• Consistently not stupid

• Stock in focus: Jet2

• The Rationality Test: Lightwave Logic

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

Before we get started, a quick heads-up: I’m taking a week off to recharge the batteries. The next issue will be out on May 14th.

Consistently not stupid

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” - Charlie Munger

Charlie Munger produced quite a few one-liners over his incredibly long career, but the one above is, for me, the one that best fits the current market. We are seeing those strange antics resurface that are so typical of a bull market.

For instance, we saw Allbirds, a company that produced wool sneakers, sell off its operations for $39 million—a mere 1% of what investors paid at the time of the IPO. At the same time, the company announced it would invest this amount to transform itself into an AI firm. No products yet, just an idea. Even so, the share price jumped from $2.49 to $23.

You would expect investors to be less than accommodating toward a management team that has lost half of its revenue since the IPO and was essentially on the brink of bankruptcy. While the share price has since been divided by nearly three, at $8.43, it is still 3.4x higher than it was before the announcement.

This smells a lot like the dot-com era, back when simply slapping “.com” onto a name was enough to send a stock price through the roof.

We’re seeing some other strange things happening too. Take Avis, for example—a car rental company sitting on $25 billion in debt—which skyrocketed by a staggering 600%. This happened because two funds managed to buy up more than 100% of the shares, using a mix of common stock and derivatives. The end result? Short-sellers, who sell shares today hoping to buy them back cheaper later, suddenly couldn’t find any stock to cover their positions. The math simply didn’t add up anymore.

Those are some nice anecdotes, of course, but what’s happening in the broader market is actually beyond belief.

We are currently navigating an environment where the leader of the world’s largest economy has proven to be an unreliable partner to all other nations for over twelve months now. That fact alone should be weighing on the economy.

On top of that, we still have the ongoing wars in Ukraine and Gaza, with the conflict in Iran added to the mix. While the markets seem to have priced in the disruptions from the first two, the impact of the war in Iran is far from settled. It’s staggering to see the world index trading higher than it was before the Iran conflict broke out, especially knowing that oil supplies are disrupted and prices remain high. This is going to squeeze consumers and businesses globally. The longer it drags on—and we’re already more than 50 days in—the worse the impact will be. There’s no sign of a solution on the horizon, either.

I don’t think I need to pull up the usual chart of the Buffett Indicator anymore; by now, you understand all too well that we’re in exceptional territory. On one hand, there’s a very real threat to the global economy; on the other, stock markets are looking extremely expensive.

The argument I often hear and read for why these high indices and prices are justified is the earnings growth of American companies. That surge in profits will indeed happen. AI investments are a major driver for the bottom line of certain players. Take NVIDIA as an example: their profits will almost certainly see another spectacular rise this year, provided customers actually follow through on their orders.

However, what counts as revenue for NVIDIA is a cost for their customers—a cost that, for now, isn’t being offset by sufficient revenue. You might think this is a zero-sum game, where one’s profit is another’s expense, but that’s not how accounting works. NVIDIA books 100% of the sale as revenue, while the buyers of those chips depreciate them over, say, six years. Consequently, they only record about 17% as an annual expense. This effectively causes the combined profit of this group of companies to be overestimated by 83%.

I realize this is a simplification and that other factors are at play, but it illustrates the underlying mechanism. What applies to chips applies even more drastically to the construction of data centers (with depreciation over 20 years, or just 5% cost per year) and everything else involved in the rapid build-out of AI.

Despite the fact that markets are generally expensive, that certainly doesn’t apply to every individual stock. You just have to make sure you don’t do anything stupid. How do you avoid “doing stupid things” as an investor? By using logic and performing valuations. While a valuation always involves assumptions and will never be pinpoint accurate, it at least forces you to think those assumptions through and provides a necessary roadmap.

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• The Stock Market: Still a Leading Indicator?

• Stock in focus: EVS Broadcast Equipment

• The Rationality Test: ASML

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

The Stock Market: Still a Leading Indicator?

When I started investing back in the last century, the common wisdom was that the stock market leads the real economy by about six to nine months. If the market corrected or crashed, it meant the real economy would face a significant slowdown or even a recession anywhere from a few months to a year later.

Today, we are witnessing two wars with a significant financial impact on the global economy, yet the market seems unfazed. I find it particularly strange that investors appear to dismiss the reduced supply of oil and gas as a mere footnote. Despite widespread electrification, high oil prices—especially if they persist—remain incredibly damaging to the economy.

In Europe, we’ve already felt the sting of high energy costs after we stopped importing cheap Russian gas. That gas didn’t disappear; it just flowed to other customers. Now, we are seeing oil face logistical hurdles.

The fact that markets are reacting so lukewarmly to these developments, seemingly more preoccupied with Trump’s latest tweets, genuinely concerns me. Is the market underestimating the impact? Or am I being too pessimistic, and will these conflicts resolve quickly? Hardly anyone believes a ceasefire will hold, so it’s bizarre that the market isn’t pricing in the risk.

Does the market truly believe in a swift resolution regarding the conflict in Iran? Or are there other forces at play keeping the floor under these prices?

Since the Covid crash, investors seem to have been conditioned to “buy the dip” at every opportunity. Every decline was viewed as a buying window, and people jumped in en masse—and they were rewarded for it. It has become a Pavlovian response.

This time, however, feels different. While there are still conflicting reports of heavy buying on down days, we are starting to see the first signs that retail investors are pulling back and becoming more cautious. “Buying the dip” becomes a lot harder to justify when prices stop rebounding despite all that capital flowing in.

Alongside the dip-buyers, passive investors are another reason the market isn’t dropping yet. they keep buying regardless of the red flags. They stick to their systems, sometimes out of conviction, and sometimes simply because their pension contributions are automated.

I’ve written this before: I won’t believe in a true, heavy correction or crash until we see US employment numbers drop and that vicious cycle is broken. In essence, this means I no longer view the stock market as a leading indicator. I believe the economy will have to slow down sharply first before we see the market correct in proportion.

There isn’t definitive proof for my theory yet, but we might soon find out if the market retains its predictive power or if my thesis holds water. Currently, the US labor market remains strong, but the first signs of a cooldown are appearing. Very expensive oil will have global consequences, significantly increasing the odds of a slowdown or recession.

Does this mean we should exit the market and wait on the sidelines? Of course not. However, I am looking differently at things like non-essential consumer goods, as those are the first things people cut back on. I certainly wouldn’t pay a premium for growth in that sector right now.

I mostly see this as an opportunity. Our smaller companies were already cheap, and since they aren’t part of the major indices, I don’t expect them to be sold off as aggressively when pressure builds. They are also resilient enough to weather a storm. On the flip side, we have the cash ready to capitalize on the opportunities the market hands us.

Small-Cap Value ETFs: Just Junk?

Finally, I want to address something I was asked several times at the VFB Happening. My focus is heavily on small and mid-sized companies using a value investing approach. Many investors find this too labor-intensive and prefer buying an ETF that targets these factors.

By now, you probably suspect I’m not the biggest fan of passive investing, even though I think the concept is sound for the average investor. The problem is that it has evolved into a dogma, leading to a lack of common sense. With a World ETF, you can at least argue you’re investing in today’s winners; the biggest companies are usually the biggest for a reason.

However, when you apply value factors to smaller companies through an ETF, you are essentially buying about 80% junk. This is partly because value factors are often too narrow, but also because this pool includes yesterday’s losers. Some will indeed be small, growing firms or turnaround stories, but a large portion is the “garbage” that value investing is often—unfairly—associated with.

In that scenario, you’re playing a losing game. The companies that actually perform well within those ETFs end up being kicked out because they grow too large or no longer fit the “value” criteria. In other words: you sell your winners and replace them with the losers falling out of the large indices.

Small-cap, mid-cap, and value are true stock-picker markets. That is where you make a difference with your own analysis and by looking further than the rest. Or, as Howard Marks puts it: “What we do is take advantage of the mistakes of others. We want to get returns that are more than commensurate with risk. And to do that, you have to buy assets not at fair prices, but at unfair prices.”

I am simultaneously very excited about the opportunities available now—which may become even greater in our segment—and naturally anxious about what war will do to the economy. We have no control over the latter; however, we do have control over our constant search for opportunities and the smart deployment of our cash.

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• Cash is king

• Stock in focus: Adyen

• The Rationality Test: Aliaxis, Etex en Sibelco

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

Cash is king

What’s unfolded over the past week is frankly mind-boggling. We’ve seen a U.S. President manipulate the market so blatantly—talking up a storm of war on Friday, only to offer soothing words on Monday before the American markets even opened.

We’d be wise to ignore this short-term noise and keep our eyes on the long game. After all, the war brings long-term concerns and consequences. The most obvious, of course, is the disruption of shipping due to the semi-blockade of the Strait of Hormuz. I call it a semi-blockade because Iran is letting ships through, provided the oil is paid for in Chinese yuan.

This bottleneck, combined with the destruction of oil infrastructure, is going to keep oil prices higher for longer. To be fair, we were already expecting higher prices. I actually wrote about this in Smart Capital 507, which came out the day before the war started. That forecast wasn’t based on conflict, but rather on years of underinvestment in the sector. Now, the war and the resulting damage are being layered on top of that.

The issue of higher oil prices is becoming much more pressing. Expensive oil leads to rising prices and higher inflation, which usually triggers higher interest rates. In short: everything gets more expensive, making people more cautious with their spending. That, in turn, can lead to an economic slowdown or even a recession.

It’s also striking how AI has almost completely vanished from the headlines, even though that steamroller is still’ thundering along. We’re seeing overinvestment on one side and job losses on the other.

Then there’s Private Credit, which is struggling to meet the demands of clients who want their money back. It makes sense—liquidity was created on the back of illiquid investments, and that math just doesn’t add up. Private credit and private equity are illiquid by nature. You’re either in for the whole ride, or you shouldn’t get on at all.

You’d think all these worries would cause the markets to take a serious hit. Yet, the S&P 500 is only down 3.7% since the start of the year and is still up 14% compared to twelve months ago. That definitely raises some questions for me.

Feeling Nervous The observations above make me nervous. Not because my stocks might drop or because my companies won’t survive the storm, but precisely because the market isn’t falling (enough).

While the market stays stable, the risk of significant inflation is skyrocketing. What should I do with my cash? If stocks don’t drop enough and I don’t buy, inflation will eat away at my cash position. My first instinct was to start buying anyway. If not individual stocks, then why not add to positions in Exor or Sofina, which are currently cheap?

On the other hand, Exor’s John Elkann says the following:

“As of now, we believe that cash is king, and it is a moment where making sure that we do have a fortress balance sheet is important. And that is also the case for our companies. We believe that our companies are all with very strong balance sheets, which is the most important thing when you do enter in uncertain times, as we have learned in the past.”

The point about companies with solid balance sheets applies to us as well. Even our deep value plays are robust enough to weather a storm; often, they’ve already been sitting in the middle of one for a while. Every other company in the portfolio also has a solid balance sheet—otherwise, we simply wouldn’t invest in them.

Still, I find myself second-guessing the cash balance. Fortunately, inflation isn’t moving quite that fast yet, giving us some time so we don’t have to rush into anything. But I’ll admit, it’s hard not to jump at the sometimes sharp drops in individual stocks. Sleeping on it is always a good idea.

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• Cynical

• Stock in focus: Wolters Kluwer

• The Rationality Test: Kinsale Capital

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

Cynical

“Cynicism is an attitude defined by deep mistrust, bitterness, and a lack of belief in the goodness of people or their sincere intentions. It often manifests through sharp, mocking, or painful remarks, rooted in disappointment or powerlessness. It’s a dismissive, often insensitive outlook on life.”

This is exactly how I’m experiencing current world events. It’s making me cynical. No, I don’t believe for a second that the United States is taking action in Venezuela and Iran for the sake of the local populations. As always, it comes down to one thing: money, in this case in the form of oil. It is no coincidence that one of the first targets bombed was an oil terminal. Similarly, it’s no accident that Iran seems to be aiming for the same: inflicting damage by hitting other terminals and restricting oil transport.

However, just because the motives aren’t sincere doesn’t mean the outcome can’t be positive for the people on the ground. Let’s hope for that above all: a good outcome for the Iranian population.

While Europe has nothing to do with this, we will certainly feel the consequences. If oil and gas prices rise, it will have a direct impact on our companies, which were already suffering under higher energy costs due to the war in Ukraine.

It is, therefore, quite cynical of me to view European Commission President Ursula von der Leyen’s message—that nuclear energy will be necessary for Europe’s future—as a positive fallout of these wars. The single dumbest energy move in recent years was abandoning nuclear power. That was even worse than the massive, expensive subsidies for green energy.

As an investor, I don’t like being cynical. To believe in companies and invest in them, you need to look at the future with a degree of optimism. So, I’m trying to shake it off and focus on what this means for our businesses. Higher gas prices will weigh on companies like Tessenderlo and K+S, though they do benefit from the flip side: higher fertilizer prices. Companies with interests in the region, such as Ackermans & van Haaren (via DEME) or HAL Trust (via Vopak), naturally carry higher risks now.

We can’t yet estimate how long this conflict will last. The longer it drags on, the more it will hurt generally through higher inflation. What is certain, however, is that our companies will survive, and they remain very attractively priced.

There’s no need to take immediate action. We can keep our focus on investigating the opportunities these wars—and the AI disruption—might create.

Market Overview

Despite sharp moves in individual stocks, we can’t yet speak of “blood in the streets” or cheap markets. The US market remains significantly overvalued according to the Buffett Indicator.

Consequently, there is no real sign of a downturn in the S&P 500 yet:

The FTSE All-World looks almost identical, which is logical given the weight of US equities.

Only in the Euro Stoxx 600 is a slight dip visible, driven by the realization that we in Europe will be the first to suffer from higher oil prices. Even then, the decline is negligible.

While we see steep drops in some individual names, this is absolutely not a general “buy” moment. Markets are still trading very high, with expected returns lower than risk-free interest rates. The drops in those individual stocks are usually easy to explain: they were simply way too expensive before. Some are now fairly priced, while others remain pricey. So far, I have yet to encounter the first major decliner that has actually become cheap.

To make a profit in the coming years, you will be more dependent than ever on buying the right stocks at the right price. Doing your homework is essential; don’t just rely on a price drop or relative comparisons.

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There is a general consensus on what value, quality, and growth stocks are.

Growth stocks are, not surprisingly, companies that are growing rapidly, often with revenue growth of more than 20%. Whether they are currently generating profit is not directly relevant for the classification, although that is of course a different story for the investor. The crucial factor is a large market in which the company can continue to grow for a long time.

Everyone dreams of discovering the next Apple, Amazon, or Microsoft at the beginning of their growth trajectory. The idea is simple: if you select that one big winner for the next twenty years, those phenomenal returns will more than compensate for the poor performance of the growth promises that fail to deliver.

With quality stocks, one buys the winners of today, expecting them to keep winning tomorrow. These are companies that have already proven to achieve solid growth (albeit slightly slower) and earn a solid return on it. The ROIC (Return on Invested Capital) is the ratio that receives the most attention here.

Value stocks, according to that same black-and-white ratio, are often defined as stocks with a low price-to-earnings ratio or a low price-to-book ratio. If you look at factor funds or ETFs that focus on ‘value’ or ‘growth’, you will see that they use such quantitative parameters for their selection. It is also these classifications that are used to compare long-term strategies. And it is precisely these comparisons that have led to value investing being labeled as ‘passé’ in recent years.

However, it is a misconception to see a value investor as someone who only invests in cheap price-to-book companies. A true value investor examines the fundamental value of a company and strikes when they receive significantly more value than they pay. Quality and growth are simply components of that valuation exercise. As Charlie Munger said:

“All intelligent investing is value investing.“

That, of course, makes the term ‘value investor’ somewhat hollow; in that view, growth and quality investors who do their homework are actually value investors too.

For me, the distinction lies elsewhere, namely in the willingness to pay a certain price and the required margin of safety. This stems from a difference in vision on the predictability of companies.

For example, I am not looking for the stocks that turned out to be the ‘right’ ones twenty years from now. Due to my background in photography and telecom, I realize all too well that making predictions for a period of five years or more is virtually impossible.

Every year we set plans and goals, and not a single year did we even come close. Every entrepreneur will recognize this. During a year, things often turn out differently than expected. A crucial employee leaves, a project is delayed, a large order comes in unexpectedly, or the tax system suddenly changes. The larger the company, the smaller the impact of one such event, but there are hundreds, if not thousands, of these events daily at these large companies.

If you cannot predict your own sector on an annual basis, you should not have the illusion that you can accurately do this for large multinationals over several years. Planning is essential to achieve something, but they remain plans, not certainties.

The difference between a value investor and a growth or quality investor for me is that we do not gamble on who the winners will be in 20 years. I look for a portfolio of stocks that, on the combination of growth, quality, and price, form the most attractive investment for the next two to three years.

Does this mean I do not want to hold stocks for twenty years? Of course, I do, provided they continue to score well on that same combination throughout that period. For example, Sipef has been almost continuously in my portfolio since 2009, and I bought Ackermans & van Haaren back in 2008. However, I have increased or decreased positions in the interim because the price relative to the calculated value fluctuated, which sometimes made other opportunities more interesting.

A value investor does not blindly chase low ratios. A value investor determines the actual value through thorough fundamental analysis and wants to pay significantly less for it. As Steve Mandel aptly put it:

“I don’t need an analyst to tell me when a 10 PE stock is cheap. I need an analyst to tell me when a 40 PE stock is cheap.“

The value investor is convinced that price matters, something we are seeing again in the market now. People blame AI, and terms like ‘Saasapocalypse’ are flying around. Yet, almost every investor I speak to is convinced that software is not doomed. The recent price drops are not because investors fear these companies will fail, but simply because the prices were no longer in proportion to the reality of profit and growth.

Perhaps ‘rational investor’ is a better term for what we do: determining a value as soberly as possible.

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• Bet selectively

• Stock in focus: Hal Trust

• The Rationality Test: Schneider Electric

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

Bet Selectively

Last week, I was at ValueX Klosters, the annual event hosted by the well-known investor Guy Spier. For me and my partner in the fund, Joël Schols, this has been a fixed tradition since 2020 that we always look forward to immensely.

The conference has truly changed me over the years. There is a saying attributed to the Chinese philosopher Confucius: “If you are the smartest person in the room, you are in the wrong room.” At ValueX, I’m definitely in the right place. The mix of young talent and seasoned veterans ensures you always walk away with something new.

More than 60 ideas were presented. While I picked up a lot from them, I often learned more during breakfast, morning walks, or dinners than from the short pitches themselves. Still, there’s a good chance I won’t actually act on a single one of those ideas. It made me think of something I once read by Warren Buffett. Thanks to Gemini, I found the source quickly. In the 1993 shareholder letter, Buffett wrote:

“Charlie and I decided long ago that in an investment lifetime it’s just too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire’s capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart – and not too smart at that – only a very few times. Indeed, we’ll now settle for one good idea a year. (Charlie says it’s my turn.)”

Charlie Munger also said regarding this:

“To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.”

I bet selectively. I only invest when I fully understand the thesis and share the vision, which is often not the case. That’s why I’ll study most of these stocks, but I won’t trade them. That’s the beauty of ValueX: there are so many different interests and opinions walking around.

Topics that received a lot of attention were oil, the decline of software companies that was in full swing at the time, and the announcement of massive capital expenditures by the big tech players. Especially regarding the latter two, the conclusion among all these smart minds was consistent: there will be clear winners and losers in this story. This aligns with what I wrote when we briefly looked at Constellation and Adobe.

There was also discussion about who those winners might be. My conclusion? I can’t tell. Every company is now shouting that they are ‘AI-first,’ sometimes backing that claim with mass layoffs. However, my current assessment is that AI developments are moving so fast that people within those companies don’t even know where it’s headed yet. By the time an application is implemented and a company seems like the ‘top of the class,’ the next innovation is already here. A competitor that started later can easily leapfrog you.

So much is being written about it right now that in a few years, investment gurus will undoubtedly emerge who made the right predictions (or guesses). Whether that was luck or skill will unfortunately only become clear in the next round.

Raising the bar

That’s why it’s crucial to stick to your circle of competence. Within my own circle, I come across many companies where growth, combined with valuation, could yield an expected annual return of 9% to 12%. That’s not nothing; many investors would be very happy with that. A portfolio of 50 to 100 of these types of companies would likely deliver that average. The problem, however, is that you need a whole team to monitor such an extensive portfolio. I can’t monitor 50 companies with the same depth as the selection we currently have in our portfolio.

Besides, I wonder if that expectation is enough to start a new position. With a portfolio of holdings, I have the same return expectation but with much less work. Therefore, I aim for a higher expected return. This used to be easier to achieve through the revaluation of undervalued companies. However, those revaluations have been absent for the past five years; on the contrary, solid European companies often just became cheaper.

In the past, my thesis was often: a combination of profit and growth yields 10% to 15%, and a revaluation over a period of 3 to 5 years adds another 2% to 3%. Then you have a solid investment. In recent years, profit and growth were slightly lower due to the weak European market (still between 9% and 12%), but instead of a positive revaluation, 2% to 3% was actually shaved off. That’s why I’m setting the bar higher today and investing in fewer stocks. Bet selectively.

Rotation to value stocks?

Following this, I was asked if the rotation from growth to value stocks has truly begun. The honest answer: I don’t know. But if I had to guess, I’d say no. We are seeing some sectors with a ‘growth label’ dropping, but the S&P 500 has barely moved.

There is still a shift happening from money managed by people who think to managers who don’t have to (ETFs). Europe saw record inflows again, and in America, more than half of invested assets are now in ETFs. If a shift is happening today, I think it’s more factor-driven: investors rotating from one ETF to another with value characteristics. In my view, that isn’t value investing. Value investors look at the underlying companies and try to determine the intrinsic value.

I also see investors who definitely think for themselves but, despite ten years (or more) of experience, really only know a bull market. They focus on the right things—figures, growth, and the moat—but they often trip up on the valuation. They work with an exit multiple (like a P/E ratio) of over 20, simply because the company has always traded at those high multiples in the past.

The growth required to justify such a high exit multiple is almost always unrealistic. It has worked well for the last 15 years, and those who calculated more conservatively were proven wrong for the time being, but that offers no guarantees for the future.

My apologies, but what’s underneath is only relevant to the Dutch speaking readers.

Do you want to learn how to value companies yourself? Or understand what assumptions about growth and valuation lie behind those multiples? Then read Luc Kroeze’s new book: Niet alles wat blinkt is goud (Not all that glitters is gold).

In the past, I regularly received feedback on my own book (also only in Dutch that the principle of value investing was clear, but people missed the practical execution. With Luc’s book, that answer is now here.

Finally, I want to emphasize that although Luc is often associated with quality investing (he also wrote The Art of Quality investing in English), he proves with this new book that he is a true value investor. His niche, or his circle of competence, simply consists of stocks that are often classified as quality stocks.

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• Garbage in, garbage out

• Stock in focus: requested by our readers: Google, Cisco, Bekaert and Floridienne

• The Rationality Test: Constellation Software

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update

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Garbage in, garbage out

The stock market is never boring. After investors flocked en masse toward ETFs and AI, it seems commodities are now having their moment, with gold taking a starring role. Toss a president like Trump into the mix, and you simply don’t know what tomorrow will bring.

Can you invest profitably by chasing one hype after another? If I’m to believe social media, the answer is yes—the massive gains there are practically slapped in your face. However, it’s just not my style. Give me steady business analysis any day, where you actually get to know and understand a company to estimate its long-term prospects.

This calm approach also grants time to think, which is exactly what I’ve been doing these past few weeks regarding AI. Admittedly, this was partly prompted by suggestions sent to me by readers. Many of those companies benefit in one way or another from the current AI boom. They aren’t the AI developers themselves, but the companies providing the tools to keep it running: the so-called “picks and shovels.” This is analogous to the tool sellers during the American gold rush in the nineteenth century.

It’s a clever move, of course—looking at who profits from building data centers, cooling systems, and the necessary materials, rather than trying to predict who will build the best AI.

By now, you know that I view the valuations of many of these companies with a fair bit of skepticism, so I won’t get into that here. Instead, I want to talk about my perspective as an AI user and what I see, based on everything I’ve read, as the element that will determine the winners.

I’ve mentioned before that I primarily see the users of AI as the winners. Companies that successfully implement this technological shift will leave competitors who don’t far behind. Much like the users of steam engines won out over those trying to do the same work with horses and humans.

I don’t see the AI companies themselves as the big winners. People often calculate what AI can save companies, assuming the providers can capture that entire saving for themselves. I think that’s absolute nonsense. If I employ ten people today and, thanks to AI, we can do the work with six, I’m not going to pay my AI provider the equivalent of four annual salaries. If there’s nothing in it for me, why would I go through the trouble of changing a perfectly functional system? Just because it’s “hip” to use AI? Furthermore, am I going to give an AI company that much leverage over my business? Of course not—I’ll only do that if I significantly increase my own earnings as well.

The AI provider will therefore only be able to claim a portion of that productivity gain. How much depends on the competition. Right now, competition is fierce and systems are relatively interchangeable. One day Gemini is slightly better, the next it’s ChatGPT, Anthropic’s Claude, or Mistral AI. They are all in a race to improve their systems, constantly playing leapfrog.

I also read articles suggesting that AI is becoming a commodity, where the provider with the lowest costs has the advantage. That would mean operating on razor-thin margins.

So, is the hardware provider perhaps the winner? People are currently talking about an “NVIDIA tax.” NVIDIA is pulling in 75% margins because their chips are the best on the market, allowing them to quadruple their costs for companies busy building data centers.

I believe that NVIDIA, but also companies specializing in cooling or energy transformation, are currently enjoying golden times. These picks-and-shovels companies can rake in money by the bucketload right now. However, as soon as the great race is over, more competition will emerge and margins will come under pressure. That 75% margin at NVIDIA will likely settle back toward the roughly 45% the company saw when it was “merely” the best developer of graphics chips.

I’m cautious about the value of these companies for that reason. I can’t predict whether they will profit from these high margins for another two, five, or ten years, let alone what the growth will look like. The only thing clear to me is that too much was spent over the past year (and this year looks to be no different) just to stay in the race. At some point, that will lead to a correction.

A lot is also being written about energy or copper as key elements. Energy to run the machines and copper because a hyperscaler reportedly needs three to ten times as much copper as a normal data center. Should we follow that path? Given the sheer volume of articles on this, I assume it’s already baked into the prices. Moreover, it’s just as unpredictable as hardware usage once investments taper off.

By the way, consider the following as the thought process of an interested outsider, not deep technical knowledge. It’s an “outside view” from someone trying to strip things down to their simplest form.

When I ask myself who the winners of the whole AI saga will be (besides the companies implementing it), I see only one factor that is truly distinctive: data. AI models are only as strong as the data they are trained on. We saw this early on with ChatGPT, which pulled a lot of data from Reddit. You can find valuable information on Reddit, but there’s also a lot of nonsense. As they say: Garbage in, garbage out.

AI gets its data from the internet, and who is king there? Google. Their search engine is the best, giving them an index of the internet that is only rivaled by Microsoft’s Bing. Add the data from YouTube, and Alphabet looks like the big winner. The data Meta and X work with is often very personal—useful for ads, but less suitable for feeding a broad AI model.

If other AI companies want to play, they’ll have to find a way to collect data as efficiently as Google. If not, that part of the market is already taken. Below, I’ll dive a bit deeper into the value I place on Google today.

Of course, there are other ways to win as an AI company, such as entering specific niches. AI for doctors, lawyers, architects, or technicians, for example. This requires not just the model, but primarily the specific data to feed it. Countless applications are possible, but they are only ever as valuable as the underlying data.

I am, however, assuming AI as we know it today. If we’re talking about true superintelligence, then I believe the predictions of Terminator 😉 and the rest won’t really matter anymore.

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In this issue:

• Herd Mentality

• Stock in focus: A tour of our portfolio

• The Rationality Test: Adobe

• What I’ve been reading these past few weeks

• News from our companies

• Doubler Portfolio update + 2025 annual review

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Herd Mentality

After the turn of the year, a wave of fund letters traditionally arrives, explaining their 2025 results. I read an extensive selection of these letters, and it’s striking that many of those funds haven’t had it easy over the past five years. This is partly because I primarily follow value-oriented funds, but even quality and growth funds have found it difficult to keep pace with the World Index or the S&P 500.

My takeaway is that if your strategy didn’t have a strong “momentum factor” built in, you likely underperformed the indices.

Interestingly, these annual reviews are increasingly pointing to the rise of index investing, or “hammock investing.” I’ve shared my views on this more than clearly in the past. In fact, someone jokingly asked me if I had written Fundsmith’s letter this year. My reply was equally tongue-in-cheek: “great minds think alike.”

Not that I’d place myself on the same level as Terry Smith, but anyone thinking rationally today cannot ignore the risks. Some say Terry Smith has fallen from his pedestal now that he’s trailed the market for five years, despite holding a portion of the “Magnificent 7.” Unfortunately, every style goes through lean years, and even Fundsmith has to weather this storm. Does that mean their process no longer works? In my view, absolutely not. It’s simply part of the game, even if five years feels like a long time.

Past their prime?

Even Warren Buffett was written off several times during his long career as someone who was no longer “with it” or was past his prime. Every time, he came back stronger than ever. I see the same happening with Terry Smith, simply because their process, in my eyes, remains sound.

To explain this exceptionally long period of underperformance, we often look at blind passive investing as the reason why it’s taking longer this time. But perhaps the “active versus passive” debate is the wrong one to have. We should actually be making a different distinction: between investors who do their homework and those who don’t.

Among so-called active investors, there are many “index huggers.” Countless fund managers are instructed not to stray too far from their benchmark. If NVIDIA’s weight in the World Index (a widely used benchmark) is 6%, their fund is often allowed to deviate by a maximum of 50 basis points. So they end up at 5.5% or 6.5%, depending on their conviction. But the option to exclude NVIDIA entirely often isn’t there; the manager would simply be replaced by someone who does follow orders.

Similarly, among private active investors, there are unfortunately many who only chase headlines and hype without doing their homework. In a period dominated by the momentum factor, this obviously works well, which only inflates their self-belief. We’re currently seeing another surge in reports of retail investors considering quitting their jobs to trade full-time.

Because the flywheel of momentum and ETF investing reinforces itself, these strategies have shown exceptional performance. This attracts even more capital—money being pulled out of active strategies and flowing toward passive investing. This creates a double effect: positive momentum for the indices and negative momentum for active strategies and smaller stocks.

Herd Mentality

Ultimately, this can be summarized quite simply: it’s herd mentality. This behavior is hardwired into human nature and is certainly nothing new in the investment world. It wasn’t caused by ETFs or hammock investing. For as long as I’ve been active in the markets (since 1998-1999), I’ve seen this happen. Whether it’s the glorification of AI or the doom-mongering about Europe, herd behavior explains every market peak and trough.

Passive investing isn’t immune to this phenomenon either. The real question is how “passive” these investors will remain when the inevitable turning point arrives. That this turning point is coming is clear, for the simple reason that corporate earnings cannot keep up with the stock market’s rise indefinitely. At the end of the day, earnings and cash flow are what matter. Of course, the interest rate environment (and related inflation) has a major impact, but even that eventually translates into bottom-line figures.

While everyone sees the overvaluations in the market, that tells us very little about how 2026 will unfold. To play devil’s advocate: what is expensive can become even more expensive. We saw exactly that in 2025. We started that year with a historically high valuation for the S&P 500. The Shiller CAPE 10 was above 37; only in 1999 and 2000 was it higher, at 40.57 and 43.77 respectively. The ratio was double its historical average.

While the Shiller CAPE 10 is an excellent indicator for predicting returns over the next ten years (which will likely be lean), it says nothing about the next twelve months. It could go either way. 2025 was the best proof of this, as the ratio rose from 37 to over 40. Even that current level doesn’t automatically mean 2026 will be a terrible year; after all, the ratio could climb further to 43 or beyond. We only know that the next ten years will very likely be less rewarding than the ten-year period that started in 2025, or the years before that when the CAPE 10 was significantly lower.

No looking for excuses

None of the above is intended as a way to find excuses. I’m satisfied with the 8.8% return our “Double Your Portfolio” achieved in 2025, especially considering that an average of 30% of the portfolio was in cash, yielding nothing. The year could have been much better had we been 100% invested, but my sleep would have suffered. This way, I was at least ready to capitalize on opportunities as they arose. The difference you can make at those moments is far more decisive than the returns left on the table today.

The reason I invest for myself is because I want to know what I own. I see myself more as a business owner than an investor. To me, the stock market is merely a tool to buy those businesses. Furthermore, thanks to that very same herd mentality, the market regularly offers the chance to buy companies at much more attractive prices than you could ever negotiate in a direct transaction.

Those opportunities are certainly out there today in small caps, partly due to the hype surrounding passive investing. Below are a few charts from the J.P. Morgan report to support this.

Opportunities to be found!

First, let’s take a look at the chart regarding the different regions.

From this slide, it’s clear that all stock markets appear expensive when compared to their history since 2000. The US, in particular, is trading well above its long-term average and median, while Europe (excluding the UK) and China are more or less normally priced.

Personally, the valuation of the UK surprises me, especially since I often find interesting candidates there. I’ll dive into the reasons for that later on.

The valuation gap between Europe and the United States becomes even more evident in the chart below:

The relative valuation of sectors in Europe compared to their American counterparts deviates sharply from historical figures, with IT and Materials being the only real exceptions. In other words: investors are paying a much higher premium for the same earnings in US stocks than usual, or the discount for European companies’ earnings has deepened. Based on the first chart, it’s likely the former.

Another takeaway from the J.P. Morgan report is that market optimism remains high, particularly regarding earnings growth. This makes me question whether 2026 will truly be the year of more rational pricing.

However, the most relevant insight for us is found in the following image:

Looking at the first chart, it seems as though we are seeing a massive undervaluation of small caps compared to large caps. However, when we include the second part, it becomes clear that it’s not so much that small caps are heavily undervalued, but rather that large caps are extremely expensive.

Small caps aren’t historically expensive, but they aren’t dirt cheap either—except in the UK. There, valuations are truly below their median and average, which explains why I was surprised by the general market picture there.

I haven’t conducted specific research on this next conclusion, nor have I read any studies on it, but seeing these charts in combination with what I wrote above makes it crystal clear to me: passive investing is the primary cause of this valuation discrepancy between large and small stocks. Small caps simply aren’t included in the indices where passive money is flowing en masse. Small caps are more often the playground for active investors, who are becoming fewer in number and have frequently seen significant outflows due to poor performance in recent years.

My path for 2026

While we obviously don’t know how the markets will develop, my path for 2026 is clear for now. When opportunities arise, I will buy, but I remain cautious. The moment rationality returns, large-cap stocks will likely undergo a sharp correction and, in all probability, drag smaller stocks down with them.

Therefore, I only buy when I see a clear reason why the share price could rise within the next three years. If that’s not there, I’d rather keep my powder dry for another opportunity, which can undoubtedly be found among small and mid-caps.

It’s only a matter of time before the herd moves back toward “value.” Whether that shift begins in 2026 is a question we can only answer at the end of the year.

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In This Issue:

• Lessons from 2025

• Market Overview: Where Do We Stand Today?

• Stock in Focus: Scottish Mortgage Trust

• The Rationality Test: Lotus Bakeries

• What I’ve Been Reading Lately

• News from Our Companies

• Doubler Portfolio Update

• Vacation

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Lessons from 2025

The year is already coming to an end—a perfect moment to look back in this final issue on the past year and the lessons I’ve drawn from it.

Investor vs. publisher

In a sense, it’s a continuation of what I learned in 2024, but 2025 proved even more that I am an investor at heart. I find the most satisfaction in reading about companies and, when things go well, conducting in-depth analyses.

I also enjoy writing very much, but I simply don’t get around to the sales side of the magazine enough. In that respect, I actually fit better with a publisher than as a solo entrepreneur.

Nevertheless, I want to thank all readers heartily for your loyalty. The fact that you remain customers for so long motivates me enormously to keep providing you with as much value as possible, even if I’ve had to lower the frequency of the magazine to do so. I hope you’ve already noticed in recent issues that ‘less’ is indeed ‘more’ in this case.

The goal is profit

At the beginning of the year, it briefly looked like it would be ‘our year.’ While stock markets in the United States fell, our portfolio actually did well. Over time, however, the market became immune to Trump, and we continued on the same footing as in 2024.

The goal of investing isn’t simply achieving a good return in itself, but a good return in relation to the risk you take. You must never lose sight of that when comparing results with others.

In the past year, I took little risk and always kept a substantial cash position on hand. Of course, the return could have been higher by holding less cash, but I’m at peace with that; I’d do it again. Doubling your initial investment in five years doesn’t have to happen linearly at 14.5% per year. It can just as easily happen through a series like -2.3%, +8%, +40%, +4%, and +31%. You can rearrange those figures however you like; the end result remains the same.

In the past, the path was also bumpy, as I described in my book (in Dutch). Sometimes the price moves sideways for years, only to suddenly shoot up. Just think of the Great Financial Crisis: first a 38% drop from the peak in just a few months, followed by a doubling within three years of that peak.

What the future brings always remains uncertain. At certain moments, however, there is clear optimism, and that’s why I am satisfied with a solid cash position in the current market. Just like in 2008, I will only put it to work when the opportunities (due to pessimism in the market) are crystal clear again.

The market has changed

Passive investing has changed the markets. Whether this is a temporary phenomenon or a permanent change, we don’t know yet.

Does value investing no longer work as a result? Yes and no. Value investing will always work as long as there are human emotions on the stock market, and even passive investors have those emotions. But it might not be as easy as it used to be.

Although countless well-known investors have been doing it for years, I only truly saw the utility of a so-called ‘catalyst’ that can drive up prices in the recent period. In the past, it was enough for me to pay a fair price for a company and simply wait for the market to recognize the incorrect valuation. Rational valuation and patience were the most important factors; searching for a specific catalyst wasn’t necessary for me to achieve great returns.

Today, however, I see this as an essential factor. Take Somero Enterprises: great products, strong margins, good returns, hardly any debt, and cheap due to concerns about the construction sector. Our return so far? Only the dividend.

The price fluctuated significantly, allowing us to buy more at cheaper prices multiple times. Because of this, we aren’t suffering a loss, even though the price is currently below our initial purchase price. The stock simply remained cheap throughout the entire period.

I still believe in this company, but since we’ve had it in our portfolio for three years with almost no return, a significant price increase is needed to meet our target of a 15% compound annual return. Theoretically, this is still possible, provided the price moves toward the intrinsic value I calculated, within the next two years. That has happened more often in the past: first a long period sideways, then doubling in a few months.

Whether that will happen with Somero remains to be seen; we don’t have a crystal ball, after all. What we do see is that in the past year, three parties have built up a significant stake in the company. The price isn’t reacting to that yet, but it seems clear to me that these parties are up to something.

Suppose they take Somero private next year with a 50% premium. That would bring me to a CAGR (compound annual growth rate) of 10.7%. That’s not bad, but it’s below our 15% target. However, if I had only bought this year, when the catalyst became clear, that same takeover would yield a CAGR of between 22.5% and 50% (depending on the exact entry point and the timing of the bid).

This is a purely theoretical exercise since there is no bid yet, but it illustrates the difference between waiting a long time and realizing a profit in the short term. Where I previously rarely had to wait longer than three years for a stock to move toward its intrinsic value, we now have positions in the selection where we’ve been exercising patience for five years. The longer it takes, the lower the CAGR. In today’s market, dominated by passive investing, that catalyst has become crucial.

The question of why the price might rise, separate from a general market revaluation, has therefore become an essential part of my analyses rather than an afterthought.

You shouldn’t want to do everything yourself

Not trying to do everything yourself is another important lesson, perhaps not just from 2025, but over the entire 2022-2025 period. This applies in multiple areas, but I’ll limit myself to investing here.

I always wanted to come up with original ideas—stocks you hardly read about elsewhere. I spent hours searching with screeners and looked at a massive number of stocks, only to do nothing with them in 99.9% of cases. In the ‘cheap’ segment, the stocks were often cheap for a reason, or there were other factors that made them uninvestable to me. On the quality or growth side of the spectrum, the price was almost always the dealbreaker.

Driven by the urge to provide added value with original ideas, I lost sight of the essence: the goal is profit, not originality. You’ve probably already noticed this change in the last few issues; I’m now leaning more on my network and the ideas of others.

Of course, I continue to conduct the research myself. I sincerely couldn’t bring myself to outsource that. But copying stock ideas is one thing; truly handing over a portion is another. In our fund, a significant portion is now managed by others. Besides the protective options fund, these are other value investors who, like me, each have their own expertise and whom we know personally from conferences.

Actually, this isn’t entirely new, because holding companies have always filled that spot—I just didn’t see it that way before. Holdings are also essentially funds managed by others, each in their own way. The ‘stock in focus’ in this edition also falls under this.

I mentioned earlier that we are concentrating our portfolio more in a few ‘high-conviction’ stocks, as many of you find ideas elsewhere as well (and rightly so). Holdings can provide the necessary extra diversification here. Strategic rebalancing can further optimize their contribution.

Away from the craze of the day

My best moments are when I can just read and study the companies I encounter along the way. Getting away from the discussions about active vs. passive investing, or the battle between value, growth and quality. Actually, none of that matters.

Or rather: both quality and growth are simply part of the valuation. And because they are part of it, the valuation itself remains the most important thing. It’s about the price you pay and what you get in return; not whether a company grows 1% more or less than another, or whether the ROIC is a percentage point higher or lower. Everything is interconnected.

When you can work quietly, away from the craze of the day, all of that becomes much clearer. In that regard, the bi-weekly publication helps tremendously.

The advantages of retail investors

It’s often said that retail investors have big advantages over professional investors. Usually, people point to the larger pond to fish in, because as a retail investor, you can also invest in smaller companies. Or the pressure professionals feel to constantly beat a benchmark, while you don’t have that problem as a retail investor.

Both points are true, but in my experience of the past five years as a fund manager, this isn’t the biggest advantage. As a small fund, your fishing pond is still more than large enough, and if you have the right partners around you, that performance pressure isn’t too bad. Our partners in the fund share the same vision and show the necessary patience; I put more pressure on myself than they do.

The truly big advantage of a retail investor over a fund manager is control over the cash flows. As a retail investor, you know in advance what capital is coming in and what might be going out.

If you’re still working, you’re likely saving an amount every month. Are the markets at a peak? Then you can set that money aside and wait for a better moment. Are the markets in a slump? Then you can use that extra savings directly to pick up cheap stocks. Retirees also usually know in advance how much capital they need to withdraw from their investments annually, allowing them to plan.

A fund manager, on the other hand, has no control over that cash flow. Money flows in easily when the portfolio rises, at the moment when opportunities are actually smaller, and flows out when things don’t go as well as you would like. Exactly at the moment when it’s actually time to add more.

That control over the cash flow is a heavily underestimated advantage for the retail investor, and something I’ve learned to manage over the past few years. Of course, there are also advantages to being a fund manager, such as access to better tools and data, and shorter lines with both companies and other managers to exchange ideas.

Market Overview

It’s been since late October that we looked at how expensive American markets are. The answer: even a bit more expensive than back then, at least according to the so-called Buffett indicator.

The ratio between total market capitalization and GDP in the United States has since risen to record highs above 220%.

Interestingly, the CNN Fear & Greed Index sat firmly in ‘Fear’ or even ‘Extreme Fear’ territory throughout this entire period. At first glance, that’s a tough one to square with an even more expensive stock market; usually, that kind of sentiment points toward a weakening market.

This raises an obvious question: how can these two indicators paint such a different picture? It’s actually quite simple: the CNN index focuses on a much shorter timeframe than the Buffett indicator. Both can be right at the same time, but as investors, we have to decide what matters most to us. For me, that’s always the long term.

Beyond that, we have to ask ourselves whether the indices—given the massive concentration in just a handful of stocks—still provide an accurate reflection of reality. How relevant are the price-to-earnings ratios of these indices when compared to their own historical averages?

There’s a bit of comfort in knowing that for us, as investors in individual businesses, all of this is largely secondary. What we do see, however, is that the expected future returns for investors buying these indices at current prices are steadily shrinking. They are settling for an expected return lower than what they could get today from government bonds. That isn’t rational investing; it’s simply hoping that the past few years will serve as a roadmap for the years to come.

But as Keynes (allegedly) put it: “Markets can remain irrational longer than you can remain solvent.”

We’re sticking to our guns. Personally, I’m sleeping soundly, thanks to the protection provided by our cash position and the option fund.

Read more

• Am I a Luddite?

• Stock in Focus: Norma Group

• The Rationality Test: Warner Bros.

• What I Read in the Past Weeks

• News from Our Companies

• Doubler Portfolio Update

Am I a Luddite?

I was recently called a Luddite in a discussion about AI and tech companies, especially concerning their valuations.

The Luddites were nineteenth-century textile workers in England who would sneak out at night to smash the machines that threatened to put them out of work. Since then, ‘Luddite’ has been a derogatory term for someone who is anti-technology and anti-progress.

Am I a Luddite? Not at all. I belong to the generation that had to boot up a PC with DOS, learned to program in Turbo Pascal, and managed the IT—especially network communication—for our own shops, even setting up our own webshop. So I’m certainly not anti-technology or anti-progress; quite the opposite.

I’ll even take it a step further: out of everything we’re imagining today about AI and its possibilities, at least 90% will surely come true. This is another technological change that, like the steam engine, the car, the radio, the internet, and so on, is underestimated in the long run.

But, and here’s the kicker, it’s vastly overestimated in the short term. Just as the internet was also overestimated. The Dot-com bubble happened around the turn of the millennium, but consumer behavior—and with it, the economy—truly changed only with the iPhone. The iPhone was launched in 2007, seven years after the bubble burst.

The reason for this is very simple. New technology is developed, but then humans have to adapt, create the applications, and only then will it significantly change our economy.

Companies announcing mass layoffs now due to AI are simply using it as an excuse. AI is already great, and it helps me tremendously with research and analysis, but replacing a third of your staff, as ABN Amro is doing? We’re nowhere near that yet. There are other motives at play there.

Moreover, the discussion was about investing, and then the question isn’t even whether you believe in technology and AI. The real question is whether you believe the massive investments happening today can be made profitable.

The truth is that for most companies today, it’s a gamble, a gamble driven by the fear of being left behind. For Microsoft and Google, I can see the potential for profitable applications because they can connect them to existing, profitable applications: Office and Search. For the others, profitability doesn’t seem to be right around the corner yet.

For and Against

It’s perfectly possible to believe in technology and AI as a person, but not as an investor. Or at least not in the current valuations of the companies. I am clearly in that camp. What we’re seeing in prices today cannot be rationally explained; the math just doesn’t add up.

Will there be winners? Certainly, but who can say with certainty today who they will be and whether their price today is reasonable?

Or as Howard Marks writes in his latest memo, “Is It a Bubble?”:

“Who will the winners be, and what will they be worth? When a new technology is assumed to be world-changing, it is invariably assumed that the leading companies that possess this technology will be of great value. But how accurate will that assumption prove to be? As Warren Buffett noted in 1999: “The auto was the most important invention, probably, of the first half of the 20th century. . . . If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, ‘This is the place to be.’ But of the 2,000 companies, a couple of years ago it turned out only three car companies survived. So the autos had an enormous impact on America, but the opposite effect on investors.”

And that’s the way it is with every technological bubble.

So, I’ll stick to other segments of the market. It’s not that these are free of technology—all our ‘boring’ companies are also supported by technology—but as a facilitator, not as the product itself.

PS: There are a few more very nice passages in Marks’s latest memo; more on that in the ‘What I Read in the Past Weeks’ section.

Read more

• The Market and 100-Baggers

• Stock in Focus: Engcon AB

• The Rationality Test: Novo Nordisk

• Doubler Portfolio Update

• What I’ve Been Reading Lately

• News from Our Companies

Thé Market and 100-Baggers

The Market

Why Should a Value Investor Care About the Market? You could rightly argue that the market doesn’t matter, because we don’t invest in the market, but in individual companies. Nevertheless, in recent years, the market has made things a lot tougher for us as active investors.

I’ve written countless times in the past about how passive investing is distorting the stock markets, and now, more and more academic studies are starting to point to the same conclusion. ETFs are a fantastic product and idea, but the hype surrounding them is currently overblown. Michael Green called it “the greatest story ever sold.”

My aim isn’t to rehash old arguments. Instead, I want to openly pose the question: “As active investors, should we have anticipated this shift in investor behaviour? And should it have prompted us to position ourselves differently?” The most crucial question is: what action should we take today?

It’s vital to constantly question yourself and your strategy. Not with the intention of jumping from one strategy to another—which, in my opinion, always means you’ll be too late. But rather to rationally assess whether your investments and portfolio have a bright future.

To answer the questions, perhaps we should have integrated the momentum factor more. However, positioning ourselves differently? No. My belief that price will ultimately follow value over the long term remains rock-solid. Taking action today? Absolutely not, that would truly be running behind the facts.

While the market doesn’t truly matter, it’s always useful as an investor to know what kind of market you’re operating in. Are you in a bull market (rising stocks) or a bear market (falling stocks)? This isn’t about the details, but the generalities:

• How is the economy performing?

• How is the stock market performing?

• Are these two in alignment?

The motto here is: it’s better to be approximately right than precisely wrong.

And what do we do with this information? Not a whole lot, except when we see that the stock market is running far ahead of the economy, as is currently the case in the U.S. Or perhaps it’s the other way around this time: normally, the stock market leads the economy; today, we see the economy weakening, but the stock market isn’t showing it yet. Has the passive flow of money reversed this phenomenon?

The action we must take with this information is to be more critical of the stocks we select and also look for a catalyst that can drive the price up. A little extra cash wouldn’t hurt either.

Timing the Market vs. Assessing Value

Is this market timing? Yes and no. It’s primarily about weighing the market price against the market value. If stock prices are banking on a substantial increase in company profits, but the economy and results tell a different story, that’s not what we’re trying to time. Also, look at what Buffett did over the years: he also often partially stepped out when prices got too high, as he recently did with Apple. You could call him the best market timer of all time.

What I primarily want to highlight is that there’s a difference between trying to time the market based on gut feeling or charts, and looking at how value and price generally relate to each other across the board.

Look at the S&P 500, which has a Price-to-Earnings (P/E) ratio of 30. With flat earnings, that’s a return of 3.3%, less than you can get from a government bond. Where has the risk premium for stocks gone? You’re paying a (too) hefty price for uncertain future growth.

These are generalities, because we don’t invest in the market or the S&P 500—we select individual companies. Generalities are for the broader market, details are for our own companies.

The Pursuit of 100-Baggers

Another phenomenon typical of a bull market is constantly reading things where “the sky” is no longer the limit, but targets are apparently being aimed at the stratosphere.

Stocks that can go x10 and x100 are flying at us left and right. Investors are hunting for companies that can sustain an annual Compound Annual Growth Rate (CAGR) of 20% or more for decades.

Let’s see if this is realistic. If we look at the base rates from Mauboussin, we see the following:

Companies that achieve more than 20% CAGR over 20 years are certainly not common. You’re looking at a 1.5% success rate. You might think you can increase those odds by being selective. Unfortunately, the companies that managed this kind of growth often didn’t look attractive based on their numbers at the time you should have bought them. You won’t pull them out of screeners.

Plus, they are often small companies when they start, which means you won’t easily discover them or even hear about them. Of course, after 20 years with those growth percentages, they’re no longer small.

There’s too much focus on the past. The Amazons of the world jump out at everyone. What gets forgotten is the very significant survivorship bias involved here. We all know the Amazons today; we don’t know the dozens of other companies that looked exactly like Amazon based on the numbers but failed to cross the finish line.

I get it. These investors are often still young and have plenty of years left to recover what they lose. Furthermore, if their gamble pays off, they hit a huge jackpot, both in terms of reputation and earnings. They’re often investing smaller amounts, and you need an x10 return to make a real impact on your life.

Chasing this with a small part of your portfolio is absolutely not wrong. A calculated gamble on something you genuinely believe in should be allowed. Just realize it remains a gamble, and adjust your position size accordingly.

I’m in a different situation. I’m now investing with a lot of money (at least, I consider it a lot). A lot of my own money, but also other people’s money. Like everyone, I invest to make a return. But most of all, I don’t want to lose money. If you hunt for stocks that go x10 or x100, you’ll also buy a lot of misses.

You shouldn’t risk what you already have and need for something you don’t have, and possibly don’t need. The very fact that we can invest means we’re already doing well. Ensuring we continue to do well is the priority, not pursuing unknown riches.

Look at it rationally: aim for companies that can double in five years. Even if we assume no change in valuations, roughly 15% of companies can achieve this through their growth alone. Moreover, these aren’t the obscure, small, unknown, high-risk, fast-growing companies; they’re often more stable companies whose value you can actually calculate. Add in companies that are still undervalued—where the return can come partly from growth and partly from a re-rating—and you potentially have 20% to 30% of companies to choose from.

Here, it’s also easier to separate the wheat from the chaff by avoiding loss-making companies and those with high debt. You can further increase your success rate.

Start by aiming for that x2, and who knows, maybe it will turn out to be one of those companies that can sustain that growth for 20 years. But do it step by step instead of chasing the dream of that one massive winner.

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Maybe I should’ve seen it coming. Since you also indicated you consult multiple sources, you’re probably drowning in emails every day. I’ve unsubscribed from countless websites myself because it was simply too much, too often, without any substantial new content. Someone recently used the term “email diarrhea,” and it’s surprisingly apt: an unwanted speed and volume of communication, but with very little substance.

There’s just too much to read, and sadly, also too many AI-generated articles that are hilariously wrong if you actually know the companies intimately. Unfortunately, this incorrect information gets repeated enough that many accept it as the truth.

Because attention spans online are apparently also becoming more fleeting, the same content gets repeated multiple times. This, of course, serves marketing purposes. If I were to look at this as a publisher, I’d probably have to do the same. But I’ve written it before: I am not a publisher; I am an investor who puts his analyses and ideas on paper. The writing should really be the final stage, the outcome of extensive reading and research.

Precisely for this reason, I’m going to do the opposite. I won’t raise the price to write more and more reports, hire extra writers, and constantly post more repetitions.

I’m moving away from news updates about companies whenever news breaks, and I’m also shifting the weekly newsletter to a bi-weekly one, where, of course, the companies will still be followed up on as thoroughly as before. The goal is to read more and research more for greater depth and insight.

More Thinking

Charlie Munger once said, “People calculate too much and think too little.” Thinking is indeed an essential component, for which too little time is set aside in our hurried world. I’m now consciously going to reserve extra time for it.

In the future, Valuing Dutchman will therefore appear 24 times a year. This will include several fixed segments:

• Events of the Past Weeks or Market Outlook

• Stock in Focus

• The Rationality Test

• Doubler Portfolio Update

• What I Read/Listened to in the Past Weeks (Interesting articles, podcasts, or videos)

• News from Our Companies

Point two needs a little more detail. The Stock in Focus can and will be very varied. It could be a reader suggestion (like this week), a stock that will be placed on our watchlist, or one that immediately enters our portfolio. Or, during annual and half-year results, a deeper look at a stock already in our portfolio, if a re-assessment is needed.

In The Rationality Test, we’ll put a stock or index that’s been heavily in the news under the microscope, like Duolingo this week. Is it cheap after the recent drop, or is it still too expensive?

Because the frequency is decreasing, I’m also going to lower the price, even though the value provided isn’t diminishing—quite the opposite.

The price will drop from €299 to €247.

In the coming weeks, I will adjust the duration of your subscription for everyone, pro rata based on the remaining term and the price you paid. The monthly subscription, however, will rise in price as I want to promote a long-term view. People already on a monthly subscription won’t be affected.

A Note

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OpenAI has asked the US government to guarantee their loans. The reason, they claim, is that what they are building should be considered critical infrastructure.

OpenAI has now finalized numerous deals and must be able to repay more than a trillion dollars (yes, $1.000 billion, or one million million dollars) in the future. They won’t generate that money from revenue, as they are even losing money on their corporate customers.

When a pro-AI journalist asked Sam Altman (CEO and founder of OpenAI) how they were going to pay for all of this, he reacted defensively. His answer was that if he were looking for someone to buy shares, he’d find someone. The core of the question was left unanswered.

The parallels with the build-out of the American railway infrastructure are becoming significant because of this. After all, those initiatives also brought extra productivity and lower costs.

Here is what Google Gemini said about that period:

The Railroad Boom and Bust

The period from 1800 to 1900 saw a massive expansion of the railway network in the United States. This was crucial for economic development, as it drastically accelerated and lowered the cost of transporting goods (like agricultural products and raw materials) and people over long distances.

The Boom

• Huge Investments: Enormous amounts of money were invested in building new lines, often by private companies. These companies sold shares and bonds to finance their projects.

• Speculation: There was significant speculation (gambling) on the future profitability of these railway companies. People bought shares, sometimes even though the companies were not actually profitable, purely in the hope that the value would continue to rise.

• Lack of Regulation: There was little to no government oversight on how companies structured their finances or how shares were traded.

The Bust

This unbridled growth led to a ‘boom and bust’ pattern:

• Overbuilding: Too many lines were built, sometimes in places with little economic transport demand.

• Bankruptcies: When the expected profits failed to materialize, or when financial scandals came to light, investors lost confidence. This caused stock prices to plummet and many railway companies to go bankrupt.

• Stock Market Panic: Because the railroads were such a large part of the economy, the failure of major companies caused panic on the stock exchanges (such as the Panic of 1873 and the Panic of 1893). Investors sold off other stocks en masse out of fear, leading to broader economic recessions.

In short: Unchecked, often unprofitable, but heavily speculated railway expansion led to financial bubbles that, once burst, caused widespread panic and economic crises.

Unsustainable

And now, Sam Altman is asking the American taxpayer to foot the bill if they fail. The profit is theirs, but the loss is for the taxpayer? Would even Trump approve of something like that?

In any case, it’s clear that this situation is unsustainable.

Let’s end with a quote from Charlie Munger (albeit about a different period, but very applicable right now): “If you’re not afraid, you’re not paying attention.”

As I’ve written a few times, the winners of AI will be the AI companies themselves to a lesser extent; it will become too commonplace of a product. Suppliers of infrastructure equipment like NVIDIA will be making tons of money now, but will later settle back down to a lower level.

The real winners will be those companies that implement AI well and thus boost their margins. However, this is still in too early a stage. Just as the railroad companies were not the winners of the railway expansion, but the companies that could suddenly transport their products much cheaper across the entire country.

Doubler portfolio overview October 2025

For those not yet familiar with our Doubler Portfolio, read more about it here.

In October, the portfolio gave back 1.1%, bringing the year-to-date result at the end of October to 7.5%. What strikes me most is that the portfolio moves very independently; there is little resemblance to the indices. That’s a positive over the long term, but it’s less pleasant during a period when the S&P 500 continues to explore new highs.

In the long run, however, it’s a good thing that movements on the exchanges don’t have a direct impact, because we see the overvaluations rising. This is only in a relatively small selection of stocks, but those stocks are defining both the S&P 500 and the World Index. So, what now seems like a disadvantage will prove to be an advantage.

If the human factor were to disappear from the stock market and prices became rational, the price of a company would reflect its value. Given the results of our companies, that would be a huge advantage. Unfortunately, that human factor remains decisive, and for now, we’ll have to be satisfied with the 7.5% since the start of the year.

On the other hand, I’m actually very glad that the human factor will never disappear, because fear and greed are the factors that make value investing work. In times of greed (or the fear of missing the boom), it seems like it no longer works. This causes everyone to look for different places, which gives us the opportunity to keep finding bargains.

At other times, when panic strikes the entire exchange, we can pick up quality companies that are too expensive at all other times.

In that latter situation, you go for absolute quality and don’t have to look for a possible catalyst to drive the price. This wasn’t necessary during the boom times in the past either: if something was cheap enough, it would eventually be discovered by active investors.

Now that we, as active investors, are becoming increasingly rare, this discovery, purely based on how cheap something is, has become less relevant, and we need to make more thoughtful purchases.

For this reason, and with the feeling that a period of panic is approaching, I’ve become even more selective in my purchases. This stands in stark contrast to the many messages I read from other writers, with their lists of “X number of stocks to buy now.”

I consciously prefer to maintain a strong cash position, which currently stands at 27% and will be almost 34% after the sale announced below. 1/3 of the portfolio is too much. I want to bring this back to 20-25% through additional purchases of existing positions and new ideas.

I am turning over a lot of stones, so if you have any suggestions for stocks you strongly believe in, I’d love to hear them.

October Performance

Despite the decline, October was a relatively calm month with few extreme movements in our portfolio. Only two stocks had a movement greater than 10% in October: one negative and one positive.

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Market Overview - October

The situation is still the same as in recent months: the US market as a whole is strongly overvalued. This is being driven by AI stocks, which we can now cautiously start calling a bubble. But the other stocks are certainly not cheap anymore either.

The consensus among both institutional and retail investors seems to be: “Okay, the market is expensive, but we’re on the verge of a blow-off top.” In other words, they expect a massive final surge before the market moves lower again.

I dare not predict such a thing. I have no idea why we would go much higher first, or, conversely, what the reason would be to forecast a downturn right now. However, if we look rationally at the prices being paid for stocks, the expected return on those investments is getting smaller and smaller.

According to the Buffett Indicator, the expected return for the US market is even -0.6% negative, including dividends.

We are firmly in the “Be fearful when others are greedy” territory today, because anyone buying those expensive stocks in full force at these prices is being greedy.

I’m repeating myself, but those who invest passively are also heavily buying these expensive stocks today. Your diversification is no longer optimal, as the Schroders chart below clearly illustrates.

In the MSCI ACWI World Index, the seven large US stocks have a greater weight than the next seven largest countries combined. Nvidia’s weighting, in particular, is enormous, accounting for about 5% of a global index.

And while these seven companies are probably too expensive, they aren’t even the biggest problem. Schroders had a much more interesting chart.

These seven stocks realized an annual return of 18% on already very high prices, but the stocks on the Nasdaq, the technology exchange, that generated zero revenue (yes, you read that correctly: zero revenue) rose by 34%. Loss-making stocks on the Nasdaq rose 18%, while loss-making small-cap US stocks rose 12%.

On the opposite side, we see that profitable stocks on the Nasdaq rose 7%, while profitable small and mid-caps could only manage a 5% increase.

This, again, is clear evidence that investors today are investing in dreams. Some of these dreams will come true, but the majority will not.

The hunting ground for the US stock investor is clearly in the profitable, smaller stocks. And their European counterparts are even cheaper, mainly due to political concerns.

Now that we have provided our portfolio with a sufficiently large cash buffer, it’s time to look for new stocks and see if they can replace existing positions. I’m keeping the cash buffer as insurance.

News from Our Companies

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Value investing isn’t about buying cheap junk. It’s often painted that way these days, and in studies or comparisons, it’s constantly defined by a low price-to-book ratio or low price-to-earnings ratios, even though those metrics alone say absolutely nothing about the actual value.

Value investing also isn’t one narrowly defined style. It’s simply about buying something for less than it’s worth, with a healthy margin of safety.

I’ll borrow a term here from Michael van Biema, a professor who taught investing at Columbia Business School for years. He called value investing a spectrum. On that spectrum, you could say that Deep Value investors (which some confuse with buying junk) and Quality/Growth value investors are the two extremes. At least, if you approach quality investing like Buffett, and not like what I see constantly today, which is more like momentum/growth with a quality aspect, rather than true value investing.

The Four Value Investing Styles

Let’s quickly run through four styles of value investing that Michael van Biema defined.

First, you have the classic value investors, the Benjamin Graham acolytes who search for hidden value on balance sheets and what he called “wounded ducks.” The latter are companies facing a temporary setback, making them so cheap you simply can’t ignore them.

This type of value investing focuses on the companies’ balance sheets, looking for big discrepancies between the price being paid and the accounting value. Naturally, other aspects count too; you always want at least a minimal level of quality. Crucially, you want to be sure they don’t have too much debt.

The thing is, you can find well-managed, profitable companies whose prices are driven down very low by market conditions, turning them into opportunities.

This is Deep Value investing: buying a dollar for fifty cents because you have the insight that tough times pass, and on top of that, you have the patience to wait for it. You’ll know which companies in our portfolio fall into this category.

The Other End of the Spectrum

All the way at the other end sit the Quality/Growth value investors. There isn’t an investor alive who doesn’t like quality and growth in the companies they hold. The key difference that sets the value investor apart is that they don’t pay for speculative growth, or even for any growth at all. A value investor realizes the future is uncertain. Not paying for that growth is their margin of safety.

Warren Buffett is often called a quality investor nowadays, but make no mistake: he has always remained a value investor. He has certainly shifted from the deep value side to the quality side of the spectrum. However, he never became a growth investor or a quality investor as we know them today. His “wonderful business at a fair price” quote is used very often, but that “fair price” is often misinterpreted. Buffett didn’t pay for the growth of those companies. So, his fair price is calculated without growth, or only including 100% certain growth.

So, yes, Buffett is a growth/quality investor too, but he remains a value investor by not paying for that future growth.

When I read today that investors classify 15-25 times the price-to-earnings ratio as a “fair” price, I know they are paying for that growth—and at 25, they’re paying pretty steeply.

The most important trait for this type of investor isn’t their math or Excel skills, but the discipline to stick to their principles and not chase prices when buying.

Selling is also trickier here: where a deep value investor will sell when the price approaches fair value, a quality/growth value investor shouldn’t sell too quickly. In my opinion, selling is the hardest part with these types of stocks. You’ll find some of these in our selection too.

Special Situations and Activists

Two other styles are investors in so-called special situations and activists.

Special situation investors hunt in the realm of spinoffs, mergers, turnarounds, and so on. This is a very profitable way to invest—just look at Joël Greenblatt, whose fund, Gotham Capital, achieved over 40% CAGR for more than a decade using this approach. However, it’s also the most difficult.

As an investor, you have to be able to see through the situations to understand why the profits aren’t normal, and determine what the normal profits will be in the future. You base your valuation on these normalized earnings. You then need to be relatively sure they’ll materialize, and naturally, build in enough margin of safety in case things don’t go exactly as expected.

Finally, the activists are closely related. Here, there are no special situations, but the activist sees that the company isn’t generating the profits or cash flow it could be. They step in to throw their weight around, influencing decision-making and management until things improve as they see fit. This might involve divesting divisions or investing extra in others. Special situations often emerge from this process.

To be an activist, you often need quite a bit of capital; the other three are perfect styles for all portfolios. It is important, though, to know which style suits you best and where you can stick most reliably to the principles.

News from our companies

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My goal today isn’t to sell subscriptions, but to make sure there are still enough people interested in the stock market a year or two from now (so I can sell subscriptions 😉). I want to prevent them from becoming so disgusted that they stay away from the market after following all sorts of “buy tips” (which I have huge question marks about right now) and losing a decent chunk of their capital.

The stock market is truly for everyone, and it’s the best way to preserve and even grow your purchasing power, provided you have the necessary patience. The prerequisite, though, is consistently maintaining a rational perspective on the market. Warren Buffett taught us that it’s not our intelligence that gets us into trouble, but the control over our emotions. For me, controlling those emotions comes from staying rational. And since you’re still reading this newsletter and haven’t hit the unsubscribe button, that tells me you want to remain rational, too. Here’s what I wrote:

Is This the Calm Before the Storm? We definitely have that feeling. We won’t bore you again with how expensive the US stock market is, or how investors today are only focused on buying and quick price increases, completely forgetting that the market can also fall.

You’ve probably noticed it yourself with family, at parties, or at work: the conversation is increasingly shifting towards investing. When I recently went out to eat with ‘the guys’ (all childhood friends), I couldn’t help but eavesdrop on the table next to us. It was also a group of men, in their thirties, having a heated discussion about stocks, crypto, and investing. I’ll just add as an anecdote that the content of their discussion was often based on incorrect information.

I’m noticing it personally, too. When I meet new people now and they ask what I do, it leads to a whole conversation, often focused on their most profitable positions. Six years ago, when I mentioned I was a full-time investor, there was often a dead silence, and the topic quickly changed.

This calm before the storm can go one of two ways, depending on where we are in the cycle right now.

It seems pretty clear that we’ve already blown past the Optimism and Belief phases (see the chart below). Thrill might still be a possibility, but Euphoria seems more likely. Or was the dip in April already a sign, and are we now settling into Complacency?

Accurately predicting our exact position is unfortunately impossible; that’s why they say you can’t time the market. However, it’s enough to know we are roughly in that general area. We are right up against the peak of a market cycle, regardless of the exact stage.

For many investors, such a peak often feels like the safest point. Everything is going well, profits are soaring. But this is, in fact, the most dangerous point in the cycle because prices are high relative to valuations, which means there’s a real risk of loss. The moment we hit Anger or Depression, nobody wants to invest, yet those are paradoxically the safest periods in the stock market.

As Howard Marks says: you can’t time the market, but you can prepare for it. Knowing roughly where you are is sufficient to make those preparations. For value investors, that usually means: selling shares that have run up a bit and being highly selective with new purchases. Only open new positions if you believe there’s a reason for them to rise in the short term. You need a so-called catalyst—a reason for the stock to be “discovered,” such as a takeover, a merger, or something similar.

Buying a stock just because it’s cheap and counting on a return to the mean is simply not the right play in this market phase. And yes, there are certainly still many cheap stocks to be found, especially in Europe, but if the bubble in the S&P 500 bursts, those cheap stocks will also take a hit.

Sleeping like a baby

We’ve already started making some opportunistic sales, even of stocks we believed we were still selling below their intrinsic value. We also exited Kamux because the crisis in the car market is causing a major shortage of used cars, which is what consumers actually want to buy. For now, consumers are still avoiding expensive second-hand electric vehicles. Simply put, we don’t see a catalyst to drive the price towards its intrinsic value in the short term (which, for us, means between now and three years).

We’ve previously calculated how the mechanism of a cash position works during market downturns, but we’re happy to repeat it.

Imagine you have a portfolio of €250,000 that is fully invested. If your stocks drop by 50%, you’re left with €125,000.

If, instead of being fully invested, you had €200,000 invested and held €50,000 in cash, your portfolio would be worth €150,000 after the decline. So, cash is a significant buffer when the market crashes, even if it’s only 20% of your portfolio.

But the best part is yet to come: you can invest that €50,000 in cash after the 50% drop, allowing you to buy at rock-bottom prices and then benefit extra from a recovery.

When the market eventually returns to its original level in the following years (a 100% rise!), the first investor without cash just gets their €250,000 back. The second investor, who bought at the bottom with their cash, now has a portfolio worth €300,000.

The first investor has a 0% return, while the second investor realized a 20% return on their total portfolio. Same market movement, same investments, but it’s the cash that makes all the difference.

50% seems like an extreme example, but it’s not. In my investing career (since 1999), I’ve seen declines of over 50% happen twice.

Not the Dot-com Era, But Still...

I often read now that the current situation is completely different from the dot-com bubble. The difference is, of course, that today the strong tech players are largely footing the bill for the bubble, whereas the dot-com era was mostly hot air.

But let’s look at this rationally again. The Felder Report shows the following: Total investment in AI infrastructure in the United States is expected to exceed $500 billion in 2026 and 2027—comparable to the GDP of Singapore. However, US consumers are only spending $12 billion on AI services, which is roughly the GDP of Somalia. When you look at the difference between those two countries, it becomes incredibly clear.

It’s obvious that these expenditures cannot be rationally explained in any way. AI is a fantastic evolution, but just like all the others, it’s currently being driven by excessive euphoria. Future sales and profits simply cannot be high enough to justify these investments.

I’ve read the argument that it will save so many employees and is therefore justifiable. Will AI companies be able to pass on 100% of that efficiency gain to their customers? Of course not, because then the customers would just keep their staff. Those customers/companies need to benefit from it themselves. And honestly, I don’t see any current application delivering such massive efficiency gains yet.

What we do see are increasing circles where the AI bubble is self-funding, which is perfectly summarized by this meme.

The math doesn’t add up, and sooner or later, this realization will hit everyone. Then it will be a stampede for the exit. I asked the question on X this week: Is no one wondering how OpenAI is going to pay for all of this? And no, no one seems to be asking that question.

Do you remember the story of Theranos, which was brilliantly dramatized in the series The Dropout? The party lasted so long there because no one asked if the product even worked. Here, it’s time to ask the question: Who is going to pay for all of this?

News from our companies

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Towards the end of last year, I wrote that my resolution was to move “towards positivity.” However, over the past few weeks, it may have seemed like I was constantly playing the doomsayer, simply because I was urging caution.

Let’s take a positive approach to this. As Howard Marks puts it: we can’t time the market, but we can prepare. That preparation means being highly selective with your current portfolio. It means selling stocks whose price is above their real value, and being equally selective with your new purchases.

Right now, simply buying something because it’s undervalued isn’t enough. You need to have visibility on a reason why it will rise in the relatively short term (between now and three years). The chance of a further multiple expansion, or even a return to average multiples, is very slim in an already overheated market environment. If it hasn’t happened yet, why would it happen in the near future?

That’s a reality we have to deal with today. Our cheap stocks need a so-called catalyst before they’ll climb in this market. After a crash, or in a less overheated market, simply being cheap and getting discovered can be enough. A catalyst could be a major party taking a stake, a takeover attempt, a merger, and so on.

The likelihood of our inexpensive stocks being discovered today is relatively small. Everyone is chasing the same shares, which is evident in the prices. Or people simply don’t care and buy ETFs that track the indices, which amounts to the same thing: you’re buying what’s already popular.

However, if you want to do better than the market in the long run, you can’t do the same thing as all the other investors. If you do, you might as well just buy those ETFs.

Doing things differently today means not chasing prices and being careful. Holding cash aside and getting ready to deploy it when the odds are in our favor.

To get those odds as much in your favor as possible, you also need to be prepared about which stocks you want to buy when prices drop.

If a real crash comes—not just a brief dip—it will be reflected in the economy. There will be layoffs, and companies will run into difficulties. The goal then isn’t to deploy our cash on the companies we think will be the next big hype. Instead, it’s on rock-solid businesses that can weather such a storm and profit from the disappearance of competitors: the strongest in their segment. Think more along the lines of the Jensens of this world, not the Nvidias. Not that Nvidia isn’t currently the strongest, but the narrative driving its current stock price is precisely that it has no significant competition. They can’t exactly emerge stronger from a crisis if they had no competition to begin with.

Safeguarding our cash position is already done—that was step one of our preparation. Scrutinising our existing positions is what I’ve been doing for a few weeks now—that was step two. This is a continuous process, but we’re being even more critical now.

Step three, which was running simultaneously with the first two, is identifying the stocks we want to buy. That’s work happening behind the scenes, but it’s far more important than any other message I could write for you. Because I’m an investor, that’s where I place my priority.

As I’ve written before, I don’t like bringing bad tidings. I’m a true optimist. And that optimist tells me great opportunities are coming. We just need to have the necessary patience and not give in to FOMO (fear of missing out).

Doubler Portfolio Overview July 2025

For those not yet familiar with our Doubler Portfolio, read more about it here.

September saw the portfolio recover from the drop in July and, to a lesser extent, August. The first two days of October were good as well. We haven’t quite reached the late-June peak yet, but we are back up to a 9.2% gain year-to-date. And that’s with a portfolio that’s only 74% invested.

That 26% insurance policy in cash is costing us a bit of return for now, but as I wrote before, it’s a sacrifice I’m more than willing to make. In fact, later in this newsletter, you’ll see another sell order where we lock in a 50% profit by selling a company that hasn’t even reached its real value yet. That’s how much importance I currently place on cash.

Our portfolio rose by 2% in September, bringing the result from January to the end of August to 8.2%. As I said, we can’t complain about that return, especially being only 74% invested. The most important thing, though, is that I sleep soundly thanks to that cash position, knowing that when the time is right, I’ll have the firepower to strike.

I’m particularly curious about what the trigger will be that finally brings investors back down to earth and, hopefully, causes a massive panic. Last month, it briefly looked like the debt concerns of various countries might kick things off, but now we hear nothing more about those issues in France (or other nations). Even the US government shutdown was met with a collective shrug.

An argument I often read for why the crash won’t happen is that everyone seems to be expecting it. Well, not everyone. That’s obvious if you look at the stock prices. As full-time investors, we often forget that not everyone is on top of the market like we are. There’s a huge crowd that barely pays attention and is quite proud to be “couch potato investors.” Professional parties often have no choice but to stay invested, either due to regulatory rules or internal policy. Deviating too much from the benchmark can cost them their job.

So, in my view, it’s entirely possible we’re heading for a crash that “everyone” saw coming. When I first started investing in 1999, I couldn’t understand what was going on either. I was immediately pushed in the right direction (which I unfortunately deviated from between 2002 and 2004) and was constantly reading about the internet stock bubble. Even then, it seemed to me like everyone saw it coming. It just depends on where you’re looking.

September Recap

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Buying Your Own Revenue?

A few weeks ago, I briefly wrote about how bizarre it was that Oracle stock jumped so much after the announcement of that massive OpenAI order—a $300 billion deal that OpenAI can never pay for without raising extra cash. This week, Nvidia announced they are investing $100 billion in OpenAI.

Let’s just take a sober look at this:

1. OpenAI orders $300 billion from Oracle, and Oracle’s stock rises 36%.

2. Oracle runs on Nvidia chips (for now) and will need to buy billions worth of chips from Nvidia.

3. Nvidia announces they are investing $100 billion in OpenAI. Nvidia’s stock climbs on that news.

So, Nvidia invests $100 billion in OpenAI—money that OpenAI will use to pay Oracle, which will, in turn, order Nvidia chips. All while Nvidia is an investor in OpenAI... The circle is complete.

For now, the added value of OpenAI is negative, as they are generating considerable losses. The competition is massive, and the costs for data centers are in the same league, making it unclear how they will turn a profit. Often, it’s not the first movers in such technological shifts who end up cornering the market. Will that be the case for OpenAI?

When the return on an investment is this uncertain, you can really only see one thing here: Nvidia is buying its own revenue. I have serious questions about that.

The AI hype is, for me, complete. Just like the dot-com bubble during the rise of the internet, I believe AI is also a technological advancement that will change the world. Anyone who denies that simply hasn’t made enough use of the tools available today.

However, in my opinion, the big winners won’t be the providers of the AI solutions, but rather those who can implement it effectively. By that, I mean both the implementation companies bringing it to other firms and the companies where it is successfully implemented.

Since the Industrial Revolution, there’s been a very long list of technological improvements, each groundbreaking and world-changing, but none have been enough, to date, to justify valuations like these.

It’s entirely possible that AI will change the world and, at the same time, the AI companies—and even the entire US market—are heavily overvalued.

Market Overview

The Shiller PE broke through 40. It’s only been higher once before (42): during the dot-com bubble. Regardless of how massive the change AI brings will be, these valuations simply can’t be justified anymore. Every time we’ve seen such an overvaluation, the following decade has been weak. The Shiller PE indicates that for the next eight years, assuming a return to the mean, we should expect a return of about 1.6% per year.

The increase in companies going public is also a clear signal that we are near the top. I’m deliberately vague with ‘near’ because what is expensive can always get much, much more expensive.

All US indexes hit record highs this past week, even the Russell 2000, which contains the smaller stocks. The Buffett Indicator suggests a market expectation of -0.7% for the coming years, including dividends.

I’ve pulled out the maximum term Gurufocus allows for the chart above. You can clearly see that we are massively above the twenty-year average, but even that twenty-year average is already 20% above the adjusted average. Honestly, how many more signals do we need?

Why Should We Care?

You might wonder why we should worry about the valuations of the US stock market. After all, we invest in Europe in individually selected stocks, not in the US or global index.

The answer is sentiment. In the short term, the stock market is driven by emotion, which explains the extremes, both up and down. In the longer term, value always surfaces. At these prices, I just don’t understand anyone buying indexes or ETFs anymore.

And then we’re seeing other parts of the market starting to get pricier. I want to own assets that yield something. Think of real estate that generates rent or companies that make a profit. I don’t know how to value assets that provide no economic return. What, for example, is the value of Gold or Bitcoin? I’m not saying they are bad investments. Gold has been the measure of money for centuries and is certainly a protection against currency debasement. But how do you calculate their future value? Even with Bitcoin experts, I haven’t managed to figure out a clear way to value it.

Today, such bargains can certainly still be found in Europe, but when the US markets start to fall, sentiment will shift. Then our European bargains will almost certainly become even cheaper. Hence the balance between cash and investments.

This is probably getting annoying—it feels that way for me to write it too. I really don’t want to be a doomsayer and mostly want to focus on the future. That’s what attracts me so much to investing and companies. You really need to be able to see a rosy future and believe in the ingenuity of humanity, otherwise you wouldn’t make a single investment.

The belief in the future and the fact that you are constantly learning are the factors why I will always keep investing. We must, however, continue to approach investing sensibly and rationally. When we see excesses, we need to become more cautious and make sure we are prepared for the times ahead.

The saying “Be fearful when others are greedy and be greedy when others are fearful” by Warren Buffett has been brought up constantly in recent years to justify purchases every time there was a small dip. I’m not using it today for the second part of the saying, but for the first. It’s truly time to become a little more fearful, or rather, cautious.

We have to rationally recognize that the best opportunities in the stock market are not here today, despite all the buying tips and visions of insane wealth you see passing by. Always ask yourself what the incentive is of the person sending those messages out into the world. As Charlie Munger said:

Transaction Doubler Portfolio

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Last week, we received a trading update from Focusrite and Exor released its results. You can find both of them below.

What to do today?

These days, people are mainly looking for quick buy tips, and not so much for the message of caution that I'm bringing. This discourse has already cost me clients. Yet I remain true to this message, because I am 100% convinced of it. I promised my readers that I am an investor first and foremost. This makes me a bad publisher, a task I didn't have before and, frankly, would happily leave to someone else.

I prefer not to be a doomsayer, and I don't believe in a total collapse of the financial system either. However, I do feel that the current valuations, especially of US large caps, are no longer sustainable. If they correct, they will likely drag the entire market down with them, and then Europe will also feel the blow. Cheap stocks can then become much cheaper.

It's clear that a significant correction or crash is coming at some point. Last week, we already saw how market expectations are too high due to AI, with the sudden rise of Oracle.

The sentiment is simply too euphoric. Investors want buy recommendations and are hunting for 100-baggers, stocks that can go up a hundredfold. Newsletters and services that promise these stocks sprang up like mushrooms after the COVID-19 pandemic. They now show off impressive results based on their five years of experience, but as I wrote before, anyone under 35 has not yet experienced a real crash or serious correction in their adult life.

The Generational Divide and Risk Perception

That makes those who experienced crashes in 2008 and even the dot-com bubble in 2000 the exceptions. I understand their enthusiasm and the fact that they see opportunities to buy everywhere. They are used to a growing economy with loose monetary policy and markets that only go up, with the occasional short dip. They see opportunities everywhere, but the risks are underestimated or misunderstood.

I don't share that enthusiasm. I see a heavily overvalued US stock market and here and there in Europe a small bubble (like in the defense sector). I do see the risks and am no longer in the phase where I want to get rich through the stock market. You get rich by working, starting a business, and saving. What you have left over can go to the stock market, which can make you even richer.

Realistic Goals and Capital Preservation

Are you looking for a 100-bagger? My reaction is: just go for it. Start by looking for a company that can double. Anything more than 3 to 5 years into the future is simply too uncertain to factor in. That doubling can come from business growth, or from a revaluation on the stock market because the stock is too heavily undervalued. Companies that have both characteristics are ideal.

The first task of investing is capital preservation, in other words: at least keeping up with inflation. Remember the two rules of Warren Buffett:

1. Don't lose money.

2. Don't forget rule number 1.

Everything you earn on top of that makes you richer. In your quest to get richer, you must be sure not to make big mistakes that make you irreparably poorer. If you want to invest in risky stocks, you need to diversify sufficiently and play the game where one winner can compensate for nine losers. It's doable, but a very difficult game to play.

The Market Has Been Expensive for Years

When I bring this message, I invariably get the response: "The market has been expensive for years; if I had gotten out, I would have missed out on xx% return. So why would it be different now?"

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Last week, we took a look at the results from:

• Luceco: growth through acquisitions

• Somero: Uncertainty

• Wickes: collecting dividends and share repurchase

In our "Shor news" section, you'll find a summary of Sofina's latest results. We already covered the most significant news from Sofina in the newsletter, which we discussed right here.

Oracle, too expensive?

As an investor, you have to follow the news. That means primarily corporate news, of course, but you can’t be blind to macroeconomic news either. Unfortunately, that also means you have to deal with general news, and these past few days and weeks have been truly awful.

I’ll stick to corporate news for now. It’s pretty clear by now that I’ve become more cautious and am more on the selling side than the buying side. Not because there are no more cheap companies to be found—we still have some in our portfolio, actually—but because the excesses are getting bigger and crazier.

Take Oracle, for example. The stock jumped 40% yesterday. The reason? A gigantic order from OpenAI. Oracle’s order book surged by 359% to $455 billion, but a whopping $300 billion of that is from OpenAI, spread over five years, with $30 billion due in 2027.

Oracle expects its cloud division's revenue to grow from $18 billion this fiscal year to $144 billion in five years. Let’s crunch these numbers and see if investors aren't paying a far too high premium for these future expectations.

I won’t even get into the debate about whether OpenAI can actually afford this. They're currently burning through billions in cash every year. This is being funded by capital increases, but at some point, those investors are going to want a return on their money.

Currently, Oracle has a revenue of $59 billion, of which $10 billion comes from cloud infrastructure, $3 billion from hardware, $5.2 billion from services, and $39 billion from licenses. For now, licenses and cloud are still reported as a single segment, showing an impressive 63% operating margin.

Although I assume licenses generate a higher margin than cloud infrastructure (which involves hardware, energy costs, and the like), I’ll calculate as if the margin remains the same. We know that Google's cloud services are only just becoming profitable due to large investments, while Microsoft's margin is around 40-45% and Amazon's is between 50-60%. In short, by using 62%, we're being very generous and also assuming synergy benefits with the other business units.

If we assume the cloud division achieves its growth over the next five years and the other departments remain stable, even though hardware and services have shown a declining trend, then within five years, revenue will be around $182 billion. This is a CAGR (compound annual growth rate) of 25.3% over the next five years. For the rest of the period, I'll assume they revert to their ten-year growth rate of 4.5% and apply this to the terminal value, which again, I think is a generous calculation.

To summarize:

• We believe in a growth rate of 25.3% for the next five years and 4.5% into infinity after that, despite the largest customer being heavily loss-making.

• We're not taking into account the gigantic investments needed for this growth when it comes to the margin.

• Our discount rate is 10%, whereas I would normally take 12% to 15% due to the uncertain factors.

So we're calculating generously.

If we run a DCF calculation on this, we arrive at a value of $115 per share based on cash flow and $193 per share based on profit. The current share price is $328.

If we calculate the other way around, starting from the share price with the same discount rate, it means Oracle's revenue has to keep growing at that rate for ten years, not five.

As an investor, you're essentially gambling that OpenAI will become profitable or find enough crazy people to raise another $300+ billion, and that Oracle will also find other customers to sustain that growth. And all for a measly 10%? No, thank you.

My Take on Nyxoah

Last week, a subscriber asked for my opinion on Nyxoah. Since the reader said my perspective was helpful, I'm happy to share it with you all. This is what I wrote:

I know Nyxoah by name, but I don't know it well enough to say much about it. It’s a type of company that falls outside my scope.

Over the last twelve months, they had a revenue of €4.9 million and a gross profit of €3.2 million. Their overhead costs were €39.2 million, and they spent another €38.7 million on research and development.

Let’s say they can maintain the same gross margin of 65%. Their revenue would need to be at least €120 million to break even (assuming their overhead stays the same and doesn't increase).

Realistically, their revenue doesn't need to double, which analysts assumed, but rather has to grow forty times its current size before they're profitable. That’s too difficult for me to assess if it’s realistic within a short enough time frame.

These are often companies that never reach maturity because they are acquired by a larger company before they get there. Your investment thesis here should therefore be focused on who would want to buy this company and how much they are willing to pay (often in multiples of revenue, not profit, for this type of company). The company's growth then only serves to support that thesis; the profit doesn't matter.

Transaction Doubler Portfolio

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