. Thomas Russo also slightly added.

Uber's dominant position in ride-hailing and food delivery, combined with improving margins and a growing advertising business, makes it a compounding story that fits the Guru playbook well. It is a Guru Gems portfolio holding, so it is reassuring to see investors of this caliber adding with conviction.

Netflix (NFLX)

Netflix (NFLX) attracted some buying during a quarter where the company's failed bid to acquire Warner Bros Discovery played out. A deal which was ultimately lost to a superior bid from Paramount. The episode highlighted Netflix's M&A ambitions and financial firepower.

Josh Tarasoff initiated a new 8% position, Thomas Russo added +12%, and Bill Nygren significantly increased Oakmark’s stake.

The thesis: Netflix is entering a new phase of pricing power and margin expansion, with or without transformative M&A.

Moody’s (MCO) and S&P Global (SPGI)

Moody's and S&P Global may be the clearest multi-Guru signal of the quarter.

Armitage doubled MCO (+100%), Hohn holds it at 14% and added, Li Lu initiated both MCO and SPGI as new buys, and Kantesaria holds SPGI as his second-largest position at 22%.

I already own SPGI in my Guru Gems portfolio, so it’s a nice validation to see this level of Guru conviction.

💎 What this means for the Guru Gems portfolio

I’m pleased to see several Guru Gems portfolio holdings being reinforced by multiple Gurus this quarter.

Alphabet continues to enjoy wide ownership and some high-profile additions, and positions in SPGI, UBER, and CCC are also being added by Gurus I follow.

One question that is on my mind: should I trim Alphabet?

Alphabet has been an exceptional winner and now represents more than 15% of my portfolio. That’s a large concentration in any single name (even a great one).

In my recent post on Stock Master Maestros, one of the investors profiled in the book, Greg Padilla, has an elegant framework: he starts every position at a standard 2–2.5% weight and then simply lets it run.

His only exception is a hard rule to trim when a position reaches 6% of the portfolio. Not because he’s lost conviction, but purely for risk management purposes.

Alphabet is now well more than double that 6% threshold. By Padilla’s framework, a trim here isn’t a lack of conviction, it’s the disciplined, rational thing to do. Alphabet doesn’t need to collapse for it to hurt the portfolio significantly; it just needs to underperform.

The fact that a number of Gurus who held large Alphabet positions (Ackman, Armitage, and others) have been trimming (and in Ackman’s case, exiting) after the stock’s strong run gives me further reason to act.

My plan: trim Alphabet back towards a 14-15% weighting and keep that as a maximum for any holding.

That’s it for this week’s edition!

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

Today I’m sharing my thoughts on 2 interesting pieces I came across this week. I also started a small position in a new company.

This company reported Q1 2026 earnings on Thursday and the stock dropped more than 20% in a single day after missing expectations and cutting full-year guidance. Both Terry Smith (Fundsmith) and David Rolfe (Wedgewood Partners) are shareholders, and after a drop of this magnitude, I think it’s worth a serious look.

Last week I started a new regular series where I bring a single idea from physics and apply it to how we think about businesses and markets. Make sure to check it out and tell me what you think!

Here is the 2 minute AI audio version of today’s post if you are short on time:

1️⃣ Paul Tudor Jones: “Buffett is the OG of compound interest”

Paul Tudor Jones is one of the most legendary traders alive. Famous for predicting the 1987 Black Monday crash, Paul Tudor Jones (‘PTJ’) is a pioneer in global macro trading, often focusing on currency and interest rate fluctuations.

He is also the founder of the Robin Hood Foundation and runs a fund that has delivered significant returns while having roughly zero correlation to the S&P 500 over four decades.

He recently sat down with Patrick O’Shaughnessy on the ‘Invest Like the Best’ podcast for a wide-ranging conversation.

The whole interview is worth watching, but a few moments stood out.

PTJ’s respect for the GOAT

For decades, PTJ used to “rail on Warren Buffett year after year after year”, dismissing him as a guy who just happened to be in the right place at the right time during the great American bull market.

And while he envies the ‘belief system’ on which Buffett’s approach was based, he realized that he didn’t have Buffett’s calm, patience and fortitude to sit through a significant market drawdown and do what Buffett does. He jokingly says:

“Why couldn’t I be Warren Buffett? Just believe in America. When you’re down 50%, who cares? America’s going to bring you through.”

But after listening to an ‘Acquired’ podcast on Berkshire Hathaway, something clicked:

“For the first time I learned that at 9 years old, 9 years old, he understood the power of compound interest. And actually when I listened to that podcast, I just went, Oh my god, this guy is a genius and I have been the biggest fool.”

And he closes with his characteristic humor:

“Warren, if you happen to hear this, I’m deeply apologetic. You are the OG of compound interest, and I wish I was one-tenth as smart as you are.”

For someone running a strategy with 0.12 negative correlation to the S&P 500 for 40 years, this is a great acknowledgment of the power of the approach I study here at Guru Gems: owning great businesses and letting them compound.

Trading as boxing

When the interviewer asked PTJ to describe what trading actually feels like, he uses a boxing analogy:

“You’re going into the ring with this opponent who’s after you the whole time. You’re pairing, jabbing, feeling each other out, looking for an opening. And then every now and then you’ll have a great opening and you take a big shot. And you may land one.”

A few examples from his career:

• Bitcoin in 2020 (a ‘knock-out’): When central banks and treasuries were intervening at unprecedented scale, he saw Bitcoin as the best inflation hedge available

• Two-year rates in 2022 (also a ‘knock-out’): As inflation surged, PTJ believed the Federal Reserve would be forced to aggressively tighten policy, leading him to bet against the short end of the yield curve.

• Dollar/yen today: He believes the yen is grossly undervalued and with Japan’s first dynamic prime minister in half a century, he sees a yen ready to repeat what happened to the dollar under Reagan and the pound under Thatcher.

The pattern he looks for: under-owned, undervalued, way out of whack, plus a catalyst.

Are we 1999 again?

The most interesting part of the interview for me was PTJ’s view on today’s market. He went through the big moments of his career: 1987, 1998, 2000, the GFC, and noted most of them shared a common feature: too much leverage, often derivative-driven.

But 2000 was different, and that’s the one that today’s market reminds him of:

“2000 was the easiest bear market I’ve ever seen my whole life. It’s got so many similarities to right now in the sense that the bear market of 2001 and 2002 were a consequence of all the IPOs in ‘99-2000 and then as they unlocked you just had this never-ending cascade of selling.”

His worry today is based on a simple piece of math:

• For the past 10 years, S&P 500 buybacks have retired 2-3% of market cap every year.

• Planned IPOs over the next year are estimated at 5-6% of market cap.

• Hyperscalers’ massive AI capex commitments are eating into the cash flow available for buybacks.

In other words, the equity supply/demand balance is about to flip: new equity supply rising while retired equity supply shrinks. Add the unlock schedules from a wave of IPOs and you have the same setup that produced the 2001-2002 bear market.

The lesson for me

I’m not going to start trading the dollar/yen anytime soon (although it may be a great time to look for undervalued Japanese stocks). But two things from this interview that I think are worth remembering:

1. Even legendary traders eventually recognize the value of compounding. PTJ’s career has been spectacular, but his honest reflection is that Buffett’s “boring” approach has been mathematically superior. That’s a powerful endorsement of what we try to do here.

2. Be aware of the supply/demand math for equities. With the IPO pipeline filling up and buybacks under pressure from AI capex, this is something worth watching, even for long-term investors.

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In my latest deep-dive I covered Josh Tarasoff, a lesser-known Guru who is not only a brilliant investor but also a great thinker

2️⃣ Christopher Tsai: Value Investing 4.0

Last year I covered Christopher Tsai of Tsai Capital, who runs a quality-growth strategy with a portfolio of long-term compounders like Apple, Brookfield, Amazon and Markel.

Tesla is Tsai’s largest position, and while I struggle to see Tesla as an attractive investment at its current valuation, the stock went more than 5x since Tsai started buying it in 2020.

Tsai just published an essay titled “Value Investing and the Emerging 4.0”, which is an interesting framework for thinking about how the discipline of value investing has evolved over the past century.

He breaks it into four eras:

Value Investing 1.0 — Graham’s “cigar butts” (~1930s)

Buying assets at a steep discount to book value, or even net current asset value… for less than two-thirds of [a company’s] net liquid assets alone — getting the plant, property, and equipment for free.

Value here was immediate: it resided entirely in the company’s balance sheet. This worked brilliantly in a manufacturing-heavy world full of forced liquidations, but Tsai argues most investors are still mentally trapped here, fixating on a single year of earnings rather than long-term earnings power.

If you want to learn more about Benjamin Graham and his book ‘The Intelligent Investor’, make sure to check my deep-dive:

Value Investing 2.0 — Buffett & Munger’s “wonderful companies” (~1970s onwards)

Value Investing 2.0 is best expressed by Buffett’s famous shift: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Value here became the present value of discounted future cash flows, projected meaningfully into the future. Margin of safety still applies, but it’s calculated against intrinsic value, not against book value.

Value Investing 3.0 — “The Medium is the Moat” (today)

This is Tsai’s preferred lens for evaluating great growth companies. Borrowing from Marshall McLuhan, he argues the new moat isn’t the product, but rather the environment built around the product:

Leading companies don’t merely sell products or services; they architect entire digital infrastructures and economic castles that redefine how we live, work, and interact — often invisibly.

Within 3.0, he highlights a particularly powerful subset: scale-economies-shared businesses, and (building on Nick Sleep’s foundational work) makes a distinction between:

• Supply-side scale economies (positive marginal cost): companies like Amazon, Tesla, and SpaceX that pass scale benefits back as lower prices, igniting a flywheel of more customers → more scale → lower prices

• Demand-side scale economies (zero marginal cost): platforms like YouTube, Instagram, and Google Search where the price is already free, so the company instead competes on user experience. Tsai coins a term for this: “Engagement Value per Unit Time”

In both cases, the company builds latent pricing power that it deliberately chooses not to flex, which means surface-level multiples often understate true intrinsic value.

Value Investing 4.0 — Intelligence as the castle (emerging)

In Tsai’s Value Investing 4.0, the company doesn’t just operate on top of an established platform. It must first build the platform itself, and the platform is intelligence.

In Value Investing 4.0, the economic castle is intelligence itself. And for the first time, the primary output that consumers are buying is digital labor.

Because the upfront capital required is enormous, Tsai argues that true 4.0 businesses don’t yet exist as standalone public companies. The closest examples are subsidiaries inside profitable 3.0 companies that can fund the bets:

• Tesla (Dojo + FSD + Optimus) - Funded by profitable car and energy businesses

• Frontier AI labs (Anthropic, OpenAI, xAI) - Funded by large 3.0 technology companies

Valuing a 4.0 business requires “an even more probabilistic, optionality-rich mindset”, projecting not five- or ten-year cash flows, but the present value of capabilities that may reshape entire industries.

My thoughts

I have to admit that Tesla is where the 4.0 lens gets hardest for me to apply. Paying today’s valuation for an “optionality-rich future” that may or may not arrive requires more conviction than I currently have, and I suspect many readers feel the same.

It doesn’t invalidate the framework. What I like is that the framework explains why the most successful quality-growth investors of the past decade have leaned into businesses that look “expensive” on a 1.0 or 2.0 basis but are deeply undervalued through a 3.0 lens.

Tsai’s 4.0 lens is certainly interesting food for thought…

💎 New Gem: Zoetis (ZTS) — A wide-moat compounder on sale?

Now to this week’s main event.

Zoetis reported earnings on Thursday and the stock dropped 21%, its largest single-day decline as a public company.

Zoetis Q1 2026

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Two very disciplined quality investors, Terry Smith at Fundsmith and David Rolfe at Wedgewood Partners, have been building positions in Zoetis since early 2025.

When two great investors land independently on the same business and the price drops 20%+ in a day, that deserves a very close look.

Let’s evaluate Zoetis through our Terry Smith-inspired framework.

What does Zoetis do?

Zoetis is the global leader in animal health. Spun off from Pfizer in 2013, the company sells medicines, vaccines, diagnostics, and genetic tests for both companion animals (dogs, cats, horses) and livestock (cattle, swine, poultry, fish).

The mix is roughly 70% companion animals / 30% livestock, with the U.S. accounting for ~55% of revenue and operations in more than 100 countries.

1/ Buy good companies

✅ Wide moat in an attractive industry. Morningstar rates Zoetis as having one of the widest moats in animal health: 300+ products across 8 species, 17 therapies generating over $100M each annually, long product lifecycles (less generic pressure than human pharma), and decades-deep veterinary relationships.

✅ Powerful secular tailwinds. The global animal health market is forecast to grow at ~8-10% CAGR (~$70B in 2025 → $150B by 2032), driven by the humanisation of pets, rising emerging-market pet ownership, pets living longer, and growing global demand for animal protein.

✅ Strong financials and capital allocation. 5yr ROCE of 26%, net margin of 28%, ~15% annualised dividend growth, and an active buyback program which was recently increased.

⚠️ What the market hated this quarter. The Q1 weakness was concentrated in one segment: U.S. companion animal. Total revenue grew just 1.9% to $2.26B (a miss); U.S. business declined 8% (companion animal alone -11%); but International grew 10% and livestock grew 12%. CEO Kristin Peck cited “a more price-sensitive and competitive environment” and lowered FY26 guidance accordingly.

2/ Don’t overpay

Here is where it gets interesting. Zoetis has historically been a “premium” stock. But after Thursday’s drop, ZTS trades at ~12x forward earnings, a historically low valuation.

With a 5yr ROCE of 26% and a EV/EBIT multiple of 12, Zoetis is now entering ‘Magic Formula’ territory…

Here is what David Rolfe wrote in his Q2 2025 letter, when the stock was much higher than today:

“We believe that, over the long term, reality tends to win; high-quality businesses earn the valuations they deserve at some point and will outperform the broad market. We believe we have been given the opportunity to do this with Zoetis now.”

3/ Final decision

Zoetis looks like a great Guru Gems portfolio candidate: a wide-moat business, in a structurally growing market, owned by two very disciplined quality investors I follow, and now trading at the cheapest valuation in a decade.

The Q1 results are genuinely disappointing, but the weakness is concentrated in one segment where the issues appear cyclical and competitive rather than structural. International and livestock continue to grow, and the long-term tailwinds for animal health are intact.

As Howard Marks often points out:

“In the real world things fluctuate between ‘pretty good’ and ‘not so hot’, but in the minds of investors they go from ‘flawless’ to ‘hopeless’, and so prices fluctuate enormously around intrinsic value.”

This feels like one of those moments.

📌Adding Zoetis (ZTS) to the Guru Gems portfolio.

I plan to add a starter position (1-2%) to the Guru Gems portfolio in the next few days and may buy more if the price continues to fall.

That’s it for this week! Please like or share if you find these insights valuable.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome to a new edition of Guru Gems, where I study the world’s long-term investing masters and build a portfolio of quality companies based on their wisdom.

In my most recent Guru deep-dive, I covered Josh Tarasoff, a lesser-known Guru, who is not only a brilliant investor but also a great thinker.

Today’s edition is a bit special…

And while it may not be everyone’s cup of tea, I still hope you’ll get something out of it. Please do share your thoughts and suggestions!

2 minute AI audio version of today’s update:

🔭 Introducing a new monthly series

Long before I started studying investing masters and companies’ balance sheets, I had a very different interest: physics.

When I was 17, I got intrigued by reading Stephen Hawkings’ popular book ‘The Universe in a Nutshell’, and it led me to studying physics at university.

After graduating, I went into consulting and never returned to physics professionally. But the fascination certainly remained.

Over the years, I noticed that some of the laws (or principles) that describe moving objects or a cup of coffee cooling on your desk, show up in the world of investing too.

To revive this old passion of mine, I am starting a new regular series at Guru Gems where I bring a single idea from physics and apply it to how we think about businesses and markets.

I promise there won’t be a lot of equations, and the focus will be more on frameworks and mental models.

In keeping with the spirit of Guru Gems, each issue will also feature a guru. Though this time, a guru of physics rather than of investing.

Let’s start with one of the most foundational ideas of all.

The most pessimistic law in science

Of all the laws in physics, the second law of thermodynamics is one of the bleakest.

The first law tells you that energy is conserved. It can’t be created out of thin air or destroyed, only changed from one form to another.

The second law tells you that while the amount of energy stays the same, the useful portion shrinks every time it changes form.

Each time energy is transformed, some of it is "lost" as waste heat, dispersed into a form you can no longer harness. Heat spreads out and hot things cool down.

The arrow of time, as physicists call it, points in one direction only: from order to disorder, from concentration to dispersion.

A famous example is dropping a sugar cube into a hot cup of coffee. Watch what happens. The sugar dissolves. The coffee cools. Both the sugar and the heat spread out evenly, and they never spontaneously go back.

The technical name for this tendency toward disorder is entropy, and it always increases in a closed system.

The British astrophysicist Arthur Eddington wrote in 1928 that entropy holds “the supreme position among the laws of Nature.”

He warned that if your theory is found to be against the second law of thermodynamics, “I can give you no hope; there is nothing for it but to collapse in deepest humiliation.”

Why am I telling you this? Because I believe the second law of thermodynamics also describes the world of business. And once you see it, you cannot unsee it.

🚦Businesses obey the second law too

Imagine the economy as a giant thermodynamic system. In this system, “heat” is excess profit, the returns a business earns above its cost of capital.

And just like heat in a coffee cup, those excess profits do not stay concentrated. They diffuse, competitors arrive, margins compress, customers become choosier, patents expire, brands fade...

The default state of any business, left to itself, is the economic equivalent of room-temperature coffee: returns roughly equal to the cost of capital, no more.

This is not just a metaphor, it is empirically observable. In their landmark 2024 paper Measuring the Moat, Morgan Stanley's Michael Mauboussin and Dan Callahan show that companies earning the highest returns on invested capital tend to see those returns ‘fade’ over the following decade as competition arrives.

This is essentially the second law of thermodynamics applied to ROIC.

High returns attract competitors the way heat attracts cold air. Most businesses, given enough time, regress toward the mean.

So how do some businesses stay hot for decades? The answer in physics is the same as the answer in business: work.

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👷 What “work” means in physics, and in business

In physics, work has a precise meaning: it is the act of using energy to push a system away from where it naturally wants to go.

A refrigerator is the classic example. The inside of your fridge is colder than your kitchen. Left alone, the cold would leak out and equilibrium would win. So a compressor (the small motorized pump at the back of your fridge) runs continuously, doing the work of pushing heat from the cold inside into the kitchen. Stop the compressor and within hours your milk starts to warm up towards room temperature.

Now think of a great business like a refrigerator.

Here the fridge’s cold air is the company’s excess profits. The warm kitchen is the surrounding economy, pulling everything toward the cost of capital. And something, the moat, is the compressor doing the work to keep the two apart.

Here is where Chris Hohn’s “fortress business model” framework perfectly fits in.

When I wrote about Hohn last month, I described his obsession with barriers to entry. Re-read that issue with thermodynamics in mind, and you realize he is essentially asking: what is doing the work to keep this business away from competitive equilibrium, and how much does that work cost?

Look at the kinds of moats Hohn lists: irreplaceable physical assets, intellectual property too complex to replicate, network effects, switching costs, brand strength, regulatory protection. Each is, in physics terms, a different mechanism for keeping the system far from equilibrium. And the very best businesses use several at once.

As Warren Buffett puts it:

“All economic moats are either widening or narrowing, even though you can’t see it.”

That is the second law at work. A moat cannot stand still. Either work is being done to push it further from equilibrium, or it is silently decaying back toward it.

🧓 The Guru: James Clerk Maxwell (1831–1879)

Before we go further, allow me to introduce the man who played a key role in better understanding the second law of thermodynamics.

James Clerk Maxwell is, in my view, an underrated genius in the history of science.

Einstein kept three portraits on the wall of his study: Newton, Faraday, and Maxwell. When Einstein visited Cambridge in 1922 and was told he had achieved great things by standing on Newton’s shoulders, he replied: “No, I stand on the shoulders of Maxwell.”

A quiet Scottish physicist who died of cancer at just 48, Maxwell unified electricity, magnetism, and light into a single set of equations that still govern every wireless signal, every radio wave, every visible color. If you ever had advanced physics classes, you may have learned about Maxwell’s equations.

Maxwell showed that light itself is an electromagnetic wave, a theoretical breakthrough that lay the foundation for Einstein’s relativity and also made the wireless age possible.

Without Maxwell, no GPS, no Wi-Fi, no mobile phones.

But the work most relevant to investors came from his other great obsession: the behaviour of gases. Maxwell, along with Ludwig Boltzmann, laid the foundations of statistical mechanics, showing how temperature, pressure, and entropy emerge from the collective behaviour of countless jiggling molecules.

🎥 To learn more about Maxwell, the BBC documentary James Clerk Maxwell - The Man Who Changed The World is a wonderful introduction to his life and work.

⭕ Maxwell's demon: a very special type of compressor

In 1867, Maxwell described a thought experiment that would unsettle physicists for the next century.

He pictured a tiny intelligent being (Lord Kelvin would later call it a “demon”) sitting at a gate between two chambers of gas.

Whenever a fast molecule approached from the cold side, the demon opened the gate to let it pass into the hot side. Whenever a slow molecule approached from the hot side, the demon let it pass to the cold side.

Over time, all the fast molecules end up on one side and all the slow ones on the other. The demon has separated hot from cold without doing any apparent work. He has, in effect, broken the second law.

For nearly a hundred years, physicists struggled with this puzzle. The eventual resolution came through information theory: the demon does do work, the work of information processing. He has to observe each molecule, decide what to do, and remember. That information has a thermodynamic cost. You cannot get something for nothing.

But the demon does represent something profound: a system where the work required to maintain order is so cleverly leveraged that it almost looks like magic.

What this means for investors

Maxwell’s demon is obviously just a thought experiment. But it points to something real and important about businesses.

Every great company has a compressor, something doing the work to hold back competitive equilibrium. But the amount of work required varies enormously from one business to another.

The very best businesses look, at first glance, like Maxwell's demons. S&P Global, which I added to the Guru Gems portfolio after my Hohn deep-dive, is a good example. Every bond issuance needs a credit rating. The fee is tiny relative to the bond size, the regulators essentially require it, and S&P collects with almost no incremental work.

Moody's, Visa, and similar Hohn and Kantesaria favourites are variations on the same theme: every transaction, a small toll, with the network running itself. The ratio of work done to heat captured is extraordinary.

At the other end of the spectrum sit businesses where the compressor is real, durable, but loud. GE Aerospace (Hohn) and HEICO (Rochon) earn their returns through continuous R&D, regulatory certifications, and layered switching costs.

And then there are businesses that sit somewhere in between or are still moving along the spectrum. Uber (Ackman) is a good example: billions of dollars were burned over a decade to create a network effect that, now that it has reached critical mass, increasingly runs itself. A demon being built in real time.

The investor's job is to figure out what the compressor looks like that is doing the work to hold back competition. 3 question can help with this.

🏰 Three questions to ask before owning a moat

Knowing where on the spectrum a business sits is only the beginning. To put the second law to practical use, here are three thermodynamic questions worth asking before investing in a company.

1. Is there a compressor and what does it look like? What specifically is doing the work to keep this business above competitive equilibrium? Is it scale? A network effect? A regulatory license? A patent? A brand built over decades? If you cannot name the compressor in one sentence, you probably do not yet understand the business well enough to own it. “They have a moat” is not an answer. What the moat is, and how it does its work, is.

2. What is the work-to-heat ratio? A business that captures enormous heat for very little work (think Visa, Moody’s, S&P Global) is a different animal from a business that captures enormous heat for enormous work (think GE Aerospace, HEICO). Both can be excellent investments. But they require different mental models. The first kind throws off cash and needs little reinvestment. The second kind compounds beautifully but requires constant feeding, and the moment management starts under-investing to flatter quarterly earnings, the compressor might start to fail.

3. Is the kitchen heating up (too much)? A moat that worked in 2010 may not work in 2030, not because the company stopped trying, but because the world around it warmed up. Newspapers did not get lazy; the internet simply raised the temperature beyond what their compressor could handle. The question worth asking of any long-term holding is whether the surrounding environment is becoming hotter or cooler relative to the work the compressor is designed to do.

This last one is also a useful lens on the current AI fears around SPGI. The market is essentially asking whether AI raises the temperature of S&P’s kitchen. My own view, for what it is worth, is that S&P’s particular form of work is proprietary, regulated, embedded in workflows. This is not the kind that AI easily commoditizes. If anything, AI needs S&P’s data to function. But that is a question every investor should evaluate for themselves.

Closing thought

Let’s close with a perfect quote from Buffett, taken from his 2007 letter to shareholders

"A moat that must be continuously rebuilt will eventually be no moat at all."

The truly great businesses are not the ones doing the most work to hold back competition. They are the ones where the work is structurally cheap, where the compressor runs quietly because of the way the system is built, not because of how hard management is pushing.

Most “moats” are not really moats. They are construction sites, perpetually rebuilding. The second law catches up with them eventually.

The investor’s job is to tell the difference. To find the businesses where the work is done by the structure itself, not by the people running it.

That’s it for this week!

As you can see, a bit of a different issue this time but I believe that studying frameworks from the field of science can really help us become better investors.

If you enjoyed this post, I would really appreciate it if you could like or share it or leave a comment!

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome to Round 8 of building my Magic Formula Portfolio.

Here is the 2-minute AI audio version of today’s update:

Quick reminder if you are new to Guru Gems: while studying investing masters, I’m creating two real-money portfolios to put my learnings into practice.

Check out my recent 1-year anniversary post to learn more about my journey:

Last week’s Guru deep-dive covered a lesser-known Guru, who happens to be not only a brilliant investor but also a great thinker

Magic Formula Refresh

In “The Little Book that (Still) Beats the Market”, Joel Greenblatt suggests that a regular investor can beat the market averages by buying a group of ‘good’ companies at ‘bargain’ prices.

• ‘Good’ → high return on capital

• ‘Bargain’ → high earnings yield

Since he expects the magic formula to work on average, Greenblatt suggests to own a basket of 20-30 stocks.

Here is a great clip from an interview with Howard Marks where Greenblatt talks about how buying good businesses at attractive prices is the key to beating the market. His “Magic Formula” investing strategy is built on this very principle of simplicity and consistency.

You can read more on Joel Greenblatt and his Magic Formula here.

You can also download my Joel Greenblatt e-book for free:

Joel Greenblatt e-book by Guru Gems

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Current Magic Portfolio performance

Last month I added Adobe (ADBE), Deckers Outdoor (DECK), and EverQuote (EVER) to the portfolio in Round 7, bringing the total number of holdings to 21 stocks.

The overall performance of the Magic Portfolio is currently +1.4%, which is definitely not beating the index (yet), but it is back in the green after some painful months.

A few big ‘winners’ were responsible for most of the gains over the past month:

• Molina Healthcare (MOH) is up nearly 25% over the past month and jumped 14% on Thursday alone after reporting Q1 2026 earnings. Molina’s solid quarter was driven by better than expected Adjusted EPS ($2.35) and medical loss ratio.

• Catalyst Pharmaceuticals (CPRX), a name I added in August, was also up ~15% over the past month and hit a new all-time-high this week. The big ‘catalyst’ here was the company securing extended U.S. patent exclusivity for Firdapse until 2035, which removes the most pressing near-term overhang on the stock.

• Crocs (CROX), the ‘ugly’ shoe company, is up nearly 30% over the past month. Crocs received multiple analyst upgrades after their strong 2025 earnings report in February, which has probably boosted investor confidence in Crocs’ growth potential. Some recent product collaborations with popular brands also generated significant social media buzz among younger consumers. The next test will be the Q1 2026 earnings report on April 30.

Of course, not everything has been working. SIGA Technologies (SIGA) and Rigel Pharmaceuticals (RIGL), 2 small-cap pharma companies are down more than 30% and H&R Block (HRB) is even down 40%.

But that’s why Greenblatt says to hold 20-30 stocks, so that the formula can work ‘on average’. And with the portfolio containing many out-of-favor businesses where sentiment is washed out, it usually doesn’t take much in terms of positive catalyst to drive a sharp re-rating.

Also, Greenblatt himself warned that:

Over one-year periods, the magic formula stock portfolios underperformed the market averages in one out of every four years tested.

The real test is over a 3-year period, where Greenblatt observed outperformance in every single rolling 3-year window in his original tests. I am only ~10 months in, so there’s still a long way to go. Sticking to the process!

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New Magic Formula Stocks

As I explain in detail in my first Magic Portfolio post, I use Joel Greenblatt’s Magic Formula screener combined with financial ratios data to identify the top stocks in terms of combined rank for Return on Capital (using ROCE) and Earnings Yield (using EV/EBIT).

Here are the 3 companies I will be adding to the Magic Portfolio on Monday

1. lululemon athletica (LULU, Market cap $16B)

Magic Formula metrics: ROCE 3Yr: 44%; EV/EBIT: 7.4x

Lululemon is a global athletic apparel company best known for its premium yoga, running, and training wear. The brand built its reputation through community-driven retail experiences and product innovation, and it has expanded internationally over the past decade, particularly in China.

LULU ranks quite high on the Magic Formula screener with a 3yr ROCE of 44% and an EV/EBIT of 7.4x. That combination of consistently high returns on capital with a single-digit EV/EBIT multiple is rare for a brand of this size and quality.

Here is a really good deep-dive from January from , who I highly recommend following/subscribing to:

The Pursuit of Compounding

lululemon athletica: Mismanaged Compounder, or Value Trap?

Source Over the last 18 months lululemon athletica inc. (LULU) has been a perpetual (downward) dog. For shareholders, the ride has been anything but a smooth vinyasa flow…

Read more

4 months ago · 9 likes · 4 comments · The Pursuit of Compounding

A few things stand out about Lululemon today:

• The stock is down ~58% from its 52-week high of $340 (June 2025), and ~32% year-to-date. The decline has been driven by slowing growth in the Americas, a Texas AG investigation around product chemicals, and most recently a sharp 13% drop on April 23 after the company appointed former Nike executive Heidi O’Neill as new CEO. The choice for O’Neill was a disappointment for activist investors Elliott Management.

• Despite the noise, the underlying business still generates $11B in annual revenue with strong international momentum (China, EMEA).

• The current P/E of ~10.8x is well below LULU’s 5-year median of ~37x, suggesting the market is pricing in a lot of bad news.

I realize LULU is a controversial pick and may be considered a value trap. But the Magic Formula doesn’t ask whether a story is comfortable, it asks whether the business is high-quality and cheap. On those two dimensions, LULU is hard to ignore.

2. Exelixis (EXEL, Market cap $12B)

Magic Formula metrics: ROCE 3Yr: 26%; EV/EBIT: 11.5x

Exelixis is an oncology company best known for CABOMETYX (cabozantinib), a tyrosine kinase inhibitor approved across multiple indications, including renal cell carcinoma, hepatocellular carcinoma, and most recently neuroendocrine tumors.

EXEL ranks strongly on the Magic Formula with a ROCE of 36% (3-year average of 26%) and an EV/EBIT of 11.5x.

A few things to note about Exelixis:

• The company generated $2.1B in revenue in 2025 (up 17%) and guided for ~$2.4B in 2026, driven by continued momentum in renal cell carcinoma and the new NET launch.

• The market is clearly pricing in the August 2026 patent cliff for cabozantinib, which currently accounts for ~90% of revenue which explains the relatively low valuation.

• The company has been aggressively returning capital to shareholders, having repurchased $2.16 billion in stock since March 2023. A new $750 million repurchase program was authorized in October 2025.

• The pipeline successor, zanzalintinib, has a potential FDA approval decision in December 2026 for colorectal cancer and mid-2026 readouts in non-clear cell renal cell carcinoma.

This is a classic Magic Formula setup: a high-quality, cash-generating business trading cheaply because of a real but well-known overhang. If the patent extension litigation succeeds or zanza launches well, today’s multiple looks too low.

3. MediaAlpha (MAX, Market cap $600M)

Magic Formula metrics: ROCE 3Yr: 43%; EV/EBIT: 8.7x

MediaAlpha is the leading programmatic customer acquisition platform for the U.S. insurance industry. The company connects insurance carriers with online shoppers. They operate primarily in property & casualty (auto/home), health, and life insurance, and earn a fee on each consumer referral.

MAX ranks well on the Magic Formula with a ROCE of 43% and an EV/EBIT of 8.7x.

I picked MAX over CorMedix (CRMD), which actually ranked a bit higher on combined rank, because I am already heavily exposed to pharma/healthcare in this portfolio (HRMY, RIGL, CPRX, SIGA, LNTH, EXEL, plus MOH and CI on the insurance side).

A few things to note about MediaAlpha:

• 2025 was a record year, with revenue of $1.1B (up 29%), transaction value of $2.2B (up 45%), and net income of $26.8M.

• The Property & Casualty insurance vertical, which is now the core of the business, grew transaction value 65% in 2025 to $1.9B as auto insurance carriers ramp customer acquisition spending after years of pullback.

• The stock has been volatile and well off the 52-week high of $13.71 from December 2025, partly driven by a Q4 2025 revenue miss reported in February and broader macro concerns weighing on cyclical names. Goldman Sachs cut its price target from $13.50 to $11.50 in February.

• Q1 2026 earnings on April 29 will be a near-term catalyst (but also a risk as this is the kind of stock that can move 15%+ on earnings).

On Monday, I’m adding these 3 names to the Magic Formula Portfolio and then hold them for one year, as Greenblatt prescribes.

That will bring me to 24 stocks in the portfolio. The goal is to get to a full portfolio of ~25 names, so I will be essentially fully invested.

That’s it for this week! Please like or share if you enjoy reading Guru Gems.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

In today’s edition:

• 🕴️ The Guru: Josh Tarasoff — Founder of Greenlea Lane Capital

• 📈 The Playbook: The Greenlea Lane Way — Permanence, Quality and the Indirect Path

• 💎 The Gems: A Tour of Greenlea Lane’s top holdings

• 🔄 The Confirmation: Why Tarasoff’s portfolio validates several of our existing positions

Today’s Guru deep-dive is a bit longer, so here is a 2-minute AI audio version if you are short on time (bonus point if you can find the error)

Start here if you are new to Guru Gems.

Welcome to Year 2 of Guru Gems

Last week I published newsletter #52, the one-year anniversary edition of Guru Gems

In the ‘What’s Next for Year 2?’ section I wrote:

“In my first year I have covered mostly well-known names, so going forward I will try to also cover some lesser-known Gurus.”

Well here I am, making good on that promise already :)

Josh Tarasoff is probably one of the lesser-known investors I have covered until now, but a very interesting Guru nonetheless. He has no public profile, no media presence, and no marketing operation of any kind. He runs a fund of just 8-10 stocks out of his home in Connecticut, entirely on his own.

There isn’t much available in terms of interviews or investor letters, especially from the past couple of years, but after some research I still managed to find a few very interesting interviews and materials published on his website that allow me to understand his investment framework.

Let’s dig in.

Guru in the spotlight: Josh Tarasoff

Josh Tarasoff is not a household name. He does not appear on CNBC or Bloomberg TV, does not publish on X (at least not anymore), and has never run a marketing campaign. He operates out of Weston, Connecticut, with no employees, no formal office, and no analyst team.

He launched Greenlea Lane Capital in 2006 with about $2 million raised from himself, friends and family and has compounded at 17.3% net of all fees from inception through 2021 (this is based on an interview from 2021, I couldn’t find any more recent performance data)

Tarasoff is a Duke University philosophy graduate (2001), had an earlier career at Goldman Sachs and later attended Columbia Business School.

He started Greenlea Lane immediately after graduating from Columbia, moving into a cheap place with friends, working out of his bedroom, investing his own capital plus a small sum from his network.

The fund's first real test arrived almost immediately. In 2008, Greenlea Lane was down 51%, something Tarasoff had prepared himself to accept before he ever launched. Rather than retreating, he used the crisis to buy quality businesses when they finally got cheap.

It was also when he crystallised what he actually wanted: not mature businesses bought at a discount and sold at fair value, but genuine compounders, companies growing intrinsic value at 15–20% or more that you could simply hold. By 2012 this conviction led him to Amazon, a stock he has now held for 14 years, made it nearly a 25-bagger, and which is still his largest position today.

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The Greenlea Lane Way

Tarasoff is an unusual figure in money management because he is not just a practitioner, he is also a great thinker.

Over the past five years he has published four essays that form the basis of his intellectual framework. I highly recommend reading these for everyone serious about investing.

Here are the four ideas that define how Tarasoff invests.

1. 🚗 The Self-Driving Portfolio

The most distinctive concept in Tarasoff’s framework is what he calls the “self-driving portfolio.”

Most investment firms operate under implicit time pressure: a portfolio of two dozen stocks with a two-year average holding period requires one new market-beating idea every single month, without end.

The necessity to be continuously on the verge of some great new idea sows an endemic hurriedness that can be seen on people’s faces and heard in their voices. This struck me as unhealthy for decision making (and perhaps even unhealthy, period).

His solution is radical in its simplicity: approach every investment with a permanent attitude. Not a five-year time horizon. Not a long-term view. A permanent view: the expectation that the company will compound itself indefinitely.

“I call this approach self-driving because — though it might not be achievable in practice — the ideal is for the portfolio to take over all the work.”

The benefits compound on themselves: less time pressure leads to better decisions, which strengthens the portfolio, which further reduces time pressure. Most importantly, it enables him to be calm and ready to act when exceptional opportunities arise.

A self-driving portfolio is antifragile by design, and Tarasoff notes that it is probably also more sustainable over a long career than investing under constant pressure.

This connects directly to what I wrote about Chris Hohn: that long-termism in a great company is a free lunch. Tarasoff would no doubt 100% agree with Hohn’s statement, as Tarasoff sees long-termism as “a way of being”.

2. 🔁 Feedback Loops & The Endgame

These two concepts come from the same 2021 essay and belong together. They are both about understanding a company’s long-term system rather than its near-term events.

On feedback loops: Tarasoff believes sustainable long-term growth is impossible without them. Growth that is not self-reinforcing is, by definition, fragile. He looks for loops everywhere, not just in the classical categories like network effects.

The deeper implication is that feedback loops guide you toward dynamics rather than events. A price cut may be scale economies shared at work, not competitive pressure. Rising expenses may reflect investment in a loop, not deteriorating fundamentals.

On endgames: An endgame is a long-term state of affairs, typically 10+ years out, grounded in what Tarasoff calls overwhelming logic: forces that make too much sense not to prevail in the fullness of time.

The key insight is that while the path to the endgame is almost always unpredictable, the destination can be foreseen because feedback loops and quality will eventually play out.

“Long-term investing means letting go of the path’s false comfort and embracing deeper currents.”

One of his favourite situations is when a company’s best decade won’t even begin for five years or more: the endgame is clear, but there is near-term murkiness as the pieces fall into place. Most investors focus on the noise. Tarasoff waits for the endgame.

3. ✨ Quality, Conviction & The Implicit

This idea is developed across his 2024 and 2026 essays. It starts with a distinction between two kinds of conviction.

Explicit conviction can be written down and modelled in Excel: forecasts, margins, intrinsic value ranges.

Implicit conviction is different: it is felt rather than calculated. It is the deep qualitative knowing that a company will do what it needs to and ought to do, even when the numbers are temporarily disappointing.

Both are necessary, but the investment industry systematically underweights the implicit, because it cannot be transmitted from analyst to portfolio manager to client, and cannot be turned into a “repeatable process”. That gap is precisely where the opportunity lies.

The deeper-something that underlies implicit conviction, Tarasoff calls ‘Quality’, in homage to the philosopher Robert Pirsig. A company with Quality has a soul. It is mission-driven. It thinks holistically in time horizons long enough that any distinction between mission and value creation dissolves.

“Some companies have a soul, and others are just going through the motions.”

In his February 2026 essay he argues that AI and technology make more investors increasingly reliant on quantification, and that the ability to perceive what cannot be measured will become rarer and more valuable, not less.

“To the extent that market participants become increasingly immersed in and reliant upon technology, it is possible that the capacity to incorporate what lies beyond the reach of technology will become even rarer and more valuable.”

4. 🌳 The Indirect Path

Tarasoff’s July 2024 essay, “Direct and Indirect,” starts with a simple distinction: some activities are simple and can be approached directly (assembling a Lego set: just follow the instructions). Others are complex, and their outcomes cannot be aimed at directly. Growing a tree is the example: you cannot coax a seed to germinate or pull on a sapling’s branches. You plant it in fertile soil, ensure water and sunlight, and let it grow itself.

Investing is a complex activity. The appropriate approach is therefore indirect.

For Tarasoff, this means starting from a foundation of studying companies and industries he finds genuinely interesting, something pursued for its own sake, as a default mode.

“Occasionally investment conviction falls into place, which feels as much like good fortune as the fruit of hard work.”

The same principle applies to how he thinks about the future. Rather than building forecasts and working backward to a price target (which is the industry’s standard direct approach) he concentrates on the past and present of companies until a strong view of the future comes into focus.

This emphasizing of ‘Potential over prediction’ as he calls it, is the indirect approach applied to investment thesis-building.

The Greenlea Lane Portfolio

Here is Josh Tarasoff's portfolio at end of Q4 2025. Just 8 positions, $343 million in US equities holdings:

Eight stocks. That’s it. The top 4 positions alone represent nearly 70% of all assets. This is a level of concentration similar to Bryan Lawrence or Dev Kantesaria.

This level of simplicity also echoes what I admire most about François Rochon: both men have structured their professional lives to think clearly, over the longest possible horizon, free from the business pressures that corrupt so much of the industry. The difference is that Rochon runs 20-30 positions; Tarasoff runs 8. Same philosophy, taken one step further.

What strikes me immediately when looking at this portfolio is how many of these names I have already encountered on my Guru Gems journey.

Let’s take a closer look.

💎 The Gems: A Tour of Greenlea Lane’s Top Holdings

Rather than deep-diving a single name (as I normally do), given that Tarasoff’s largest Gem Amazon has already featured before, I want to walk briefly through each of Tarasoff's positions using the lens of his own framework.

🥇 #1: Amazon (21%)

Amazon is a core holding of Bill Ackman, John Armitage, Seth Klarman and quite a few other Gurus. I added it to the Guru Gems portfolio about a month ago, and with the stock already up 22% since then, that seems to have been a good decision.

Seeing it as Tarasoff’s #1 position at 21% of a fund he has managed since 2006 is a powerful confirmation.

In June 2012, Tarasoff pitched Amazon at VALUEx Vail when the shares were trading at approximately $11 (split adjusted). His verdict at the time:

“AMZN is the finest business of which I am aware, and I believe it is (very) cheap.”

In his pitch, he laid out five structural advantages: cost structure, selection, convenience, personalization, and habit formation, and showed that each one compounds further with scale. He called them “advantages that widen every single day.”

Here is his pitch, it’s really cool to see his thinking process and how he was already thinking about the next decade for Amazon:

Josh Tarasoff Amazon Pitch at VALUEx Vail 2012

396KB ∙ PDF file

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Amazon today trades at around $250. From the split-adjusted 2011 entry, that is roughly 23 times his money in 14 years.

His decision to hold through every bit of market skepticism about Amazon’s margins is itself the self-driving portfolio in action, a textbook illustration of feedback loops, endgame thinking, and Quality all converging in a single position.

🥈 #2: Brookfield Corporation (19%)

Brookfield Corporation, an alternative asset management powerhouse, is another Gem held by many Gurus: Bill Ackman, Akre Capital, Tom Gayner.

Brookfield is almost certainly the unnamed company in Tarasoff’s “Direct and Indirect” essay:

“Whereas its peers started life knocking on doors to raise capital for dealmaking (direct), what might be surprising is that this company existed for decades before hanging out its shingle as an asset manager (indirect). During that period, it was solely a principal investor whose goal was to compound its capital at attractive rates with a generational time horizon.”

Beginning as a Brazilian utility in the 19th century and evolving into a global owner-operator of real assets, Brookfield built its competitive position over generations. This is the indirect path Tarasoff talks about: the $1 trillion AUM franchise was never engineered from day one; it emerged from decades of mastery.

🥉 #3: Berkshire Hathaway (15%) & #4: Markel (14%)

Berkshire Hathaway and Markel I covered previously. Tarasoff holding both at a combined 29% of his portfolio is consistent with the principles he writes about: Quality culture, long time horizons, and compounding capital through ownership.

“Reading Buffett was a moment of clarity, and I knew value investing was what I wanted to do.”

#5: Alphabet (9%)

As regular readers know by now, Alphabet is the ultimate Guru Gem and it’s great to see Tarasoff holding it as well.

#6: Trupanion (8%)

Trupanion is a pet insurer provider and seems a bit of an unusual name in the portfolio. But as Tarasoff explained in a 2017 interview, it is his clearest public example of "certain change": a situation where a new way of doing something is a genuine win-win with no losers.

As he put it in 2017: if a pet owner can't afford $5,000 to save their pet's life but can pay $40 a month in insurance, then the pet benefits, the owner benefits, and the veterinarian gets to perform the highest-level procedure.

"There's literally no loser in pet medical insurance."

It is also almost certainly the unnamed pet insurer from his "Direct and Indirect" essay, with a veterinary distribution model that is nearly impossible to replicate.

#7: Tesla (8%)

Tesla is the position that will raise the most eyebrows. It was ~10% of the portfolio in Q3 2025 before being trimmed. Tarasoff has not written publicly about why he holds it, so any explanation is just me guessing.

Through his own framework, one could see it as a company with strong positive feedback loops in its technology and manufacturing, a founder with unlimited ambition, and a long-term endgame.

Tesla's endgame, articulated in their Master Plan Part 4, is achieving "sustainable abundance" through AI, robotics, and energy dominance.

I also see parallels with Christopher Tsai, an investor I covered before who has Tesla as his largest position, but also holds significant positions in Brookfield, Amazon, Markel and Berkshire.

#8: Burford Capital (5%)

Burford Capital is equally unusual. Burford is a leading litigation finance company, providing capital to plaintiffs or law firms in exchange for a share of legal proceeds.

Again, Tarasoff has not publicly commented on this position, but its inclusion is consistent with his endgame framework: a genuinely differentiated business model in a market still in its early innings, with a long-duration return profile and high barriers to replication at scale.

🔄 The Confirmation: What Tarasoff's Portfolio Tells Us

One of the most valuable exercises when studying a new Guru is to check how their portfolio overlaps with previous Gurus I have studied, and with the Guru Gems portfolio itself.

The convergence across Gurus is striking. Amazon, Brookfield, Berkshire, Markel and Alphabet show up across multiple portfolios of investors with entirely different styles and processes. That kind of multi-Guru overlap remains one of the strongest signals this newsletter tracks.

Final Thought: The Philisopher-Investor

Most people in money management see investing as a profession with defined best practices. Tarasoff sees it as something closer to an art: something that must be cultivated from within, tailored to your unique personality and interests, and pursued for its own sake rather than for the validation of others.

His north star has always been the same: to be the best investor he can be, in his own way, for partners who want exactly that from him.

I really enjoyed the research for this deep-dive as so much of it resonates with how I think about investing.

That’s it for this week’s edition!

Thank you for reading and following along.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome to a very special edition of Guru Gems.

This is newsletter #52. One full year of studying the world’s long-term investing masters every single week.

When I started Guru Gems in April 2025, I had a simple idea: study the best investors, share what I learn, and build a real-money portfolio based on their wisdom.

Along the way, I also started running a Magic Formula portfolio inspired by Joel Greenblatt, giving me two very different lenses on investing: concentrated quality on one hand (Guru Gems portfolio), systematic value on the other (Magic Formula portfolio).

52 newsletters later I can tell you this has been a very rewarding learning journey.

In today’s anniversary edition:

• 📊 Guru Gems Year 1 by the Numbers

• 💎 How the Portfolios Are Doing

• 📚 3 Lessons I’ve Learned After Studying Gurus for a Year

• ☑️ The Intelligent Investor Checklist 2.0 (refreshed with new Guru wisdom)

• 🏆 The Guru Gems Hall of Fame

• 📋 2026 Watchlist

📊 Guru Gems Year 1 by the Numbers

One year ago, I wrote one of my first posts asking: “Is Alphabet the ultimate Guru Gem?”. At the time, it was the most-held stock among long-term Superinvestors, yet the market was done with Alphabet (“ChatGPT will kill Google!”). Buying it at $157 turned out to be my best decision of the year.

The most popular post of the year? My deep-dive on Norbert Lou and the Punch Card Mindset. Something about a quiet, ultra-concentrated investor who only needs a handful of great ideas in a lifetime clearly resonated with this community, and was viewed 1300 times.

You can browse the full archive of all 52 newsletters here, categorized by theme.

💎 How the Portfolios Are Doing

One of my goals with Guru Gems is that I want to be fully transparent about the performance, both the good and the not-so-good.

Guru Gems Portfolio

The portfolio finished 2025 up +17% on invested capital, driven primarily by Alphabet’s phenomenal run (+99% by end of December).

But 2026 has been a different story. The SaaSpocalypse hammered Constellation Software (CSU) and CCC Intelligent Solutions (CCC), LVMH had its worst-ever start to a year, and PayPal fell 20% in February following weak earnings and a CEO change.

As I shared in last week’s “Podium of Errors,” I made mistakes, particularly on position sizing with CSU.

I still strongly believe in the companies I am invested in as well as my process. As Rochon wrote about one of his long-term winners: after the first four years of owning it, they still hadn’t made a profit.

Magic Formula Portfolio

My Greenblatt-inspired portfolio, which I started in the summer of 2025, naturally tilts towards small-cap value names, particularly in healthcare. Small caps have been significantly underperforming the S&P 500 (I wrote about this cycle in November).

The Magic Formula portfolio has had a bumpy ride, and is currently at -2%.

I continue to add new names every few months as Greenblatt instructs. The whole point of this strategy is mechanical discipline over a multi-year period, so it’s too early to judge.

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→ If you find value here, consider buying me a virtual coffee ☕

📚 3 Key Lessons After Studying Gurus for a Year

After spending hundreds of hours reading investor letters, studying portfolios, reviewing books, and listening to podcasts, here are the 3 key lessons that have stuck with me the most.

1️⃣ Patience is the ultimate edge

I know this sounds like a cliché. But after studying 15+ Gurus for a year, patience really is the ultimate edge.

Chris Hohn, who has compounded at 18%+ per year, put it best: “They say there is no free lunch in finance, but I do think long-termism in a great company is a free lunch.”

François Rochon owned O’Reilly Automotive for four years before making a profit, and it went on to become one of his biggest multi-baggers. Chuck Akre thinks in 5 to 10 year horizons. Bryan Lawrence may go a full year without a single new idea. Peter Keefe described Copart as a “multi-decade compounding opportunity.” Chris Davis has held Capital One for over a decade.

All of them essentially apply the same principle which Terry Smith nicely summarized as:

2️⃣ How you behave after you invest matters more than what you pick

This is the most powerful insight I took away from the book Stock Master Maestros. Lee Freeman-Shor’s data showed that what separated great investors from the rest was not stock selection but execution: how much they let winners run, how fast they cut losses, and whether they doubled down on losers.

Greg Padilla's 216% payoff ratio comes from a simple rule: invest a standard 2-2.5%, let the position float, and almost never add to losers.

The first part of this rule, a smaller position size, is something I had to learn the hard way. I bought CSU right before the SaaSpocalypse, and as it kept falling, I added more. If I had followed Padilla's approach, the damage would have been much smaller.

This is why in my recent “Podium of Errors,” I gave the 🥇 gold medal mistake to position sizing on Constellation Software.

3️⃣ A checklist saves you from yourself

Finally, the third big lesson for me is the importance of imposing (and following) a set of pre-defined rules for yourself.

I wrote about this in November when reviewing ‘The Intelligent Investor’, but it’s clear that this is something all of the successful investors apply.

“By imposing a rule on yourself - I will never buy a stock without first completing a checklist - you can avoid the heartache that comes from selling in a panic after buying on an impulse.”

—Jason Zweig

When I published the original Guru Gems Intelligent Investor Checklist back in November, it was inspired by the wisdom of Benjamin Graham and Jason Zweig, with Guru-specific checks layered on top.

After studying more Gurus, I think it’s time for an upgrade, and I am happy to share with you the Guru Gems Intelligent Investor Checklist 2.0

Guru Gems Intelligent Investor Checklist 2.0

297KB ∙ PDF file

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The WAWI exercise from Greg Padilla (“Why Are We Idiots?”) is my favorite addition. I really like this idea of writing down the top 3 reasons why an investment could fail. If you can’t identify clear risks, you probably don’t understand the company well enough.

🏆 The Guru Gems Hall of Fame

Looking back at Year 1, I want to highlight the Gurus that left the biggest impression on me.

🥇 François Rochon — 15% annualized returns over 30+ years. His annual letters are masterclasses in rational, long-term thinking and his humility and consistency are very inspiring. Re-reading his letters from 2010 onward was one of my favorite research projects this year.

🥈 Chris Hohn — 18%+ annualized returns over 2 decades, using a ‘Fortress Business model’ playbook. Hohn is very selective in the industries and companies he invests in, and once he finds a fortress business, he uses time horizon arbitrage as a competitive advantage (he calls it ‘Extreme long-termism’).

“If you find something good — and it’s going to be good long term — stick with it. Don’t assume newer is always better.”

🥉 Bryan Lawrence — Running a portfolio of just 10 stocks with extraordinary discipline. Lawrence has proven that focused, patient investing can generate exceptional returns. His ‘concentrated quality’ approach and his willingness to go a full year without a single new idea really challenge you how to think about portfolio construction.

📋 Guru Gems Watchlist

The market turbulence in Q1 has made several high-quality companies significantly cheaper.

In my recent post on Stock Master Maestros, I included an update on 5 companies on the watchlist that I believe are becoming attractive: MOH, FICO, MELI, CPNG, MA.

I’m watching these very closely and may add them to the portfolio at some point.

Here is a screenshot of the top companies on my watchlist.

You can access the full watchlist in the Guru Gems Master Google Doc.

🔮 What’s Next for Year 2?

A few things I’m excited about for the year ahead:

More Guru deep-dives — There are so many incredible investors left to study. In this first year I have covered mostly well-known names, so going forward I will try to cover also some lesser-known Gurus.

More international Gurus — Most of my coverage has been US-focused. I want to explore great investors in Europe and Asia.

Continuing the Magic Formula — Ever since I read Greenblatt’s book for the first time many years ago, I was fascinated by this idea that if you consistently buy companies that are ‘cheap’ and ‘good’, you can beat the market. So far, this hasn’t proven to be true, but I definitely want to give this 2 full years before rethinking it.

Continuing to share openly — I believe my recent ‘Podium of Errors’ post was well received. I plan to keep sharing both the wins and the losses. That’s what makes this real.

Please share any suggestions you may have on investors, companies, books, podcasts, … you would like me to cover with Guru Gems.

Thank You 🙏

To every single person who has subscribed, read, liked, shared, or commented on Guru Gems this year: Thank You!

Writing Guru Gems every week has been intellectually very rewarding. I started this as a way to document my own research and to keep myself accountable as an investor, and didn’t know if anyone would care about a newsletter where someone studies the world’s best investors.

Now with hundreds of followers and subscribers, I am even more motivated to keep going, so I hope you’ll stay for the journey and please make sure to spread the word ;)

Here is to finding more Gems in Year 2!

Thank you for reading, I will be back next week with a new Guru and a new Gem!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Terry Smith / LVMH

Guru Deep-dives

François Rochon / Alphabet (GOOGL)

Warren Buffett / Berkshire Hathaway (BRK)

Joel Greenblatt / Magnera Corp (MAGN)

Chris Davis / Restaurant Brands International (QSR)

Chuck Akre / CCC Intelligent Solutions (CCC)

Peter Lynch [Book review]

Bill Nygren / Airbnb (ABNB)

Bryan Lawrence / Interactive Brokers (IBKR)

Howard Marks [Book review]

Peter Keefe / Copart (CPRT)

Christopher Tsai / Meta Platforms (META)

Rich Pzena / Baxter (BAX)

John Armitage / Capital One Financial (COF)

Norbert Lou / PayPal (PYPL)

Tom Gayner / Markel (MKL)

Dev Kantesaria / FICO

Bill Ackman / UBER

Chris Hohn / S&P Global (SPGI)

François Rochon / HEICO

Josh Tarasoff / Amazon (AMZN)

Marc Werres / Interactive Brokers Group (IBKR)

Guru Gems Portfolio Updates

Guru Portfolio Updates (13F Filings)

Magic Formula Portfolio Updates

Lessons Learned

Physics for Investors

Watchlist

Welcome back!

Q1 2026 is behind us, time for a portfolio update.

Start here if you are new to Guru Gems.

No time to read this week’s update? Here is your 2-minute AI summary:

💎 Guru Gems Portfolio update

The broader market had a tough start to the year, and unfortunately the Guru Gems portfolio was no exception.

Perfect storm

It was a bit of a ‘perfect storm’ for the portfolio this quarter. The SaaSpocalypse hammered CSU and CCC (both down more than 30% since I bought them), while LVMH had its worst-ever start to a year as the war in the Middle East added even more pressure on the luxury goods outlook. These are three of the larger positions in the portfolio, so the pain is real.

I won’t lie, it’s not comfortable sitting on drawdowns like these. I would much prefer to come here and tell you I’m crushing it. But unfortunately that’s not the case (yet), and I plan to keep sharing very openly my learning journey with Guru Gems.

Do I still believe in my stock picks? Absolutely.

But have I made some mistakes along the way? Without a doubt.

The full Guru Gems portfolio and all transactions are available in the Guru Master Google Doc.

Looking back

As I approach the one-year anniversary of Guru Gems, it feels like the right time to reflect on what went wrong, and more importantly, what I can learn from it.

And who better to borrow a framework from than François Rochon? Last week I published a deep-dive on Rochon, one of my all-time favorite Gurus, and I’m quite proud of how it turned out, with lots of timeless investing wisdom in there… and it’s all free ;)

One of the traditions Rochon has in his annual letters is a ‘Podium of Errors’, a ranking of his biggest mistakes of the year. I love this idea, so I’m stealing the concept.

Before I share my podium, here is an extract from Rochon’s 2014 letter that feels very appropriate right now:

We have made many times our money with O'Reilly Automotive over 10 years. But after the initial four years of owning O’Reilly, we had not yet made a profit. Just a few years is not a long time in the world of business and investment.

🏆 My Podium of Errors

🥉 Bronze - Magnera (MAGN)

Magnera was my Joel Greenblatt-inspired 'special situation' pick from May 2025. The company was formed by merging Berry Global's Health, Hygiene & Specialties non-wovens division with Glatfelter Corporation in late 2024.

Michael Burry had also started a position in Q4 2024, probably also seeing an interesting ‘special situation’ in this newly formed merger.

With a market cap below $500M, Magnera is a proper small cap and small caps can be wild. The stock surged 30% in Q4 but then dropped 37% in Q1 despite results that were largely in line with expectations.

It's now a <1% position in the portfolio, so the actual damage is minimal. I'll keep it, but I'm not expecting fireworks.

The lesson: Not every good idea belongs in every portfolio. Magnera might be perfectly fine in a more diversified strategy like my Magic Formula portfolio, but in a concentrated portfolio like Guru Gems where the focus is on quality companies, a volatile small cap probably doesn't fit.

🥈 Silver - Restaurant Brands International (QSR)

This one is what François Rochon calls an error of omission.

I came across QSR when I did my deep-dive on Chris Davis. QSR owns and operates Burger King, Tim Hortons, Popeyes and Firehouse Subs.

It was a newer position for Davis, the valuation looked reasonable, and the business was solid. I wrote that QSR had traded as low as $60 in Q1 of 2025 and that this was probably the price at which Davis would have bought it and Seth Klarman would have added to his position. The price came very close to $60 again in September, but I was waiting for it go down a bit more, which didn’t happen, and it is now up around 24% from that September low.

Having a position in physical restaurants, where AI disruption fears don't really apply, would have been a nice buffer during a quarter like the one we just had. (In my Davis post I wrote: “This is definitely not a flashy AI stock nor a high-growth SaaS business.”)

Hindsight is always 20/20, of course. But QSR stays high on my watchlist, especially since it's also a significant holding in Bill Ackman's portfolio. Three great Gurus (Davis, Klarman, Ackman) on the same name is always a signal worth paying attention to.

The lesson: A position in a more defensive, real-world quality business like QSR could have added some balance to the portfolio. Going forward, I want to make sure I also take this into consideration when starting a new position.

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🥇 Gold - Constellation Software (position size)

And here’s the big one.

Constellation Software is my worst performer, down 26% in Q1 alone. But that’s not why it gets the Gold medal. Stocks go down, that happens. The mistake was how much I put in from the start.

When I initiated the position, I went in at 8.5% of the portfolio. Two weeks later, I added more and brought it up to 11%. The stock then proceeded to fall even further. Looking back, it would have been much wiser to start at 3-4% and scale in gradually as the thesis played out (which so far it hasn’t).

I was reminded of this lesson when reading Stock Master Maestros, which I recently wrote about:

A clear pattern from the book is that many of the greatest investors start every new position at around 3% or less, regardless of how convinced they are. The idea is simple: let the position prove itself before you size it up.

“Don’t assume you can add value by sizing your positions based on conviction. Entering every position at a standard size and then letting them run, works.”

The lesson: Conviction is not the same as timing. I still believe I was right to be excited about Constellation Software, but I was wrong to go in heavy from day one. Starting small gives you room to average down if the stock keeps falling, and keeps the pain manageable if it does.

What Rochon says about Constellation

It’s reassuring to read what François Rochon had to say about Constellation in his latest annual letter. Constellation is one of Giverny Capital’s largest holdings, and the stock fell 26% in 2025 and another 25% drop so far in 2026.

But as Rochon pointed out, the decline is completely disconnected from the business: revenue grew 15% in 2025, adjusted EPS climbed 21%, and since Giverny’s initial purchase in 2014, earnings per share have compounded at roughly 20% annually.

Rochon’s argument against the AI disruption narrative is in line with what I had written in my January portfolio update. Constellation owns more than 1,000 niche software businesses, each deeply embedded in its customers’ daily operations and rarely representing a significant cost. As he puts it:

It seems unrealistic to believe that an operator of a dozen mini-golf courses is going to start coding their own AI-powered reservation software to save something like $5,000 in annual fees!

Rochon writes that AI could actually help Constellation, since the software sell-off has dramatically lowered acquisition prices. Cheaper acquisitions mean better returns on invested capital for a company whose entire model is built on buying niche software.

Bottom line: Rochon remains confident and intends to keep his shares. Coming from someone with a 32-year track record of 14.7% annualized returns, that conviction carries weight and reinforces my own decision to hold.

👀 Looking ahead and Watchlist update

It’s not just the Guru Gems portfolio that has been hit hard. Some of the best ‘quality’ investors are sitting on significant drawdowns too.

Here is what the year-to-date (3 Apr 2026) performance looks like for some of the great investors I have covered in earlier editions. As you can see, there’s a lot of red in this table…

Watchlist Update

Last week I covered François Rochon in a deep-dive, and one of the things that caught my eye is that Rochon added a new position in Universal Music Group (UMG).

UMG is the world’s largest music company and home to Taylor Swift, Drake, The Weeknd, BTS, and many others with a catalog of nearly 5 million songs.

The stock has been beaten up pretty badly, trading at around €17, down 40% from its 52-week highs. At roughly 16x forward earnings, it’s trading near its cheapest valuation ever.

UMG is also a significant position in Bill Ackman’s portfolio, which adds another strong Guru signal. Two Gurus owning the same stock at its lowest-ever valuation, that’s the kind of setup that is worth studying more closely.

I’ve added UMG to the watchlist in my Guru Master Google Doc.

That’s it for this week…thanks for reading and I’ll be back next week with a special Guru Gems anniversary edition!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

In today’s edition:

• 🕴️ The Guru: François Rochon

• 📈 The Playbook: The Giverny Way - 32 years of compounding with patience, humility and rationality

• 💎 The Gem: HEICO Corporation (NYSE: HEI.A) — The Quiet Aerospace Compounder

• 🔄 BONUS: The Full Circle: LVMH — How a 14-year mistake finally became a position

2-minute AI version:

Start here if you are new to Guru Gems.

A word on Guru Gems Edition #50

Fifty weeks ago, I published the first Guru Gems newsletter

The idea was simple: study the world’s best long-term investors, understand how they think, find the high-quality companies hiding in their portfolios, and build a real-money portfolio based on their collective wisdom.

One year later, I have covered more than a dozen of the world’s greatest investors — from Terry Smith to Chuck Akre, Chris Hohn to Bill Ackman, Dev Kantesaria to Bryan Lawrence and I have added twelve positions to the Guru Gems portfolio.

For this fiftieth edition, I wanted to dedicate the newsletter to an investor who embodies everything Guru Gems stands for.

A man who has been running the same portfolio, guided by the same principles, for over 32 years. A man who awards himself annual medals for his biggest mistakes. A man who writes to his partners the way he would want to be written to if their roles were reversed.

This is François Rochon. And this is his story.

Guru in the spotlight: François Rochon

François Rochon is the founder and president of Giverny Capital, a Montreal-based investment firm he launched in 1998 after managing his family portfolio for five years.

He is an engineer by training and a self-taught investor who discovered the writings of Warren Buffett, Benjamin Graham, John Templeton, Philip Fisher, and Peter Lynch in the early 1990s and never looked back.

Since July 1, 1993, the Rochon Global Portfolio has compounded at 14.7% annually, versus 9.9% for its benchmark — an annualized outperformance of 4.8% over 32 years. In practical terms, $100,000 invested with Rochon in 1993 would be worth approximately $8.7 million today. The benchmark produced $2.2 million over the same period.

What makes this record remarkable is not just the magnitude, but how it was built. There were no black box strategies and no leverage. Just a portfolio of exceptional businesses, owned patiently and with conviction, managed by someone who treats every partner as he would want to be treated if their roles were reversed.

Rochon’s annual letters (all publicly available at givernycapital.com ) are masterclasses in long-term thinking, intellectual honesty and the art of learning from mistakes. They are essential reading for any serious investor.

“Our goal is to explain in detail the long-term investment philosophy behind the selection process for the companies in our portfolio. Our wish is for our partners to fully understand the nature of our investment process since long-term portfolio returns are the fruits of this philosophy. Over the short term, the stock market is irrational and unpredictable (though some may think otherwise). Over the long term, however, the market adequately reflects the intrinsic value of companies. If the stock selection process is sound and rational, investment returns will eventually follow.”

In a recent post, I shared my favorite investor letters, and it’s probably not surprising that François Rochon was my #1 pick.

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The Giverny Way

There are many good interviews available with François Rochon, but I believe the best way to learn and study Rochon is to read all his annual letters, and so that is what I did.

Here are the 5 pillars that define how Rochon invests.

1. 🤝 The Alignment Principle

From the very first days of Giverny, Rochon established one non-negotiable rule: he invests his own money in exactly the same securities as his clients.

The Rochon Global Portfolio — his personal family portfolio — serves as the direct model for all client accounts.

“I buy for you what I buy for myself. This doesn’t guarantee results, but it does ensure our interests are aligned.”

He calls his clients “partners” for precisely this reason. When the portfolio does poorly — as it did in 2025, with a 2.7% return against a 13.7% benchmark — Rochon does not hide. He writes “Explanations, Not Excuses” at the top of the relevant section and dissects every mistake in detail.

This level of transparency is quite rare in the fund management industry.

2. 🏰 The Moat Framework

Rochon does not use the word “moat” as frequently as some investors, but his stock selection criteria point to exactly the same thing.

He calls the businesses he likes “self-determined” companies: companies that control their own destiny because of durable competitive advantages. You can read more on this in his 2022 Annual Letter.

In every annual letter, Rochon shares his investment philosophy in an Appendix, aimed for new ‘partners’, and his criteria have not changed:

• High and sustainable margins and high returns on equity

• Good long-term prospects

• Managed by brilliant, honest, dedicated and altruistic people

• Avoid: non-profitable businesses, excessive debt, high cyclicality, ego-driven management

“There can be quite some time before the market recognizes the true value of our companies. But if we’re right on the business, we will eventually be right on the stock.”

3. 📊 The True Scorecard: Owner’s Earnings

Since 1996, Rochon has published a chart showing the growth in the intrinsic value of his portfolio companies.

He arrives at an estimate of the increase in intrinsic value of the companies by adding the growth in earnings per share (EPS) and the average dividend yield of the portfolio. He calls this “owner’s earnings”, borrowed from Buffett.

The lesson from 30 years of data is striking: over the long run, the stock market return of his portfolio has tracked the underlying intrinsic value growth almost perfectly.

“The stock market is irrational in the short term. Over the long term, it always ends up reflecting the intrinsic value of companies.”

In 2025, his companies grew their intrinsic value by approximately 13%, while the stock portfolio returned only 2.7% (7% without currency effects). He takes this calmly. He has seen it many times before. He knows the eventual convergence is inevitable.

4. 🏆 Intellectual Honesty: The Podium of Errors

Perhaps the most distinctive element of the Giverny tradition is the annual ‘Podium of Errors’ (‘Mistake du jour’ in his earlier letters), where Rochon awards Bronze, Silver and Gold medals to his biggest investment mistakes of the year or recent past.

“It is with a constructive attitude, to always improve as investors, that we provide this detailed analysis.”

What’s particularly instructive is how often the Medal goes not to a bad investment that cost money, but to a great investment never made. A company he studied, admired, and then failed to buy.

Netflix (2025 Silver), O’Reilly Auto Parts (2022 Silver), Copart (2019 Gold), Amazon (2015 Bronze), Google (2010 Silver)

Errors from omission (non-purchases), according to Rochon, are often more costly than errors from commission (purchase).

What’s really interesting to see is that when Mr. Market offers him an opportunity to buy these companies at depressed prices, Rochon will not hesitate.

Google (2010 Silver medal) is a great example of this. Rochon knew it was a fantastic business but he was waiting for a good entry price.

In 2011, the opportunity came and Rochon bought Google at a PE of ~15x when Wall Street was worried that Google would not be able to dominate in mobile as they did on desktop. Today, 15 years later, it is one of his largest positions.

LVMH (2022 Gold) is another great example, and I will cover this later in more detail.

5. 🎲 The Three Essential Qualities

In his 2025 annual letter and his recent interview on We Study Billionaires, Rochon named the three qualities he believes are essential for long-term investing success.

Rationality. The ability to look at reality as it is, not as you wish it to be. To leave emotion aside and focus on facts. In a market dominated by hope and fear, this gives a quiet but decisive advantage.

Humility. The recognition that mistakes are inevitable, and that improvement requires the willingness to admit them. His ‘Rule of 3’ is a brilliant example of this:

“One year out of three, the market will go down (by more than 10%). On stock out of three that we will buy will be somewhat disappointing. And one year out of three, we will under perform the indexes.”

Patience. Perhaps the rarest quality of all. In the interview, Rochon recalled asking Philip Carret — who invested for 75 years and died at 101 — what his greatest lesson was. Carret thought about it, then said: “Patience.”

This connects really well with what I learned from Chris Hohn, another investing master, who said that “long-termism in a great company is a free lunch”

The Giverny Capital Portfolio

Here is Giverny Capital’s stock portfolio at the end of Q4 2025:

Note that for non-US positions (Constellation Software, LVMH), these are estimates as they are not reported in 13F filings.

3 companies worth highlighting from this $3+ billion portfolio:

1. Constellation Software: His largest holding at the beginning of 2025 has fallen significantly due to AI-related fears and the CEO's health-related departure. Despite a 26% decline in its stock price during 2025, Rochon notes in his 2025 letter that the business itself remains strong, having grown its earnings per share (EPS) at an annualized rate of 20% since his first purchase

2. Alphabet - As discussed in the previous section, Rochon has held Alphabet for about 15 years. He says the idea to invest in Google came thanks to Charlie Munger

   “Mr. Munger explained at a conference that many companies that historically had wide competitive moats had seen their moats "filled up with sand" (an analogy meaning that their competitive advantage was deteriorating). I then asked him if he saw new companies with a wide moat and, after reflection, he replied Google. His comments did not fall on deaf ears and Jean-Philippe and I started looking at the company from a whole new perspective.”

3. HEICO: Our Gem for this edition has been in Rochon’s portfolio for nearly 10 years and has climbed to become a top-5 position.

💎 The Gem: HEICO Corporation (HEI/HEI.A)

How Rochon Found HEICO

Rochon first acquired shares in HEICO in 2016, introducing the company in that year’s annual letter with characteristic brevity and precision. In just a few sentences, he identified the essence of the business: FAA-approved aftermarket parts, a multi-year catalog built over decades, and a moat created by regulatory complexity.

At the time, HEICO’s Class A shares traded at approximately $23 (adjusted for stock splits). EPS had grown at roughly 19% annually over the preceding decade — a figure Rochon described as “an exceptional performance.” By his 2021 annual letter, the stock had risen more than 200% from that first purchase, and he noted continued admiration for the Mendelson family who run the company.

Today, those same Class A shares trade at ~$208, a 800%+ gain from Rochon’s initial purchase price. HEICO remains a top-5 position in the Giverny portfolio, a core holding of ten years’ standing.

To Buy or Not to Buy

Let’s evaluate HEICO through our Terry Smith inspired framework to decide if I should add it to the Guru Gems portfolio.

1/ Buy good companies

What Does HEICO Do?

HEICO is a Florida-based aerospace and defence company with two main segments.

1. The Flight Support Group manufactures nearly 20,000 different FAA-approved aftermarket replacement parts for commercial and military aircraft, selling them at a 30-50% discount to the original equipment manufacturer (OEM) equivalents.

   

2. The Electronic Technologies Group provides specialized electronic systems and products for defense, space and industrial applications.

   

HEICO is like the generic drug equivalent for aircraft maintenance. Airlines face enormous pressure to cut costs. Aircraft parts are one of their largest expenses. But safety cannot be compromised, every part must meet strict FAA airworthiness standards.

HEICO worked out decades ago that if you invest the time and money to get your parts FAA-certified, you can offer airlines a cheaper alternative that is just as safe and legally compliant. Airlines save money and HEICO earns exceptional returns.

How the Moat Was Built

The origin of HEICO’s dominance is a story of extraordinary persistence. When the Mendelsons took control in 1990, the company had $25 million in sales and was losing money. Eric Mendelson — 24 years old — practically lived in the FAA’s Washington DC headquarters, learning the certification process from the inside out. By 1991, they had their second approved part: a tube used in jet engines.

A pivotal moment came in 1997, when HEICO convinced the chairman of Lufthansa Airlines to invest a 20% stake in the PMA business. Lufthansa gave HEICO direct insight into which parts airlines most urgently needed, provided immediate credibility with other carriers who were still hesitant to buy from non-OEM suppliers, and guaranteed a buyer for each new part from day one.

The result, 35 years on, is a moat with three reinforcing layers:

🔒 Switching Costs. Once an airline integrates HEICO’s parts into its maintenance and supply chain, switching to an alternative means significant re-qualification, regulatory hurdles and operational disruption. Airlines do not do this lightly for critical components. Once integrated, HEICO’s parts stay integrated.

📚 IP and Regulatory Protection. The catalog of 20,000 different PMA (Parts Manufacturer Approval) parts, along with the underlying intellectual property, engineering data and regulatory approvals, constitutes an asset that would be extraordinarily expensive and time-consuming to replicate. Each new PMA approval requires substantial R&D investment, regulatory navigation and technical expertise. HEICO has been building this catalog since the 1980s.

⚙️ The Safety Record. Over the company's lifetime, HEICO has sold over 80 million parts with zero service bulletins, zero airworthiness directives and zero in-flight shutdowns. In a safety-critical industry where airlines need complete confidence in their suppliers, this track record is virtually impossible to replicate and makes switching to an unproven competitor almost unthinkable.

The Mendelson Family — Skin in the Game

The business is run by the Mendelson family, and it shows. Laurans A. Mendelson (Executive Chairman, formerly CEO) and his sons Victor (Co-CEO) and Eric (Co-CEO) together own approximately 7-8% of the company — a stake worth roughly $3.5 billion at current prices. This is not a family collecting a salary. Their interests are entirely, structurally aligned with long-term shareholders.

Rochon noted this explicitly in his 2021 letter: “One of the reasons for our purchase in 2016 was our admiration for the members of the Mendelson family who run the company.”

The Recent Numbers — Still Accelerating

In Q1 2026, HEICO reported record net income and strong increases in net sales:

• Consolidated net sales up 14% year over year

• Consolidated net income up 13% to $190.2 million

• Flight Support Group: 15% organic growth

• Electronic Technologies Group: 12% organic growth

Over the past decade, revenues have grown at nearly 13% CAGR and operating income at a 14.8% CAGR. The company has recently expanded into industrial gas turbine repair through the acquisition of EthosEnergy Group Limited. This is a significant new growth vector, serving the growing global power demand.

The track record since the Mendelsons took over in the late 1980s is truly phenomenal: a 23% compound annual growth rate in share price over 36 years. A $10,000 investment then would be worth over $9 million today. This is one of the greatest compounding records in American corporate history.

Berkshire Hathaway began acquiring a position in HEICO in Q2 2024. When both Rochon and Buffett are independently accumulating the same stock, it merits very serious attention.

For a more in-depth analysis of the company, I would highly recommend the below episode of The Investor’s Podcast.

It goes into great detail of HEICO’s business model and acquisition playbook and how the Mendelsons turned a small parts supplier into an aerospace giant.

I also recommend ’s article which has a mini deep-dive as well as an update on Fiscal 2025 year-end results.

The Pursuit of Compounding

Inside HEICO’s Fiscal 2025

Hi everyone 👋…

Read more

5 months ago · 18 likes · 7 comments · The Pursuit of Compounding

2/ Don’t overpay

HEICO has rarely (never?) been cheap. And despite currently being down 25% from its 52-wk high, it is still not cheap today.

The stock currently trades at a forward P/E of ~48x. While this is a premium valuation, Rochon often reminds us that "wisdom is knowing when to break the rules" and that outstanding companies are often worth paying for.

HEICO is one of those companies that has always looked expensive to the casual observer and always proved justified to the patient long-term investor. Every year since the early 2000s, someone has said HEICO is too expensive. And every year, the business has grown into and beyond its multiple.

The stock is down 15% over the past month on a mix of 1) negative investor sentiment fearing rising competition, and 2) analyst downgrades. A further pullback could be a very interesting entry point for this high-quality compounder.

3/ Final decision

HEICO sits at the intersection of everything Rochon looks for: a wide and durable competitive advantage, family management with full alignment, a long runway for growth, and an exceptional compounding track record.

The fact that both Rochon and Buffett hold it independently is also a powerful signal.

I will be watching for a further pullback from current levels, which has historically occurred during any period of aviation macro weakness. When it comes (and it probably will), I intend to buy.

📌 Adding HEICO Corporation (HEI.A) to the Guru Gems Watch list

❕Just a reminder that you can access the Guru Gems watchlist here at any time

👜BONUS: The Full Circle - LVMH and the Return of Rochon

Those who have followed Guru Gems from the beginning may recognize this passage. I quoted it in my second newsletter, when I introduced François Rochon for the first time and asked, in closing:

“I wonder if, at the current valuation, he is considering to finally including this gem in his portfolio.”

The answer — confirmed in a recent interview — is yes.

After more than 14 years of watching, admiring and awarding himself a Gold Medal for missing it, François Rochon has finally bought LVMH.

The circle that began with our first newsletter is now complete.

Why Now? Rochon in His Own Words

In his interview on We Study Billionaires, Rochon was asked directly why he finally pulled the trigger.

“I’m not that good in timing — I bought it last year and so far it has not produced good results. […] But I think the key factor is that you want the brand to be as strong as it’s ever been. Perhaps people are wary of buying a Louis Vuitton bag right now, but what you really want is a brand that still resonates with clients as quality, something you want to own because it’s of quality and also a symbol of wealth. I think those are intact.”

His five-year earnings thesis is specific:

“I think probably from here, earnings could increase 60 or 70% in the next five years — that’s a 10-11% annual growth rate. You’ve got a 2% dividend. Together, I think we should be able to attain our objective of finding a 13% grower including the dividend.”

He is enthusiastic about specific divisions he knows well: Louis Vuitton and Dior (the two most profitable luxury brands in the world), Tiffany (”a fantastic business — I followed it when it was separately listed”), and Sephora (”probably just 10% of revenues but growing pretty fast ”).

He is transparent about what he does not love: the spirits business (Moët & Chandon, Hennessy), where he sees a more secular challenge from generational shifts in alcohol consumption.

On China (roughly 20% of LVMH’s revenues) he is patient and structurally optimistic:

“Long-term it’s going to be a positive thing. China’s GDP per capita will continue to increase at a higher rate than North America. […] As they get richer, they’ll want to acquire LVMH products and other luxury products. There’ll be ups and downs, but they’re building a business for the next decades, not the next year or two.”

📌 I remain a holder of LVMH in the Guru Gems portfolio. Rochon’s purchase is the most meaningful external validation I could have hoped for.

That’s it for this week’s edition!

Thank you for reading and following along. You can find me on X @guru_gems for more Guru Gems insights.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome to a new edition of Guru Gems, where I study the world’s long-term investing masters and build a portfolio of quality companies based on their wisdom.

In my most recent Guru deep-dive, I covered Chris Hohn, an exceptional investor who has compounded money at more than 18% per year.

In today’s edition:

• 📚 3 lessons from the book Stock Master Maestros, with a spotlight on Greg Padilla

• 📋 Guru Gems Watchlist Update: 5 stocks worth watching after recent sell-offs

Here is the 2 minute AI audio version:

📖 PART 1: 3 Lessons from 'Stock Master Maestros'

There are Stock Market Wizards and then there are Stock Market Maestros.

In my mind, wizards are exceptionally skilled traders who make money by speculating on the movements of stocks, currencies, commodities, bonds and cryptocurrencies. They are typically short-term oriented, and they aren’t necessarily focused on corporate fundamentals.

Maestros, on the other hand, are investors, not traders. They invest based on fundamentals, with reference to valuation and sometimes to technical analysis. They hold their positions for months and years, not hours or days. Maestros are playing a longer game. And they’re doing it on behalf of ordinary investors like you and me, using the same public equities the rest of us use to build our portfolios.

Stock Master Maestros by Lee Freeman-Shor and Clare Flynn Levy is a follow-up to Freeman-Shor’s bestseller The Art of Execution: How the World’s Best Investors Get It Wrong and Still Make Money, which revealed the winning habits of 45 of the world’s top fund managers and categorised them into 5 ‘tribes’: Assassins, Hunters, Rabbits, Raiders and Connoisseurs.

The findings from that book showed that it was how an investor behaved after they had invested in an idea that determined their success or failure (i.e. how much they let winners run and how fast they cut their losses or added to a losing position)

How they reacted to winning and losing mattered more than the stocks they picked to invest in.

This is quite insightful and is something that made me think of what legendary hedge fund manager Stan Druckenmiller has said a few times in interviews:

“Invest, then investigate”

Here is a great interview with Druckenmiller from last month:

So what separates the great investors from the rest is not what they pick but how they behave once they're in it.

With Stock Master Maestros, Freeman-Shor takes this a step further by profiling 12 investors who have been objectively identified — through detailed analysis of their trading data by Essentia Analytics — as true “Maestros” of execution. The book walks through their winning and losing ideas with real case studies.

Today I will highlight one of the featured investors: Greg Padilla.

Who is Greg Padilla?

Greg Padilla is a Portfolio Manager and Managing Partner at Aristotle Capital, a Los Angeles-based investment firm managing over $90 billion in assets.

He was a key contributor to a top ranked global equity fund in 2012, one of the few that outperformed both in the down market of the Global Financial Crisis and in the later bull run.

What makes Greg’s inclusion in the book particularly interesting is the data behind it. Essentia Analytics analysed 12 years of his historical trade data and uncovered some remarkable stats:

• Hit rate: 56% — He gets it right more than half the time (the median for even top-performing fund managers was just 45%)

• Payoff ratio: 216% — His average winner wins 2.16× as much as his average loser loses

That payoff ratio is the key number. It means that when Greg is right, he wins big. And when he’s wrong, he limits the damage. Those are the features of a true ‘Connoisseur’ and ‘Assassin’.

1️⃣ Lesson 1: Look for Catalysts

At Aristotle Capital, every investment must meet three criteria: quality company, attractive valuation, and a compelling catalyst. The first two are principles we’ve seen with virtually every Guru studied so far. But the third is what sets Aristotle apart.

Padilla is very specific about what type of catalysts they are looking for. Catalysts are not short-term events like an earnings revision. They are fundamental changes already underway inside a business: a new management team, a new product line, or a resolution of legal proceedings.

This emphasis on catalysts comes from hard-won experience. Earlier in his career, Padilla bought stocks simply because they were cheap. And he got burned repeatedly. The catalyst requirement is what protects Aristotle from value traps; cheap stocks that stay cheap because nothing is changing.

This lesson also applies in reverse: when a key manager leaves, it can be a catalyst to sell.

My takeaway

When looking at the Guru Gems watchlist (Part 2 of this newsletter), it will be good to ask: What is the catalyst? A cheap stock without a catalyst is just a cheap stock. But the real Gems are quality companies at an attractive valuation with an identifiable catalyst.

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2️⃣ Lesson 2: "Why Are We Idiots?" — The Power of the Pre-Mortem

Before making any new investment, Greg and his team perform what they call a WAWI, short for “Why Are We Idiots?”

It’s essentially a pre-mortem exercise. Before a single dollar is invested, the team asks: “What are the most likely reasons we will NOT make money in this investment? What are our primary concerns?”

By identifying the key risks upfront, the team creates a reference list they can monitor throughout the life of the investment.

‘WAWI’ also helps them in their sell decisions. If one of the risks they have identified for that stock plays out, it’s the team’s cue to strongly consider stepping aside.

My takeaway

I think the WAWI exercise is something every investor can apply. Before adding a stock to your portfolio, it helps to write down: “Why am I an idiot for buying this?” If you can’t identify at least 2-3 clear risks, you probably don’t understand the company well enough.

3️⃣ Lesson 3: Let Winners Run — And Don't Double Down on Losers

This is probably the most important lesson from Greg Padilla’s chapter, and it directly explains that impressive 216% payoff ratio.

When Padilla enters a position, he invests a standard 2-2.5% regardless of the company. No finessing the entry, no higher weight for higher-conviction ideas.

He then lets the position float: if it does well, the weight drifts up. If it doesn’t, the weight drifts down.

“We came across a study that showed that the vast majority of fund managers do not add any value from trading - that is, from adjusting position size and timing their decisions. We know that adding and trimming positions is not part of our edge. People like to trade because it makes them feel good, like they are adding value, but are they?”

The only time Padilla trims, is when a position hits 6% of the portfolio, which is purely for risk control.

But here’s where it gets really interesting: Padilla rarely adds to losers.

“By not adjusting the size of the position after the initial buy, we are making an active decision to manage mistakes. We are avoiding turning a minor mistake into a big mistake. That’s been a big secret of our success: not turning small mistakes into big ones.”

He learned this the hard way during the 2008 financial crisis. Earlier in his career, when running deep-value portfolios, he would throw more money at a losing investment. But the outcomes told a different story. As he puts it: “If I could go back 20 years and give myself some advice, it would be, ‘it’s cheap for a reason, Greg.’”

Combined with the discipline to let winners run, this approach creates a natural asymmetry: big winners more than offset small losers. It’s how you get to a 216% payoff ratio.

My takeaway: This is a powerful lesson and one that I will try to better implement going forward. Alphabet has been a massive winner in my portfolio and so far I have resisted the temptation to trim it, but I have added to some of my losers, which is maybe something I need to stop doing…

👀 PART 2: Guru Gems Watchlist Update

The markets have been going through some turbulence lately, and a number of high-quality companies have seen their share prices decline significantly.

Below are 5 companies I’m keeping a close eye on. For each, I’ll share why the stock has declined and which Gurus own it.

As we just learned from Greg Padilla, a stock that has dropped a lot isn’t necessarily cheap; “it’s cheap for a reason.” So, for each stock, I will also try to identify whether there’s a catalyst for recovery or whether the decline reflects genuine long-term deterioration.

You can access the full Watchlist in the Guru Gems Master Google Doc

1/ Molina Healthcare (MOH) 📉 -55% over past year, -61% below 52-wk high

What happened?

This is the most dramatic decline on the watchlist. Molina reported a catastrophic Q4, posting a loss of $2.75 per share. Even worse, 2026 guidance of just $5.00 EPS was less than half of the consensus.

Surging medical costs in Medicaid, unfavorable premium adjustments in California, and underperformance in Medicare Advantage Part D (which they plan to exit in 2027) were the main drivers for the decline.

The decline has been so severe that Molina is being removed from the S&P 500 and moved to the S&P SmallCap 600.

Which Gurus own it?

Michael Burry, Bill Nygren, and Seth Klarman own the stock and believe it is a long-term opportunity. Michael Burry has written an extensive article about MOH and why he believes MOH is a ‘gem of an insurance company stock’.

Catalyst?

The catalyst identified by Michael Burry is the acquisition strategy. The very industry distress hurting Molina’s margins is simultaneously creating a full pipeline of struggling local health plans that can be acquired, something in which Molina has a proven track record.

I already own Molina in my Magic Formula portfolio, but as I wrote in my 2026 Watchlist post, I may also consider adding it to the Guru Gems portfolio, especially if it keeps declining back to $100/share where it would be a “generational buy” according to Burry.

2/ Fair Isaac Corporation (FICO) 📉 -40% over past year, -49% below 52-wk high

What happened?

FICO, the company behind the FICO credit score, has been hit by a perfect storm.

Earlier in March, the company announced a $1 billion offering of Senior Notes, which triggered negative reactions from investors as it raised potential liquidity concerns and questions about future financial stability.

Additionally, The FHFA (government agency) has pushed for a “Lender Choice” model, allowing alternative credit models like VantageScore 4.0. This would end decades of monopoly status in the mortgage market.

Despite this, Q1 2026 results were solid: revenue up 16% YoY to $512M, with EPS beating estimates.

Which Gurus own it?

Dev Kantesaria, Akre Capital and Lindsell Train.

Dev Kantesaria’s conviction is remarkable, nearly a third of his portfolio is in this single stock.

Catalyst?

FICO’s Platform revenue (growing 33% YoY) is becoming a bigger part of the business, which could help offset scoring pressure.

Also, acceleration of share repurchases is seen as a strong indicator of FICO’s robust free cash flow. But the regulatory picture needs to clarify before this becomes actionable.

Read more about FICO in my deep-dive on Dev Kantesaria

3/ MercadoLibre (MELI) 📉 -22% over past year, -38% below 52-wk high

What happened?

MercadoLibre, the dominant e-commerce and fintech platform in Latin America, spooked the market with a disappointing earnings report, leading to analyst downgrades and reduced price targets.

Revenue growth remained strong at 47% YoY (currency neutral), items sold rose 43%, and the company added 6.4 million new customers in Q4. But operating margin dropped from 13.5% to 10.1%, and EPS missed consensus.

Management says this is deliberate: they’re investing heavily in lowering free shipping thresholds in Brazil, building digital banks in Mexico and Argentina, and launching credit cards to capture market share while the opportunity is wide open.

Which Gurus own it?

Stan Druckenmiller and Miller Value Partners (here is their investment thesis). Michael Burry also highlighted it as a stock on his watchlist (target price ~$1200).

Catalyst?

Ecommerce penetration rates in the region (~14%) are roughly half the levels of more developed countries (27%-32% in US/UK/China), making the structural growth runway very significant.

Additionally, MercadoPago (fintech) has 78% AUM growth and is planning to become the largest digital bank in Mexico and Argentina. At a forward P/E of ~30x with 40%+ revenue growth and a Price/FCF under 9x, this is getting genuinely interesting.

4/ Coupang (CPNG) 📉 -19% over past year, -44% below 52-wk high

What happened?

Coupang, often called the “Amazon of South Korea,” has had a rough stretch. The main reason is a massive data breach affecting 33+ million accounts, followed by the CEO’s resignation and regulatory probes. Nomura slashed its 2026 EPS forecast by 95%, citing potential fines of up to $900 million. Q4 earnings missed estimates (EPS -$0.01 vs. $0.04 expected), and revenue came in light at $8.8B. The Farfetch acquisition has also weighed on profitability.

Which Gurus own it?

Stan Druckenmiller increased his position by 46% in Q4. Miller Value Partners also own it.

Catalyst?

Hard to identify right now. The regulatory fallout and legal challenges create significant uncertainty. The core e-commerce business (24.7M active buyers, dominant logistics) is strong, but the near-term uncertainty is real. As Greg Padilla would say, this is one where you need to “check yourself and be humble.”

5/ Mastercard (MA) 📉 -7% over past year, -18% below 52-wk high

What happened?

Mastercard faced multiple headwinds in early 2026: a proposal to cap credit card interest rates at 10% (which hit all payment stocks), the $1.8B acquisition of stablecoin infrastructure provider BVNK (which spooked some investors), and AI disruption concerns (fueled by the now famous Citrini Research report).

But the business itself is firing on all cylinders: Q4 revenue of $8.81B beat estimates, EPS of $4.76 was well ahead of the $4.24 consensus (a 12% surprise!), and the company raised its dividend by 14%.

Which Gurus own it?

Many of them…

Dev Kantesaria (~19%), Akre Capital (~13%), Thomas Russo (~10%), Peter Keefe (~6%), John Armitage (~3%), Berkshire Hathaway (~1%), Christopher Tsai (~2%), François Rochon (<1%)

Catalyst?

The shift from cash to digital payments continues to be one of the most powerful global trends. Electronic payments only surpassed cash payments on a global basis a few years ago, so there is still plenty of runway for growth.

Mastercard’s network model (fees on transaction volume) is incredibly durable.

The BVNK acquisition also positions them in stablecoins and tokenized settlements.

With many Gurus owning the stock, long-term growth opportunities and a low valuation (see chart below), this could be a really interesting company to add to the Guru Gems portfolio...

That’s it for this week! Please like or share if you find these insights valuable.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

I’m at Round 7 of constructing my Magic Formula Portfolio.

Here is the 2-minute AI version of today’s post if you’re short on time

As a reminder, while studying investing masters, I’m creating two real-money portfolios to put my learnings into practice.

Last week’s Guru deep-dive got quite a few views and likes, so make sure to check it out if you haven’t yet:

And if you are new to Guru Gems, start here.

Quick refresh on the Magic Formula

In his book “The Little Book that (Still) Beats the Market”, Joel Greenblatt suggests that a regular investor can beat the market averages by buying a group of ‘good’ companies at ‘bargain’ prices.

• ‘Good’ → high return on capital

• ‘Bargain’ → high earnings yield

Since he expects the magic formula to work on average, Greenblatt suggests to own a basket of 20-30 stocks, so you wouldn’t have to worry about a few bad purchases or having to analyze individual stocks in detail.

He also suggests to buy this basket over the course of a year or so, meaning buying a few stocks every month or every other month, which is exactly what I am doing.

You can read more on Joel Greenblatt and his Magic Formula here.

You can also download my Joel Greenblatt e-book for free:

Joel Greenblatt e-book by Guru Gems

494KB ∙ PDF file

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Current Magic Portfolio performance

The overall performance of the Magic Portfolio is currently -4.9%, and on a YTD basis the loss is even higher.

5 stocks (SIGA, CROX, HRMY, RIGL, HALO) went down 20% or more just over the last month.

Not exactly what I was expecting when starting this portfolio…

But I’m not giving up just yet.

Greenblatt originally tested his formula over a 17-year period and found that the formula had underperformed the market averages for some one-year periods and two-year periods (“which is why people will not stick with the formula”, according to Greenblatt)

So I just have to stick to the process for now…

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New Magic Formula Stocks

As I explain in detail in my first Magic Portfolio post, I use Joel Greenblatt’s Magic Formula screener combined with financial ratios data to identify the top stocks in terms of combined rank for Return on Capital (using ROCE) and Earnings Yield (using EV/EBIT).

Here are the 3 companies I will be adding to the Magic Portfolio on Monday:

1. Adobe Inc (ADBE, Market cap $102B)

Adobe is one of the world’s leading software companies, best known for its Creative Cloud suite (Photoshop, Illustrator, Premiere Pro), its Document Cloud (Acrobat, PDF tools), and its growing Experience Cloud for digital marketing and analytics.

Adobe ranks strongly on the Magic Formula with a ROCE of 46% (3yr average of 41%) and an EV/EBIT of 12.3x.

While the EV/EBIT is higher than most other names in the portfolio, the quality of the business more than justifies its inclusion. Very few companies sustain ROCE above 40% over multiple years.

A few things worth noting:

• Adobe has faced investor concern over the potential AI disruption to its creative tools business, which has driven the stock down significantly from its highs and created what the Magic Formula identifies as an attractive entry point

• Despite strong Q1 FY26 earnings, the stock fell significantly earlier this week as the CEO is stepping down, which created further uncertainty

• Despite AI fears, Adobe has been integrating AI deeply into its own products through Firefly and Sensei, and its subscription revenue base remains highly sticky

• At a market cap of approximately $100B, Adobe would be by far the largest company in my Magic Portfolio. Adding some large-cap, high-quality counterweight to what has otherwise been a small and mid-cap focused portfolio is probably not a bad thing

• Finally, Michael Burry initiated a small position in Adobe as he believes it is now trading at a very attractive valuation

Here are a few deep-dives I would recommend to learn more about the investment thesis for Adobe:

The Intrinsic Value Newsletter - Adobe: Designing a Creative Empire? (May 2025)

- Investment Thesis: Adobe, Inc. ($ADBE) (Jan 2026)

- The Adobe Investors Paradox: Narrative vs. Numbers (Jan 2026)

2. Deckers Outdoor Corporation (DECK, Market cap $14B)

Deckers is an American footwear and apparel company behind some well-known shoe brands, including UGG, HOKA, Teva, and Sanuk.

DECK ranks near the top of the Magic Formula ranking with a ROCE of 44% (3yr average of 44.8%) and an EV/EBIT of 9.8x, giving it a rare combination of high, consistent capital efficiency and a reasonable valuation for a company of this quality.

A few things stand out about Deckers:

• HOKA has been one of the fastest-growing performance footwear brands in the world, with strong momentum in running and outdoor categories

• Despite the stock being down 54% (!!) from its Jan 2025 high, the underlying business continues to generate exceptional returns on capital

• The 3yr average ROCE of 44.8% shows this is not a one-year fluke, the business has been consistently excellent

Chris Bloomstran (Semper Augustus), a value investor I covered in my Berkshire post last year, significantly increased his DECK position in Q4. Here is what he wrote in his 2025 Letter:

“We likewise added another new company, Deckers Outdoor, to the portfolio in 2025, gradually at first and then suddenly. The company’s shares were the fourth worst performing S&P 500 component of the year, down 49%. Buying initially near the low, and then meaningfully nearly at the low, our sizable investment earned us a positive 5.6% for the year.”

David Einhorn (Greenlight Capital) also started a small position in DECK during Q4 2025.

It’s great to see Gurus buying the stock, this makes me even more confident to add it to the portfolio.

3. EverQuote Inc (EVER, Market cap $580M)

EverQuote operates one of the largest online insurance marketplaces in the U.S., connecting consumers shopping for auto, home, life, and health insurance with carriers and agents through its data-driven platform.

EVER ranks well on the Magic Formula with a ROCE of 35% and a very attractive EV/EBIT of 6.2x, making it one of the cheapest value propositions on the screener this round.

A few things worth noting:

• EverQuote’s marketplace model is asset-light and highly scalable. It doesn’t underwrite insurance itself but instead earns referral and advertising revenue, which drives strong returns on capital

• The insurance advertising market has recovered meaningfully after a difficult period in 2022-2023 when rising claims costs caused carriers to pull back on marketing spend

• With a market cap of approximately $580M, this is a small-cap name that could benefit from the broader small-cap valuation recovery I have been anticipating across the portfolio

I asked Claude.ai to generate an equity research report on the stock and it is giving it a ‘BUY’ recommendation as well:

EverQuote (EVER) Equity Research Report (Claude)

584KB ∙ PDF file

Download

Download

On Monday, I’m adding these 3 names to the Magic Formula Portfolio and I will hold them for one year, as Greenblatt prescribes.

That will bring me to 21 stocks in the portfolio. The goal is to get to a full portfolio of ~25 names, so I’m getting very close to being fully invested.

And once built, I’ll let the magic unfold…

That’s it for this week! Please like or share if you enjoy reading Guru Gems.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

In today’s edition:

👤 The Guru: Sir Christopher Hohn
🏛️ The Philosophy: TCI's fortress business approach
💎 The Gem: S&P Global (SPGI) — a familiar name with a fresh look

2-minute AI version:

👤 Guru in the spotlight: Chris Hohn

Christopher Hohn is one of the most successful - though not very public - investors of the past two decades.

He is the founder of The Children’s Investment Fund Management (TCI), a London-based hedge fund he launched in 2003, with a name that reflects his commitment that investing and purpose could coexist.

His results have been extraordinary. Over more than two decades, TCI has compounded at more than 18% per year. This is roughly nine percentage points ahead of the broader market.

In 2025 alone, the fund generated $18.9 billion in net gains, the single largest annual profit ever recorded by any hedge fund, surpassing Citadel’s previous $16 billion record from 2022.

“Investing is all about risk and return — and the vast majority of investors focus on return. But in my career I focused on risk. Return does matter, of course, but to me, risk was always the first thing that mattered.”

This risk-first framing is the key to understanding Hohn. He is not chasing the next hot thing. He is building a portfolio he can sleep with and hold for a decade.

What makes his record even more striking is that he achieved his results with a concentrated portfolio of 10-15 names, despite managing more than $75 billion.

The average holding period of TCI’s current portfolio is eight years. Some positions have been held for over a decade. This reflects his patient, concentrated ownership of the world’s best businesses.

Beyond investing, Hohn has committed to giving away essentially most of what he earns. The Children’s Investment Fund Foundation — seeded with his $10 million bonus from his first hedge fund job — has grown to over $6.5 billion in assets and donates more than $500 million per year to children’s health and climate change. He was knighted in 2014 for his philanthropy.

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🏛️ TCI’s Fortress Business Model Playbook

Reading across his interviews and public statements, Hohn consistently emphasizes a few key ideas that guide TCI’s investment decisions, all centered around one central obsession: barriers to entry

1. 🏰 Fortress business models — barriers to entry above all else

For Hohn, the most important question about any business is not how fast it grows, but how well it is protected.

“We’re totally focused on fortress business models, where competition is limited and very difficult and so they have very high barriers to entry.”

The types of barriers he hunts for span a wide range:

• Irreplaceable physical assets (airports, toll roads, railroads)

• Intellectual property so complex it cannot be replicated (e.g., aircraft engines)

• Network effects

• Installed base and customer switching costs (e.g., mission-critical software)

• Brand strength

• Regulatory protection

Hohn’s preference is to find businesses with not just one of these, but several at once.

Aircraft engines are the perfect gems which have these multi-layered barriers to entry: IP, contracts, installed base. GE Aerospace (his ‘crown jewel’) and Safran SA (French aerospace and defense company) together make up more than 25% of his portfolio.

And while he loves aircraft engines, airlines on the other hand represent exactly what he avoids: growth without barriers.

“Airlines have been growing for 100 years — maybe 5% a year — fantastic growth. But collectively and cumulatively, the industry never made any money because competition was too strong. Growth without barriers to entry is not a combination you want.”

Pricing power is the ultimate test of a moat

Hohn has found that once you find one of these supercompanies that can dominate their industries, they have something special, which is pricing power.

The clearest test of whether a moat is real is a company’s ability to raise prices above inflation.

“There is a special group of super-companies that can price above inflation — and that’s, as Buffett taught, the test of whether you have the moat. Real pricing power above inflation can be very valuable.”

2. 🔭 Extreme long-termism — time horizon as competitive advantage

Most institutional investors hold a stock for under a year. Hohn holds for eight on average, and happily for twenty if the business warrants it. He calls this a “time horizon arbitrage”: the market systematically undervalues businesses that are great over decades but not exciting quarter to quarter.

“The value of a great company is only really seen over the long term.

This long-term view requires an important character trait: an almost stubborn refusal to sell.

“If you find something good — and it’s going to be good long term — stick with it. Don’t assume newer is always better.”

3. 🎯 Concentration — size your positions with conviction

Hohn holds roughly 10–15 positions, with meaningful stakes of around 10% or more in the top 8. He believes that if you have identified a true fortress business, adding more mediocre companies to ‘diversify’ only dilutes the quality of the portfolio.

“We’ve used concentration to great advantage. But it only makes sense where you have outsized risk/reward and conviction. That’s our formula for how we size positions.”

In one of this interviews he cites George Soros: “It doesn’t matter if you are right or wrong — all that matters is how big you are when you’re right and how big you are when you’re wrong.”

A very long list of industries to avoid

Hohn is quite explicit about what he won’t own. Banks, airlines, telecoms, insurance, utilities, traditional media, auto manufacturers, commodity producers, advertising agencies, traditional asset managers… all these industries are either too competitive, too cyclical, or too prone to disruption.

“We have figured out a lot of industries which have high and sustainable barriers to entry, and we pretty much ignore all other industries.”

Hohn estimates that only around 200 companies worldwide meet its definition of a truly high-quality business.

What the Wirecard short taught Hohn about independent thinking

Hohn's playbook is built around owning great businesses for decades. But one episode from his career stands out as a rare and instructive detour into short selling (i.e. betting against a company): Wirecard.

The German Enron

For years, Munich-based payments company Wirecard was celebrated as Germany's greatest fintech. It was a DAX 30 member valued at over €24 billion, backed by SoftBank, and given a clean audit by EY every year.

Red flags about its accounting had circulated since 2015, when the Financial Times first raised questions about its Asian operations. but Germany's financial regulator sided with Wirecard, banned short selling of the stock, and filed criminal complaints against FT journalists who reported on the fraud.

Hohn entered the picture in early 2020 with a short position, having applied the same accounting pattern recognition he learned at Harvard Business School: small auditor, no verifiable cash flows, empty offices in supposedly booming Asian subsidiaries.

When KPMG's special audit confirmed in April 2020 that it could not verify the existence of over €1 billion in foreign bank accounts, Hohn took the extraordinary step of filing a criminal complaint with Munich prosecutors against Wirecard's management and publicly calling for the CEO's removal.

In June 2020, €1.9 billion in company funds was revealed to be missing. Money that, Wirecard admitted, "probably never existed". The stock collapsed 98% and the company filed for insolvency days later.

What Hohn learned from this period

The lesson Hohn takes from Wirecard is not primarily about the profit. It is that shorting is structurally difficult.

“Over a dinner with Warren Buffett, I asked Buffett about shorting and he said that he and Charlie Munger never did it because they concluded it was too hard and unpredictable because of the investor psychology aspect of it.”

The first short seller to spot the Wirecard fraud, a decade earlier, had been forced to cover his position as the stock kept rising.

The deeper takeaway he applies to his long portfolio: fraud in plain sight is possible when institutions trust authority too much, and independent thinking — being willing to call something wrong even when the establishment says otherwise — is among the most valuable traits an investor can have.

TCI portfolio

Below is an overview of Chris Hohn’s TCI stock portfolio at the end of Q4 2025. Note that the weights are approximations as the information is a combination of 13F filings (US companies) and shareholder reports (non-US companies), which may have different filing dates.

More than 90% of the $79 billion portfolio is concentrated in 10 names. This level of concentration would make most fund managers lose sleep, but for Hohn it is a consequence of his demanding criteria, making his investable universe very small.

The portfolio is a live demonstration of Hohn’s playbook: aircraft engines (GE Aerospace and Safran), payments networks (Visa), enterprise software with switching costs (Microsoft), credit rating duopolies (Moody’s and SPGI), toll roads and airports (Ferrovial, Aena), and railroads (CP and CNR).

In Q4 2025, Hohn added modestly to S&P Global (SPGI) a financial information and analytics company.

In my deep-dive on Dev Kantesaria, SPGI showed up as Valley Forge Capital's second-largest position at over 20% of his portfolio. Kantesaria has held it for years. And Hohn holds it too, at 8% of one of the most concentrated portfolios on earth.

When two of the world's most disciplined quality investors independently land on the same business, it deserves a very close look.

💎 The Gem: S&P Global Inc. (SPGI)

S&P Global is one of those companies that sounds boring but actually operates at the center of the global financial system.

It is the provider of the S&P 500 Index (the most replicated benchmark on earth), the world’s largest credit rating agency, a leading provider of financial data and analytics, and a dominant force in commodity pricing information.

S&P Global operates across five business segments:

• Ratings — Credit ratings for bonds and debt instruments.

• Market Intelligence — Data, analytics, and workflow tools for financial professionals. Subscription-based, ~85% recurring.

• Indices — The S&P Dow Jones family of indices, including the S&P 500

• Commodity Insights — Pricing benchmarks and data for energy and commodities markets (formerly Platts).

• Mobility — Automotive data and analytics (includes former Carfax). Being spun off in 2026 as a standalone company.

2 of S&P Global’s divisions have operating margins above 60%

💰 To Buy or Not to Buy

1/ Buy good companies

There is no doubt that S&P Global is a high quality company. Two of the most respected quality investors in the world — Hohn and Kantesaria — hold it as a top position.

Its moats are historic, its margins are exceptional, and its business grows structurally with the global capital markets it serves.

Here is why SPGI fits the TCI Playbook

🏰 Fortress barriers to entry

S&P and Moody’s together control roughly 80% of the global credit ratings market — a duopoly enforced by regulatory recognition, investor mandates, and decades of institutional trust.

The Indices business is even more entrenched: the S&P 500 is the benchmark, not just a benchmark, with trillions of dollars of passive capital pegged to it. Every inflow to an S&P 500 ETF generates a licensing fee, with essentially zero marginal cost.

Market Intelligence subscribers embed S&P’s data into their daily workflows and compliance processes, creating high switching costs.

This is the multi-layered fortress model that Hohn is looking for.

The moat is confirmed by a real pricing power.

Because the cost of a credit rating is tiny relative to the size of a bond issuance, customers are highly insensitive to price.

If a company is issuing $1 billion in debt, the rating fee is essentially a rounding error.

That gives S&P Global enormous pricing power.

🔭 A business for the next 30 years?

S&P Global was founded in 1917. As long as corporations issue bonds, ratings are needed. As long as passive investing grows, index revenue grows. As long as financial professionals need data, Market Intelligence renews.

Hohn himself noted that Moody’s — his other ratings holding — has compounded revenues at 10% per year for a century. S&P’s upcoming Mobility spin-off simplifies and focuses the business further, leaving only the highest-quality, highest-margin core.

Will this still be in a dominant position in 20-30 years? Quite likely.

2/ Don’t overpay

High quality companies like SPGI rarely come cheap. But here is where it gets interesting. SPGI’s stock has had a difficult 12 months.

As of early March 2026, shares trade around $452, down roughly 22% from their 52-week high.

The market’s concern centers on two things: fears that AI disrupts financial data businesses, and a slightly disappointing 2026 earnings guidance that came in below Wall Street’s prior estimates.

The current forward P/E of ~23x is the cheapest SPGI has looked on a forward basis in many years.

The AI concern is worth examining a bit further.

S&P Global’s data is largely proprietary, structured, and deeply embedded in regulatory and contractual frameworks.

If anything, the AI supermachine needs reliable, trusted data to run on and that’s exactly what SPGI provides.

Case in point: S&P Global has already integrated its Capital IQ datasets directly into Claude, allowing financial professionals to query earnings transcripts, financials, and company intelligence through natural language.

The market appears to be applying a broad “data business = AI risk” discount without distinguishing between generic web content and S&P’s institutionalised, regulated financial intelligence.

Final decision

SPGI seems to tick all the boxes needed to make it into the Guru Gems portfolio.

📌 Decision: I’m adding S&P Global (SPGI) to the Guru Gems portfolio as a 3-4% initial position. As for any of my positions, I will be closely monitoring Hohn and Kantesaria’s moves and whether any other super investors may pick up the stock.

Hohn added slightly to his position in Q4, at a price between $475-$525, so at a current price of $452 I can buy it below that price.

That’s it for this week’s edition!

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

February is behind us, time for a portfolio update.

I’m currently working on two Guru deep-dives for the coming weeks (François Rochon and Chris Hohn). There is a LOT to learn from these two masters of investing, so stay tuned!

Start here if you are new to Guru Gems.

No time to read this week’s update? Here is your 2-minute AI summary:

💎 Guru Gems Portfolio update

February 2026 will be remembered for the SaaS massacre, and the software companies in the Guru Gems portfolio certainly felt it.

The full portfolio and all transactions are available in the Guru Master Google Doc.

In the next section I will take a closer look at the companies in the Guru Gems portfolio.

I will group them into three clusters, as I explained in my post last week covering the latest 13F moves.

Cluster 1 — Clear Guru signals, strong business fundamentals

🔎 Alphabet

Alphabet continues to lead on AI innovation:

• Gemini 3.1 Pro leads the Artificial Analysis Intelligence Index, ahead of Claude Opus 4.6, while costing less than half as much to run.

• Google just rolled out Nano Banana 2, the upgraded version of its viral image model, now powered by real-time information and images from web search — claiming the #1 spot on text-to-image leaderboards.

Alphabet is still a double in the portfolio and I may trim the position slightly but for now I’m leaving it as is.

🚗 Uber

Uber delivered another outstanding quarter in Q4 2025. Revenue grew 20% to $14.4 billion, gross bookings jumped 22% to $54.1 billion, and full-year free cash flow hit $9.8 billion, up 42%.

The stock dipped ~5% after earnings on an EPS miss and softer Q1 guidance, which is probably more noise than signal.

In their recent Q4 and full year 2025 earnings call, management re-iterated that Uber is strategically positioning itself for a future where autonomous vehicles (AVs) are a significant growth driver, and an opportunity to expand the overall mobility market rather than a direct competitive threat.

Finally, Uber’s newly promoted CFO, Krishnamurthy Balaji, bought $1.6M worth of Uber shares shortly after his appointment. Always a good sign.

I have been buying Uber throughout the past week and it is now a ~9% position. I might buy more if the price drops back under $70.

🏪 Amazon

Following the Gurus’ big Q4 moves, I initiated a position in Amazon. It was the most bought stock by super investors in Q4.

I bought at $204, which is cheaper than what the Gurus have paid for it during Q4. It’s currently ~4% of the portfolio and I may add more over the coming weeks.

Cluster 2 — Guru conviction, business has ‘temporary headwinds’

👜 LVMH

An interesting development this week: CEO Bernard Arnault crossed the 50% ownership threshold in LVMH.

The Arnault family raised its stake from 49.77% at the end of 2025 to 50.01%, formally securing majority control of the group and bringing their voting rights to nearly 66%.

The family spent roughly €407 million buying shares on the market in late January and early February, immediately after LVMH reported weaker-than-expected full-year results.

The stock is down ~15% this year after mixed Q4 earnings, but it is still 7% above my average buying price.

🛌 Airbnb

Airbnb reported mixed results for 2025.

• Revenue grew 10% to $12.2 billion, driven by growth in Nights and Experiences Booked and a modest increase in Average Daily Rate.

• However, net income declined 5% to $2.5 billion, weighed down by higher compensation and marketing expenses as the company invests heavily in new business lines.

It’s a growth-versus-profitability trade-off, with expansion in several international countries and launch of experiences and services hopefully leading to higher profitability in the future.

⚕️ Baxter

Baxter sold off sharply after reporting weaker-than-expected quarterly earnings and adjusted EPS for 2026, but recovered in the following days.

“While the top line exceeds our expectations, adjusted EPS fell short” — Baxter CEO Andrew Hider

The stock is still up ~4% YTD and is back around my average purchase price.

Baxter remains a ‘turnaround play’. There is already a lot of pessimism priced into the stock, and a successful implementation of their new operating model could be a meaningful catalyst.

A few weeks ago, we internally announced the new operating model, and it's designed around simplifying our organization, accelerating innovation, and improving performance.

— Baxter CEO Andrew Hider

🛻 Copart

Copart is another name facing temporary headwinds.

I believe the core thesis remains intact, and Gurus seem to agree.

Here is a great update on Copart’s Q2 2026 results by

Summit Stocks

Copart: Thesis Remains Fully Intact

Read more

3 months ago · 14 likes · Lucas | Summit Stocks

Cluster 3 — Guru conviction, market believes these companies are cooked

Constellation Software (CSU)

Constellation is my worst performer in the portfolio.

The stock is down more than 40% over the last 6 months, driven by fear that AI and agentic tools will completely disrupt its niche vertical market software businesses.

The bull case is straightforward: CSU’s portfolio consists of businesses providing sticky, mission-critical systems in industries like emergency dispatch, hospital billing, and agricultural logistics.

In these niches, customers are driven by operational risk aversion, rather than ease of software replication. And if anything, Constellation can use AI to improve their software rather than be disrupted by it.

Constellation will announce quarterly results on 9 March, giving us much-anticipated insight into whether AI is actually affecting the business.

CCC Intelligent Solution

Another victim of the SaaS massacre. CCC provides software for the property and casualty insurance ecosystem.

Their recent earnings were not bad at all, but the fear of AI disruption is real and is hitting the entire sector.

Here is what CEO Githesh Ramamurthy said on the recent earnings call:

In regulated, multiparty industries like insurance, AI increases the need for trusted data, governed workflows, and platforms that can operate safely at scale. As many of you know, CCC has been an AI pioneer and leader for over a decade.

[…] AI is embedded in our products, our support, and our internal operations. While other companies talk about AI in theory, we have been in production at scale for years.

Akre Capital, Peter Keefe, and Triple Frond Partners all significantly increased their CCC position in Q4.

Bryan Lawrence, one of my favorite Gurus covered so far, also increased his position in Guidewire Software (GWRE), which is a partial competitor of CCC in the insurance technology market.

I believe the market is selling all software companies indiscriminately in a kind of “sell first, ask questions later", while some companies (like CCC) have already been AI-first for a while and may actually be a winner long-term.

I am happy to hold CCC for now and will probably add to the position.

PayPal

PayPal stock crashed 20% after disappointing earnings report, but had a bit of a rebound earlier this week after rumors emerged of a possible takeover.

Hopefully a deal materializes at a price close to what I paid…for now, I'm keeping the position.

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👀 Looking ahead and Watchlist update

It’s not just the Guru Gems portfolio that has been hit hard. Some of the best investors are sitting on significant drawdowns too.

Dev Kantesaria at Valley Forge Capital is a good example.

I’ve covered Kantesaria before: he runs an exceptionally concentrated portfolio of 9 stocks, with over 90% of the fund concentrated in his top five positions: FICO, S&P Global, Mastercard, Moody’s, and Visa. It’s about as high-conviction as it gets, and his long-term track record is excellent.

But February wasn’t kind to him. S&P Global (SPGI), his second-largest position at ~21% of his fund, dropped more than 25% during the first 2 weeks of February. The AI storm was also hitting financial data companies, not just software.

But just like CCC, SPGI may actually be a beneficiary of AI, not a victim of it. The business model is built on selling credibility: credit ratings, benchmark indices, and essential financial data that global markets depend on to function.

If anything, the AI supermachine needs reliable, trusted data to run on and that's exactly what SPGI provides. Case in point: S&P Global has already integrated its Capital IQ datasets directly into Claude, allowing financial professionals to query earnings transcripts, financials, and company intelligence through natural language.

I had already put SPGI on my watchlist after my Kantesaria deep-dive, but after this sell-off, it is now high on the list to make it in the portfolio.

I included my watchlist in the Guru Master Google Doc, so feel free to have a look!

That’s it for this week…thanks for reading and I’ll be back next week with a new Guru deep-dive!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Earlier this week was the deadline for Superinvestors ($100M+) to report their US positions held on 31st December 2025 (13F filings).

Today I’ll share my key takeaways from the latest changes in the portfolios of some of my favorite Gurus.

Here is a 2-minute AI summary:

1️⃣ Alphabet remains the ultimate Guru Gem…

… but Gurus are trimming after the stock increased +38% in Q3 and another 28% in Q4.

Below is a table I put together listing most of the Gurus covered so far in the Guru Gems series as well as some Gurus I plan to cover in the future.

→ For the full table with more names, access the Guru Master Google Doc, which also contains my full portfolio and latest activities

Out of the 15 Gurus listed below, 10 of them hold Alphabet in their portfolio. For 5 of them it is even the #1 or #2 position (‘Gem 1’ or ‘Gem 2’ in the table).

At the same time, Alphabet is also the stock that appears most in the column ‘Largest decrease in Top 10’, meaning that this position is being trimmed significantly, and the Gurus are taking profits after the massive gains this stock had over the past 6-9 months.

Amazon (and Meta) have been added most

If we look at where the Gurus are shifting their attention and investments to, Amazon (and to some extent Meta) is a clear favorite.

Amazon was a laggard in the ‘Magnificent 7’ group in 2025 with just a ~1% stock price increase over full 2025.

Gurus clearly believed that Amazon was undervalued during Q4 and started loading up.

Here are some extracts of what Gurus are saying about Amazon.

“Amazon operates two of the world’s great, category-defining franchises [AWS, Amazon.com]

Both businesses supported by decades-long secular growth trends, occupy dominant market positions, and leverage scale to continually improve their value proposition”

—Bill Ackman

Amazon continues to plow back all of its cash flows into its business, which seems rational given the attractive returns on investment the Company is generating. The Company's returns have regained all-time highs, over 20%, as margins have expanded thanks to advertising, AWS growth, and a sharper focus on retail productivity. Despite these record returns and excellent growth, Amazon's valuation multiples, particularly EV/EBITDA, are trading at historically depressed levels. We started initial positions during the fourth quarter as we expect Amazon's growth, profitability, and valuation present an attractive long-term investment opportunity.

— David Rolfe

This last extract comes from Wedgewood Partners’ Q4 Client Letter, which is well worth reading in full. I always look forward to reading David Rolfe’s letters and I listed it as one of my favorite in a recent post.

Amazon and Meta currently have some of the lowest valuations in the Mag7 group, primarily driven by the market’s fear of the huge Capital Expenditure spending that the hyperscalers are planning for this year.

A few other highlights

• UBER, a core position in Bill Ackman’s portfolio, was also added by John Armitage (Egerton Capital). UBER is the latest stock in my portfolio - read last week’s edition on Bill Ackman if you want to learn more

• Rich Pzena continued to add to Baxter (+19%), making it his largest position as he is convinced that the current pessimism around Baxter is temporary and that “investor confidence is likely to return to this high-quality medtech franchise.”

• David Rolfe significantly reduced his PayPal position (-55%) during Q4

  We trimmed our PayPal positions during the quarter as we believe the combined slowing of transaction volumes and heightened expenses will result in slower profit growth than we previously expected.

  This turned out to be a good call as PayPal is down nearly 30% this year, with the largest part of that decline coming after the poor earnings report and the exit of the CEO.

• Norbert Lou, who stayed true to his Punch Card Capital mindset in Q4, had a significant position in PayPal at the end of Q4. It will be interesting to see if he will give up on the stock or maybe further add to it.

  Another significant position is Crocs which seems to be a better ‘Punch’, especially after the stock jumped 20% after a good earnings report.

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2️⃣ Are software stocks a buy?

An update on super investors’ Q4 portfolios wouldn’t be complete without talking about the SaaS massacre (‘SaaSpocalypse’).

While many software stocks had already been bleeding throughout 2025 (Salesforce, Adobe, ServiceNow …), the real blood bath came earlier this year, when the emergence of AI agentic tools (like Anthropic’s Claude Cowork) caused investors to panic sell anything related to software and data.

It feels like we are now reaching ‘peak fear’ with this software sell-off, and this is usually a time of great buying opportunities if you know where to look. This thinking seems to be confirmed by some of the Gurus:

• On February 6, Akre Capital Management put out a letter to shareholders to address the extreme selloff in many of Akre’s portfolio companies (Constellation, Topicus, CCC, Roper)

  We have spent our time as a research team actively trying to shake our conviction, to understand the vulnerabilities to AI that the market is ascribing. So far, we have failed to do so. Our frustration is high, but dwarfed by our conviction, which we continue to test. Given our conviction, we are doing the only thing that makes sense to us in the face of this fear-driven AI stampede over the dominant businesses we own: leaning in and buying more of these great businesses.

  In addition to increasing their CCC position, they also added Salesforce (CRM) and ServiceNow (NOW) to the portfolio.

• A similar sound came from Bill Nygren’s Harris Oakmark. They put out an article titled ‘Why we’re buying software today’

  In our view, the current fear that AI will displace software incumbents fails to appreciate how large enterprises actually operate.

  They don’t mention specific names yet (their latest 13F is also not yet released), but they were already adding significantly to their Salesforce position in Q3.

• Bryan Lawrence (Oakcliff Capital), who manages a concentrated portfolio of exceptional businesses, usually has very little activity in his portfolio. In Q4, he increased his position of Guidewire Software (Property & Casualty insurance software company), which also got caught in the ‘SaaSpocalypse’. Surely this must reflect his belief that GWRE is an ‘AI-Resilient’ software company.

• Finally, JP Morgan also released an article titled ‘Software Shock: AI’s Broken Logic’ and shared with investors a list of 19 names which they believe are ‘AI resistant’. The list includes Microsoft, CrowdStrike, ServiceNow, … and also Guidewire Software which is the one stock Bryan Lawrence added to.

💎 What this means for the Guru Gems portfolio

There are some clear ‘clusters’ emerging in my portfolio, and this could be a good way to analyze what actions I might consider based on the latest Gurus’ moves.

Cluster 1 — Clear Guru signals, strong business fundamentals

Alphabet, Uber (+ Amazon as a potential add to the portfolio)

• Alphabet has doubled in size in my portfolio, and following the Gurus, I may consider trimming it a bit

• Uber is still a small position but I intend to keep adding until it reaches 8-10% of the portfolio

• I am strongly considering adding Amazon to the portfolio. As discussed in the first section, this is the most bought stock by super investors in Q4. The lowest price during Q4 was around $213, so with the stock currently trading ~$210, I could buy it cheaper than what the Gurus have paid for it.

Cluster 2 — Guru conviction, business has ‘temporary headwinds’

LVMH, Airbnb, Baxter, Copart

• These are companies backed by Gurus, but where the thesis hasn’t fully played out yet

• I’m watching these closely, and may add a bit to Baxter and Copart as these are still small positions in the portfolio.

Cluster 3 — Guru conviction, market believes these companies are cooked

Constellation Software (CSU), CCC Intelligent Solution, PayPal

• CSU and CCC are down 35%(!), not exactly a great feeling. I may add to CCC, following similar moves by Akre Capital and Triple Frond Partners

• PayPal is another one that got crushed. Fortunately, the position was still relatively small. I will keep it for now, but as I get more fully invested, I may consider selling it if I see better opportunities to deploy the funds.

That’s it for this week’s edition!

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back for your weekly dose of timeless investment wisdom from the world’s greatest capital allocators. Start here if you are new to Guru Gems.

In today’s edition:

👤 The Guru: Bill Ackman
🏛️ The Philosophy: Pershing’s concentrated capital allocation strategy
💎 The Gem: Uber Technologies (UBER)

Here is the 2-minute AI version if you’re short on time:

👤 Guru in the spotlight: Bill Ackman

Bill Ackman needs little introduction. He is a very well-known (and sometimes controversial) billionaire investor and the founder and CEO of Pershing Square Capital Management, one of the most closely followed hedge funds in the world.

Founded in 2004, Pershing Square has generated a ~16% compound annual return since inception, despite several high-profile ‘mistakes’ along the way.

Ackman is often labeled an “activist investor”, but over the past decade, his style has evolved.

Here is Pershing’s investing objective (from Pershing’s website):

In 2018, after a difficult stretch (Valeant, Herbalife), Ackman famously declared a “Return to Our Roots”, recommitting to holding fewer positions and of higher quality, with greater predictability and less reliance on financial engineering.

Ackman moved away from the traditional hedge fund model of raising external capital and instead committed to growing permanent capital through investment returns alone, not through asset gathering.

“We focus on growing our permanent capital base through returns, not by growing AUM.”

Since that shift, Pershing Square Holdings (PSH) has delivered a 22.6% annualized return over the last 8 years, significantly outperforming the S&P 500 index over the same period.

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🏛️ Pershing Square’s Core Principles

Ackman calls himself a student of Graham and Buffett. He summarizes his investment approach as following:

“We try to find those rare companies where you can predict what they are going to look like over a very long period of time.”

Here is an interesting clip from an interview with Lex Fridman, where he explains in more detail his investment approach, and why Universal Music Group (UMG) is a perfect illustration of what he is looking for in a company.

In Ackman's most recent Annual Investor Presentation (published just earlier this week), he lays out the clear and simple set of core principles Pershing Square looks for when investing in a company.

1️⃣ Simple, predictable, free-cash-flow-generative businesses

Ackman wants to understand exactly how a business makes money. He prefers companies with straightforward business models and strong, recurring cash generation.

2️⃣ Formidable barriers to entry

Moats matter. Ackman seeks businesses where competition is structurally difficult: Network effects, brand dominance, regulatory moats, switching costs.

3️⃣ Strong financial profile

Low debt and the ability to self-fund growth. Ackman wants his companies to have minimal capital markets dependency.

4️⃣ Exceptional management & governance

Great operators with integrity who treat shareholders as partners.

5️⃣ Attractive valuation

Ackman wants a fair price “as is”, but gets really excited when he sees a substantial discount to what the company could be worth if optimized.

Learning from mistakes: The Netflix episode

One of Ackman’s most recent significant mistakes came in 2022

In January 2022, Ackman made a big, public bet on Netflix. He invested over $1.1 billion in the streaming giant after its stock had dropped significantly on slowing subscriber growth.

In his January 2022 Letter to Investors, Ackman praised Netflix’s management team, calling Netflix a high-quality business with exceptional growth potential trading at a meaningful discount to intrinsic value.

Then came the Q1 2022 earnings report. Netflix revealed it had lost 200,000 subscribers — its first decline in over a decade — and forecast an even steeper drop ahead. The stock crashed more than 25% in a single day.

Ackman sold everything. The very same day. After just three months of ownership, Pershing Square exited the entire position, locking in a $400 million+ loss.

Ackman wrote a letter to his shareholders explaining his decision:

We require a high degree of predictability in the businesses in which we invest due to the highly concentrated nature of our portfolio. While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty. Based on management’s track record, we would not be surprised to see Netflix continue to be a highly successful company and an excellent investment from its current market value. That said, we believe the dispersion of outcomes has widened to a sufficiently large extent that it is challenging for the company to meet our requirements for a core holding.

— Pershing Square Letter to Shareholders 20 Apr 2022

And here is where it gets painful…

After bottoming near $175 (pre-split) in mid-2022, Netflix made a very remarkable comeback. The password-sharing crackdown, content strategy adjustment, and ad-supported tier turned out to be massive growth drivers.

The stock rallied over 500% from those lows to its all-time high of $1,340 (pre-split) in June 2025. Netflix did a 10-for-1 stock split in November 2025.

And even now at $77 (Netflix stock is down more than 40% since that June 2025 peak), the stock is still worth nearly 3 times what Ackman had sold it for.

So what are the lessons from this?

First, even the greatest investors make mistakes.

Ironically, Ackman referenced his earlier Valeant Pharmaceuticals disaster (where holding on too long cost his fund billions) as the reason he sold quickly. In his words:

“One of our learnings from past mistakes is to act promptly when we discover new information that is inconsistent with our original thesis.”

Second (and this is the lesson that matters most for the UBER discussion below), being “right” about the quality of a business doesn’t help if you sell too soon. Ackman correctly identified Netflix as a great business. He was right about the management team. He was right that the ad tier and password crackdown were sensible strategies. But he let short-term uncertainty override his long-term conviction.

Pershing Square portfolio

Below is an overview of Pershing’s stock portfolio at the end of Q3 2025 (with some Q4 updates form their Annual Investor Presentation). Full Q4 portfolio should become available in the next few days.

His top 5 positions made up more than 70% of the roughly $16 billion portfolio in Q3.

The biggest news was a significant new stake in Meta Platforms, reflecting Ackman’s belief that the tech giant’s stock is undervalued.

After my deep-dive on Christopher Tsai in August last year, I had already decided to put Meta on the Guru Gems watchlist.

Based on the latest 13F filings, Tsai further increased his Meta position significantly during Q4, and now with Ackman buying the stock as well, I am strongly considering adding Meta to the Guru Gems portfolio…

We believe Meta’s current share price underappreciates the company’s long-term upside potential from AI and represents a deeply discounted valuation for one of the world’s greatest businesses - Pershing Investor Update

💎 The Gem: Uber Technologies (UBER)

In my update last week, I already shared that I initiated a position in UBER, after flagging it also as one of the Guru stocks to watch for 2026

The recent pullback and further drop after earnings were a perfect opportunity to add an impressive business with attractive growth profile and significant cash flow to the portfolio.

Since I already made the decision to purchase the stock, instead of my usual "To Buy or Not to Buy" section, I will focus here on why Ackman is convinced that UBER is such an attractive opportunity.

There are some really good write-ups of UBER on Substack and X. Here are two accounts that I would highly recommend following:

• Fundamentally Sound by (@ManuInvests on X)

• (@CapexAndChill on X)

Now let’s evaluate Uber through the Pershing Square Playbook

1️⃣ Simple, predictable, free-cash-flow-generative businesses

Uber has evolved from a cash-burning disruptor into a global mobility + delivery platform with strong operating leverage and expanding free cash flow.

Ackman states that Uber’s “Near term results are exceptionally strong and accelerating”.

At the same time, he believes the long-term risk to Uber from Autonomous Vehicles (AV) is limited. The biggest bear case for Uber is that AV companies do not need to pay drivers and that AV companies will develop exclusive applications cutting Uber out of the entire market.

Ackman, and with him many others, believe that AV companies are actually likely to partner with Uber over time due to its strong value proposition. If autonomy becomes widespread, Uber can become the dominant demand aggregator.

2️⃣ Formidable barriers to entry

Uber’s business model has strong network effects that reinforce supply and demand growth

• More drivers → shorter wait times → more riders

• More riders → higher utilization → more drivers

Replicating this at global scale is extraordinarily difficult.

In addition, regulatory licenses, brand recognition and data scale have further widened the moat.

3️⃣ Strong financial profile

From Pershing’s presentation:

Uber has generated significant earnings growth since turning profitable in 2023. We believe the company’s rapid earnings growth is likely to continue as it maintains high revenue growth and leverages its fixed cost base

The company has transitioned from “growth at any cost” to disciplined capital allocation.

4️⃣ Exceptional management & governance

From Pershing’s presentation:

Industry-leading management team, led by Dara Khosrowshahi, has vastly improved operational discipline and capital allocation

Management targets imply +30% annual EPS growth over the next several years driven by mid-to-high-teens revenue growth, robust margin expansion, and share repurchases

5️⃣ Attractive valuation

From Pershing’s presentation:

Newly issued non-GAAP earnings disclosure highlights how inexpensive UBER remains at only 21x NTM earnings

Uber seems to be priced for moderate growth due to industry concerns and this mismatch is exactly the opportunity according to Ackman

Final Thought

I've already initiated a position in Uber during the recent pullback, and studying Ackman's thesis has only strengthened my conviction.

The Uber opportunity reminds me of when I bought Alphabet in April last year amid fears that AI would kill Google Search. Instead, Alphabet turned out to be a huge AI winner and the stock has since doubled in my portfolio.

I see a similar setup here with the market saying AVs will kill Uber, but Uber could well become the primary platform through which AVs reach consumers.

That’s it for this week’s edition!

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

It was a wild week for the stock markets (not to mention the bloodbath in crypto…)

Alphabet’s earnings were stellar, PayPal’s earnings were dismal (CEO out) and Constellation Software got caught up in the SaaS-meltdown driven by the “AI will kill all software”-narrative (which I’m not 100% buying).

New Gem 💎

Uber was one of the many companies reporting earnings this week, and while a modest EPS miss caused market disappointment, the overall results were strong.

The recent pullback and further drop after earnings were a perfect opportunity to add an impressive business with attractive growth profile and significant cash flow to the portfolio.

I wrote about Uber in my 2026 watchlist post and I’m preparing a deep-dive on Bill Ackman where I will cover the stock in more detail.

For today, I’m sharing 2 interesting insights I came across this week. Here is the 2 minute version if you’re short on time:

New to Guru Gems? Start here.

1️⃣ Howard Marks: “I’ve been risk averse all my life”

Howard Marks is co-founder and co-chair of Oaktree Capital Management. He is famous for his legendary memos on markets, contrarian thinking, and risk management.

A few months ago, I shared my 5 key takeaways from Marks’ investing classic ‘The Most Important Thing’.

Marks was recently invited by Pepperdine University for a fireside chat with Pepperdine’s CIO Jeffrey Rohde.

The interview is packed with investing wisdom, and I'll highlight a few takeaways that stood out to me.

Learning from disaster: The Nifty Fifty bubble

Marks started his career in September 1969, a time when the so-called Nifty Fifty (50 popular growth stocks) became more and more poplar until they reached astronomical valuations.

“If you bought the Nifty Fifty stocks the day I got to work in September of ‘69 and if you held them loyally and faithfully, within five years you lost 95% of your money.”

This experience scarred him early and taught him a fundamental lesson: It’s not what you buy, it’s what you pay.

“Good investing is not just a function of buying good things, but of buying things well.

When he got the chance to move into high-yield bonds in 1978, he embraced an asset class that almost everyone else despised:

“There is no such thing as a bargained-priced asset that everybody loves—that’s an oxymoron. But if they say ‘I hate it,’ [...], sounds good to me. That was my process.”

But Marks admits that this early scarring made him overly conservative:

“I’ve been risk averse all my life. And given that, from 1980 when the inflation was solved, essentially to date, generally speaking, the more optimistic you were, the more money you made. So that was the downside of that.”

Volatility is not risk

When asked how risky an investment is based on its volatility, Marks calls it “a softball question” and explains one of his most important concepts:

“Risk is the probability of an undesirable outcome. It is not the volatility of the asset. Buffett said he would rather have a lumpy 15 than a smooth 12. And if you can survive long enough to enjoy the long-term benefit of the lumpy 15, it beats the hell out of the smooth 12. But you have to survive.”

This distinction is crucial. Many investors confuse volatility (price fluctuations) with risk (permanent loss of capital). A volatile but fundamentally sound investment that returns 15% annually is superior to a smooth but lower-returning investment at 12%.

Current Market Cycle and the Mag7

When asked where we are today in the market cycle, Marks says it is helpful to look at intrinsic value, which grows steadily, and compare it to asset prices, which can fluctuate wildly due to psychology.

In the real world things fluctuate between ‘pretty good’ and ‘not so hot’, but in the mind of investors they go from ‘flawless’ to ‘hopeless’, and so prices fluctuate enormously around the intrinsic value.

He believes that asset prices are currently above intrinsic value, indicating a precarious market that requires an "intelligently prudent" approach.

Asked about the valuation of the Magnificent Seven stocks (now representing close to 40% of the S&P 500), Marks believes the high valuations are somewhat justified given these are “some of the greatest companies I’ve ever seen”.

He drew a comparison to the Nifty Fifty:

“The Nifty Fifty were selling at multiples between 60 and 90 as I recall. So 30 looks like a bargain to me for a truly great company. And I think they’re probably okay.”

But he points out that the problem isn’t necessarily with the Magnificent Seven, it’s with everyone else:

“What I’m a little more troubled about [are] the other 493 companies in the S&P 500 because they’re selling on average at I think 18 or 19 times earnings. Why should the other 493 be selling at a higher multiple than the average historical multiple of the S&P 500 [which is around 16]?”

The interview is well worth watching in full as Marks also discusses Bitcoin, gold, commodities, what he reads daily, and his philosophy on giving back.

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In my latest deep-dive I covered Dev Kantesaria, one of the great quality investors, who runs a very concentrated portfolio with FICO as his largest position.

2️⃣ Software businesses are radioactive

My second learning of the week comes from Giverny Capital Asset Management’s Q4 Letter

A few weeks ago, I wrote about my favorite investor letters and why François Rochon is my absolute favorite.

While I’m still patiently waiting for Rochon to publish his 2025 letter, David Poppe, who runs the US Giverny Capital Asset Management fund (a partnership between Rochon’s Giverny Capital and David Poppe), has just released his Q4 letter.

AI, AI, AI

Like many other value investors, Poppe starts his letter by calling out the continued outperformance by a handful of technology giants relative to all other stocks.

Our companies are performing well in terms of earnings growth and capital returns, but the market is focused on AI players investing hundreds of billions of dollars without a clear sense of what the return on that investment will look like.

I am not smart enough to predict whether those returns will delight or disappoint, much less opine whether we’re in a bubble. But any student of economic history knows that the rapid construction of railroads in the second half of the 19th century and of communications infrastructure at the end of the 20th century did not end well for their investors. Those technologies changed the way Americans live, but the real winners were the users of the new infrastructure, not the builders of it.

For now, the opposite is true. The builders of AI infrastructure are the most valuable companies in the world.

Poppe then goes deeper into the overall performance of his fund, starting with the five most positive contributors in 2025.

Alphabet, the ultimate Guru Gem, was one of their best performing stocks in the portfolio and contributed most to the portfolio’s overall return.

Alphabet obviously benefits from AI enthusiasm, but its earnings also rose about 30% in 2025 and have compounded in the high teens since 2021. It has a portfolio of businesses that are performing well: Internet search and its Gemini AI model, YouTube, Waymo, Google Cloud and others. This is an exceptional collection of assets.

Radioactive software

The next section in the letter is reserved for the bottom 5 contributors.

One of them is Constellation Software, a stock I added to the Guru Gems portfolio in October and which is now my worst performer, as it is one of many software stocks being sold off due to fears of disruption by AI.

Here is what David Poppe wrote:

Constellation declined 22% for the year, even though I believe earnings will rise by nearly 20% for the full year. […] Software businesses are perceived as facing an existential threat from AI models that can write software faster than humans can. AI-written software cannot yet replace existing products, but the market is looking ahead and saying: that day is coming.

But Poppe argues that Constellation is a ‘particular flavor of software company’:

It owns hundreds of small firms that have created bespoke products that customers use to run their operations. Scores of golf courses around the country run on various permutations of Constellation products, as do public transit systems, truck fleets, food service operations, hospitals and medical offices, and many others. No one product or customer represents a hefty amount of revenue. Each customer tends to have a unique operating system, even when they are in a similar enterprise. The software is not necessarily complex, but it is specific to its user. Most users also depend on Constellation for support, as a golf course or city bus system typically lacks sophisticated tech resources in house.

His conclusion:

In sum, Constellation strikes me as one of the last places AI entrepreneurs will target. […] Constellation now trades at the cheapest price relative to earnings that I can recall. We’re very much living in a momentum-based market environment, but if Constellation’s earnings keep growing 15% to 20%, the stock price eventually will reflect that. For now, software businesses are radioactive.

The lesson here

This is a perfect example of how markets can overreact to threats and sell off an entire industry without too much nuance.

Constellation Software is currently down 35% in my Guru Gems portfolio. Not exactly a great feeling, but the market seems to be pricing in a worst-case scenario that I don’t believe will materialize.

As Poppe points out, Constellation’s highly specialized, bespoke software serving fragmented markets may actually be among the most defensible businesses against AI disruption.

The challenge, of course, is having the conviction to hold when everyone else is selling, especially when the stock has fallen 35% and the narrative is overwhelmingly negative.

But as we just learned from Howard Marks: “There is no such thing as a bargained-priced asset that everybody loves.”

Perhaps this is one of those moments when what everyone “hates” might actually sound pretty good…

That’s it for this week! Please like or share if you find these insights valuable.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

Today is Round 6 of building my Magic Formula Portfolio.

Here is the 2-minute AI audio version of today’s post if you’re short on time

If you are new to Guru Gems, start here.

As a reminder, while studying investing masters, I am creating two real-money portfolios to put my learnings into practice.

In last week’s edition, I shared an update on the Guru Gems portfolio:

Quick refresh on the Magic Formula

In his book “The Little Book that Beats the Market”, Joel Greenblatt suggests that a regular investor can beat the market averages by buying a group of ‘good’ companies at ‘bargain’ prices.

• ‘Good’ → high return on capital

• ‘Bargain’ → high earnings yield

When Greenblatt wrote the first edition of his book, he had tested his formula over a 17-year period (until Dec 2004) by selecting 30 stocks from the 1000 largest companies.

While Greenblatt warned that the formula had underperformed the market averages for some one-year periods and two-year periods (which is why people will not stick with the formula according to Greenblatt), his tests showed that following the formula for any three-year period in a row, led to the magic formula beating the market averages 95 percent of the time (160 out of 169 three-year periods tested).

Of the 169 separate three-year periods tested, the worst return for the magic formula was a gain of 11 percent. The worst return over a three-year period for the market averages was a loss of 46 percent. That’s a pretty big difference!

But that’s not all. If one were to pick not just from the largest 1000 companies but instead from the largest 3500 stocks (market values over $50 million), the results were even better.

Every three-year period tested (169 of 169) was positive for the magic formula portfolios, and every three-year period beat the market averages (169 of 169). That’s right. The magic formula beat the market averages in every single period!

Of course, there is no guarantee that this would still be true today, but that’s exactly what I’m testing.

And if I’m serious about finding out whether the Magic Formula still works, I have to stick with it at least for a 3 year period!

You can read more on Joel Greenblatt and his Magic Formula here.

You can also download my Joel Greenblatt e-book for free:

Joel Greenblatt e-book by Guru Gems

494KB ∙ PDF file

Download

Download

Current Magic Portfolio performance

The overall performance of the Magic Portfolio is currently +1.4%, compared to +10.5% for the S&P500 over the same time period (7 months).

Not exactly a great performance…

A few names have taken a serious beating since my last update in December:

• Abercrombie & Fitch (ANF) was up more than 50% at some point, but pulled back heavily after the company issued a business update that disappointed investors

• Rimini Street (RMNI) and Yelp (YELP) both dropped ~10% since the last update

This shows how volatile some of these names can be and why it makes sense to hold a portfolio of ~25 names.

Many companies are reporting earnings over the next few weeks, so I definitely expect more volatility to come.

I need to stick to the formula and as described above, the real test will be a timeframe of 3 years as that is where Greenblatt observed outperformance 100% of the time.

If you enjoy this newsletter, please help others discover it by clicking 🤍

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New Magic Formula Stocks

Here are the 3 companies I will be adding to the Magic Portfolio on Monday:

(Read my first Magic Portfolio post for my step-by-step approach of how I select the companies)

1. OneSpan Inc. (OSPN) - OneSpan provides software and services that secure and facilitate digital transactions and agreements, with a portfolio spanning authentication (including multi-factor authentication and transaction signing), fraud/risk capabilities, identity verification, and e-signature/digital agreement workflows.

   • Market Cap: $448M (Small-Cap)

   • A few insiders have bought shares in August and November last year

   • AI Deep Research report:

     

     OneSpan Deep-Dive Equity Research Report

     72.1KB ∙ PDF file

     Download

     Download

     

2. Halozyme Therapeutics (HALO) - Halozyme is a biopharmaceutical platform company best known for ENHANZE, a proprietary drug-delivery technology that enables subcutaneous administration of large-volume biologics that historically required intravenous infusion.

   • Market Cap: $8.4B (Mid-Cap)

   • AI Deep Research report:

     

     Halozyme Therapeutics Deep-Dive Equity Research Report

     82.6KB ∙ PDF file

     Download

     Download

     

3. The Cigna Group (CI) - The Cigna Group is a large U.S.-centric managed healthcare and insurance company

   • Market Cap: $73B (Large-Cap)

   • Some superinvestors have been adding the stock to their portfolio recently

     

   • AI Deep Research report:

     

     The Cigna Group Deep-Dive Equity Research Report

     72.4KB ∙ PDF file

     Download

     Download

     

On Monday, I’m adding these 3 names to the Magic Formula Portfolio and I will hold them for one year, as Greenblatt prescribes.

That brings me to 18 stocks in the portfolio. The goal is to get to a full portfolio of ~25 names, so I’m getting closer to being fully invested.

And once built, I’ll let the magic unfold…

That’s it for this week! Please like or share if you enjoy reading Guru Gems.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

Welcome back!

In today’s edition:

1. 📉 Japan bonds are scaring investors and tariffs are back (nvm, they’re gone again)

2. 🆕 A new Gem: Adding a Guru favorite to the portfolio

3. 💎 Portfolio update: The Good (GOOGL), the Feared (CSU), and the Unloved (PYPL)

Start here if you are new to Guru Gems.

🧧 FINAL REMINDER: last week to win a one-month subscription to Michael Burry’s Substack or a copy of Richer, Wiser, Happier, by referring new subscribers to Guru Gems. 🧧

🎁 Find more details here - Just one successful referral may get you the price!

📉 The Macro Shock: Japan & Tariffs

The past week was quite volatile: Japan bonds are scaring investors and tariffs are back.

With Peter Lynch in mind, here is the 30-seconds version of what happened this week:

The Japan Bond Sell-off

Japanese government bond yields hit record highs after the Prime Minister called a snap election and proposed tax cuts.

Why this matters:

• Japan has the highest debt-to-GDP ratio (235%) of any advanced economy

• A further rise in interest rates could trigger a debt crisis that spills over globally

The Tariff Threat

Adding fuel to the fire, US tariff threats against NATO allies briefly spooked markets before being dropped.

This shows how fragile sentiment currently is.

Staying focused on quality

As mentioned before, I will not be dwelling too much on the global economy with Guru Gems.

My main takeaway of the current situation is that still having half of the portfolio in cash is maybe not a bad thing…

Let me close this section with some wise words from François Rochon:

As always, we remain agnostic regarding the economic and stock market outlook for the coming year.

Our companies continue to navigate the choppy waters of the global economy despite the many sources of worry that create sleeplessness for many investors. The current year will most likely see its share of uncertainties, disappointing economic data and geopolitical (or political) fears.

We remain tooth and nail convinced that our companies should continue to enrich investors at rates above the average over the long run.

Last week I wrote about my 3 favorite investor letters and why Rochon’s letters are my favorite.

And now, back to our Gems!

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🆕 Adding a Guru favorite to the portfolio

On Monday, I’m adding Copart to the Guru Gems portfolio.

Copart runs online vehicle auctions, primarily for salvaged and total-loss cars. Insurance companies rely on Copart to efficiently dispose of vehicles, while buyers around the world compete for inventory through Copart’s digital platform.

Several long-term investors have owned Copart for years, and for good reason: it has compounded capital through multiple cycles without relying on leverage or hype.

Why this is a Guru favorite:

• Network effects: More buyers → higher auction prices → attracts more sellers (insurance companies) → more inventory → attracts more buyers

• Strong balance sheet: With cash piling up, this offers opportunities for buybacks and/or acquisitions

• Long runway: Increasing vehicle complexity and repair costs means more cars are written off

I first wrote about the stock in my review of Peter Keefe and his Rockbridge Capital portfolio.

In his July 2024 Letter, Keefe wrote:

Copart’s business model, its capable and long term oriented management, and an unassailable business franchise add up to a multi-year, possibly multi-decade, compounding opportunity.

I also highlighted the stock earlier this month as one to watch for 2026, as it was down roughly 40% from its 52-week high, driven by revenue & volume misses and economic headwinds.

I wrote:

The stock is currently at $38 which is just 1% above its 52-week low. I will wait until it goes 10-15% above its 52-week low before buying it.

CPRT closed the week at $41.40, which is 10% above its 52-week low. I will initiate a small position (2-3%) and build it up over the next weeks/months.

💎 Guru Gems Portfolio: The Good, the Feared… and the Unloved

The return on the capital invested over 9 months is 11.6%, compared to 27% for the S&P500 over the same period.

I am making my portfolio and its performance accessible to everyone in a Google Sheets document. You can access it here.

Alphabet (GOOGL): the good news keeps coming

Alphabet continues to be the star of the portfolio. It recently joined the $4 trillion market cap club, driven by growing investor optimism about its AI efforts.

Last week, there was an announcement that Apple had entered into an exclusive multi-year partnership with Google to license Gemini and Google Cloud to support their AI models.

After careful evaluation, Apple determined that Google's Al technology provides the most capable foundation for Apple Foundation Models and is excited about the innovative new experiences it will unlock for Apple users.

Another interesting update came from Similarweb, a digital intelligence platform, who released a research report on ‘ The Top 100 Most visited Websites in the World (December 2025)’

Google.com is still taking the top spot. ChatGPT.com is in the top 5, but its web traffic declined for a second consecutive month.

What’s interesting is that Gemini.google.com was one of the fastest-growing sites in the entire top 100, and for the first time, it entered the top 20 most-visited websites in the world, following the launch and expansion of Gemini 3.

Similarweb’s Generative AI traffic share data also shows that Gemini keeps increasing its share at the expense mostly of ChatGPT.

Constellation Software (CSU): the fear is real

Constellation Software acquires and manages vertical market software (VMS) businesses. These are industry specific software businesses providing specialized and mission-critical software solutions.

Constellation Software is down more than 25% since I bought it in October—my worst-performing position.

What went wrong?

The stock has been in freefall since May, driven by two fears:

1. AI disruption - Will AI-powered tools replace Constellation’s niche software?

2. Leadership transition - Legendary founder Mark Leonard stepped down in September due to health reasons

What is really happening?

The AI fear is likely overblown:

• Constellation’s software serves industries where AI adoption will be slow

• Many businesses are sticky, mission-critical systems deeply embedded in operations

• Constellation could use AI to improve their software, not be disrupted by it

The leadership transition looks solid:

• Mark Miller, Leonard’s successor, has been with Constellation for 30 years

• He knows the Constellation playbook inside out

• Nothing has materially changed in how the business operates

It’s obviously not very comfortable to be down nearly 30% on this position, but since nothing fundamental has changed about the business, I’m not panicking. If the business shows actual deterioration (not just sentiment), I'll reassess.

PayPal (PYPL): not very loved

After adding PayPal in November, the stock has struggled to find momentum and a few warning signs have come up:

1. Market sentiment deteriorating

Analyst downgrades and ongoing concerns about competition and declining branded checkout volumes have kept the stock under pressure.

2. Wedgewood Partners trimmed their position

In their Q4 letter, Wedgewood Partners (who have owned PayPal for over a decade) wrote:

“We trimmed our PayPal positions during the quarter as we believe the combined slowing of transaction volumes and heightened expenses will result in slower profit growth than we previously expected.”

When a patient, long-term holder like Wedgewood trims, that's a yellow flag.

3. Michael Burry isn't interested

Burry recently posted a deep-dive on the payments industry and shared that he is not very interested in PayPal.

“PayPal is not interesting to me. I find its owners’ earnings far below reported earnings, and I worry about pricing power and work culture.”

Later in the comments he mentioned he will do an in-depth post on Block (XYZ) and PayPal (PYPL). I will be watching that one closely!

I will also be watching Norbert Lou’s 13F very closely (released in next few weeks) as well as PayPal’s upcoming Q4 2025 Earnings Call on 3 February.

That’s it for this week…thanks for reading and I’ll be back next week with an update on the Magic Portfolio!

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.

It’s the time of year when many of the investing greats publish their ‘Annual Letter’.

These letters include performance updates, but some of them also include a view on the state of the markets or company analyses.

This last part is what’s really interesting because it gives you a look into how great investors think and analyze companies.

Many of the best investor letters are only shared privately with clients. Michael Burry wrote: “For many years, my Scion Capital investor letters did all my marketing for me”.

Fortunately, a few Gurus make their letters available for anyone to read and learn.

Today I’ll share my three favorite investor letters, and a few takeaways from each that I think every long-term investor can benefit from.

The post is quite long, so if you want the TL;DR here is a short AI-generated podcast of today’s newsletter:

Let’s dive in!

→ Start here if you are new to Guru Gems.

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Last week I covered Dev Kantesaria (the ‘Guru’), one of the great quality investors, who runs a very concentrated portfolio with FICO (the ‘Gem’) as his largest position.

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The Timeless Value of Great Letters

The best letters remain relevant many years later.

The most famous example is probably Warren Buffett’s Berkshire Hathaway letters, which are still worth rereading today. You can find the full collection here, and if you haven’t read one yet, I would highly recommend it.

Here is an extract from the 2000 letter, which feels appropriate, given the multiple ‘AI bubble’ warnings we’re hearing today.

But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street — a community in which quality control is not prized — will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.

At Berkshire, we make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We’re not smart enough to do that, and we know it. Instead, we try to apply Aesop’s 2,600-year-old equation to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge (a formulation that my grandsons would probably update to “A girl in a convertible is worth five in the phonebook.”). Obviously, we can never precisely predict the timing of cash flows in and out of a business or their exact amount. We try, therefore, to keep our estimates conservative and to focus on industries where business surprises are unlikely to wreak havoc on owners. Even so, we make many mistakes: I’m the fellow, remember, who thought he understood the future economics of trading stamps, textiles, shoes and second-tier department stores.

This letter, written in early 2001, is now 25 years old, but it may as well have been written this year. That’s the power of a great investor letter.

With that, here are my top three investor letters, ranked in reverse order.

🥉 Terry Smith - Fundsmith

Terry Smith was the very first Guru I covered in Guru Gems.

He is known for his simple three-step investment strategy:

1. Buy good companies

2. Don’t overpay

3. Do nothing

A Challenging 2025

2025 was a difficult year for Fundsmith, with the fund up just 0.8% while the MSCI World Index rose 12.8%.

In fact, the last 4 years have been difficult for Fundsmith.

After delivering very strong returns for a decade (2011-2021), Fundsmith has significantly underperformed the index since 2022. Not coincidentally, this is the period when the Magnificent Seven drove the majority of index returns.

In his latest annual letter, Terry Smith addresses what happened, why it happened, but also why it doesn’t invalidate the strategy.

Index concentration and the growth of index funds

Terry cites ‘index concentration’ and ‘the growth of index funds’ as 2 of the 3 main reasons for his underperformance (a weaker dollar being the third).

1. Smith highlights how a small group of mega-cap tech stocks has driven a disproportionate share of index returns. He warns that previous times when the US market value was this concentrated, it would often lead to a bubble bursting and it would take many years for the S&P to regain its bubble highs.

2. Smith further argues that “the rise of the Magnificent Seven and the AI stocks also had a strong tailwind from the increase in assets held in index funds”

   

   John Bogle, the pioneer of index investing who founded Vanguard, the index fund manager, was asked at the 2017 Berkshire Hathaway annual meeting if there was a level of assets in index funds which would distort markets and he agreed that there was, although he had no method of determining that level. We may already have reached it.

For Terry Smith, index investing behaves like a momentum strategy, mechanically allocating more capital to the biggest winners regardless of valuation or quality.

Bill Nygren has repeatedly made a similar point over the past year. Here is Nygren’s latest Q4 ‘25 update talking about exactly this.

Quality Remains

The fundamental quality of Fundsmith’s portfolio remains very strong:

• 31% Return on Capital Employed (vs 17% for the S&P 500)

• 62% Gross Margin (vs 45% for the S&P 500)

• 16% free cash flow growth in 2025

The quality of our portfolio companies is as high as it has ever been and collectively they continue to grow free cash flow quicker than the historical average of the portfolio. The underlying business performance remains our primary focus. If we get that right then our Fund will emerge with the intrinsic value of its investments maintained or enhanced, as sooner or later, share prices reflect fundamentals, not the other way around.

Based on the portfolio’s fundamental quality, Smith is convinced that continuing to hold good businesses is still the right thing to do.

Whilst we are going to stick to our investment strategy we will of course seek to do it better.

He expects that owning businesses with strong fundamental returns will shine through into superior share price and fund performance over the long term and that “in the interim our fund will prove relatively immune from any shocks which arise if or when the present extraordinary market conditions unwind.”

🥈 David Rolfe - Wedgewood Partners

David Rolfe is Chief Investment Officer and Portfolio Manager at Wedgewood Partners, a focused growth investment firm that I've been following closely.

Their quarterly letters are always packed with detailed company analyses and market insights.

While Wedgewood invests in growth, valuation is still key to generating attractive returns over the long-term: “Unlike most growth investors, Wedgewood is not a momentum investor but rather a contrarian growth investor.”

The Art of Patience

Wedgewood patiently waits for opportunities to purchase what they believe are great businesses at attractive prices.

We tend to buy great companies when they fall out of favor. Perhaps there are controversies surrounding the companies, or temporary issues we firmly believe will dissipate or be quickly corrected. Often, the market just loses interest in a company or industry.

A good example is Zoetis, the global leader in animal healthcare, which they bought in early 2025.

Zoetis is not exactly a hidden gem, but they had done the work to understand the business deeply, and when the market lost interest, they were ready to act.

We have been monitoring Zoetis and other animal healthcare companies for many years. The industry has long boasted healthy and steady growth rates. Critically, Zoetis also boasts high and improving levels of profitability.

We claim to be long-term investors, and our behavior over 30+ years bears this out; therefore, we tend to get excited when we have been monitoring a great business for many years, and the market eventually presents us with an opportunity to buy it at an attractive entry point. […] This has now happened with Zoetis.

Wedgewood’s approach shows the power of maintaining a watchlist of great companies and having the patience to wait for the right price.

This ‘art of patience’ is something I also highlighted in my deep dive on Dev Kantesaria, who studied FICO for 7(!) years before seeing an opportunity to purchase it.

Annus Horribilis

Just like Fundsmith, Wedgewood significantly underperformed the index in 2025.

The year would prove to be our worst relative calendar year since 1993. Horribilis, indeed.

And like Terry Smith, David Rolfe faced the exact same structural headwinds in 2025: index fund momentum, AI mania, and a market that rewarded speculation over quality, especially since ‘Liberation Day’, as can be seen from the chart below.

Concentration Risks

Rolfe highlights the extreme concentration in the market. He points out the absurdity that the top eight stocks in both the S&P 500 and the Nasdaq 100 are now identical.

Despite these risks, he continues to hold companies like Alphabet and Meta because they have been “cloud-native for over a decade” and can fund their AI buildout with internal cash flow, unlike newer entrants who are relying on debt.

Wedgewood believes AI is ‘real’ in the sense that the opportunity is massive, but capital intensity, infrastructure constraints, and returns on invested capital still matter.

The setup for 2026

In their latest letter, Wedgewood Partners warn that the 2025 risks are still very real.

As we enter 2026, the crowded AI trade and historically rich valuations haunt prudent investing. Even most non-Magnificent Seven stocks fail to scream “bargains.” Further, speculative leverage remains historically high. Even the 2026 mid-term political season speaks to curbed enthusiasm.

But despite the difficult year, Wedgewood is optimistic about their positioning going forward.

On the growth front, our portfolio fundamentals, prospective earnings growth rates, profitability measures, and balance sheet strength are notably superior to the S&P 500 Index. […]

We like these odds for a performance reversal in 2026.

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🥇 François Rochon - Giverny Capital

If I had to recommend one investor letter for someone serious about long-term investing, this one would be it.

François Rochon manages the Rochon Global Portfolio, which has achieved a 15.1% annualized return since July 1993. This is a total return of over 8,300% versus 1,800% for his weighted benchmark. 32 years of exceptional performance.

What makes Rochon’s letters special is the combination of transparency, humility, and long-term thinking.

In his letters, he shares a ‘Post-mortem’ of stocks bought 5 years ago, discusses what he believes is the ‘Flavor of the day’ in investing, and highlights his top 3 errors from the past years in his ‘Podium of Errors’.

I’m eagerly waiting for the 2025 letter to be published, but here is the 2024 letter to give you a flavor.

30 Years of Staying the Course

In his 2023 letter (celebrating 30 years of investing), Rochon reflected on his journey:

“I have now been investing in the stock market for over 30 years. I first read the writings of Ben Graham and Peter Lynch in November 1992 and discovered a rational approach to investing in the market. I read all of Warren Buffett’s writings at the beginning of 1993 and discovered a philosophy of selecting quality companies with a very long-term horizon. I decided to try to put Mr. Buffett’s concepts into practice with my own money from that moment on.”

Over those 30 years he hasn’t changed his philosophy and remained committed to his three core principles which he learned from Ben Graham and Warren Buffett:

1. Think of buying stock as the act of owning a business (not speculating)

2. The stock market is manic-depressive - focus on intrinsic value, not price fluctuations

3. Maintain a margin of safety in your business evaluation

Learn more about Ben Graham and The Intelligent Investor in my post below

Why Rochon’s letters are my favorite

Just like Buffett, Rochon’s letters feel timeless.

His letters are a reminder that great investing is simple but not easy:

1. Find high-quality businesses with sustainable competitive advantages

2. Buy them at reasonable prices

3. Hold them for a very long time

4. Never try to predict the market

His 30+ year track record proves that this approach works.

I am currently re-reading all Giverny letters going back to 2010, in preparation of a future post on François Rochon…stay tuned for that one!

🅱️ Bonus

Here are some other investor letters I enjoy reading each year:

• Tom Gayner (Guru Gems) - Markel - Letters to shareholders

• Christopher Tsai (Guru Gems) - Tsai Capital - Investor Letters

• Peter Keefe (Guru Gems) - Rockbridge Capital - Letters

• Akre Capital (Guru Gems) - Commentary

• Chris Bloomstran (Guru Gems) - Semper Augustus - Client Letters

What other letters should I read? Let me know in the comments.

That’s it for this week! Please like or share if you enjoyed this post.

You can follow me on X @guru_gems and Substack @gurugems for more insights.

Until next week!

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Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice or investment advice. Always do your own research before making any investment decision.