A Sign ‘Quality’ Investing Is Due for a Comeback -WSJ

A Sign ‘Quality’ Investing Is Due for a Comeback By Spencer Jakab July 23, 2026 6:18 am ET Throwing in the towel? It sounds like great investing advice, and for years it was: “Buy good companies, don’t overpay, do nothing.” But Terry Smith, sometimes called “the English Warren Buffett,” shocked his remaining fans this month by sidestepping that mantra. Unfortunately for him, he isn’t Buffett—he’s a fund manager whose clients can ask for their money back whenever they want, and many have. Smith lamented in [his latest investor letter](https://www.fundsmith.co.uk/media/lfhpxi1x/2026-fef-semi-annual-letter-to-shareholders-web.pdf?_gl=1*1k3ewhv*_up*MQ..*_ga*MTQyMjU5MjM5LjE3ODQ3MjM2MjU.*_ga_L0NCJL6P5T*czE3ODQ3MjM2MjQkbzEkZzAkdDE3ODQ3MjQxNjQkajYwJGwwJGgyMTQwMDUxMzU1) that “there will be little point being proved right about the dangers of passive or momentum investment after our fund has closed.” So he became unusually active, churning half of his portfolio. Will we look back and conclude that Smith’s move marked the top for chasing hot stocks and a turning point for his style of quality investing—long-term ownership of companies with high profitability and solid balance sheets? It certainly did in the short term. The two styles’ performance reversed immediately. A popular quality ETF is beating the S&P 500 Momentum Index by 6 percentage points this month. Wall Street veteran Nicholas Colas, co-founder of DataTrek Research, wrote this week that momentum stocks had done so unusually well through June that it could safely be called a “mini-bubble.” Smith merely tilted in their direction, but his competitors were all-in. “The fact that it peaked exactly on the last day of Q2 2026 tells us that many institutional investors likely chased price performance (aka momentum) as the quarter ended,” wrote Colas. “The pressure to show the ‘right’ positions in a midyear report to clients is very strong.” If Smith’s turn was a sign of the top then it’ll remind some of Julian Robertson, a name more familiar to American investors of a certain age. Through the 1980s and much of the 1990s, Robertson’s value-oriented hedge fund, Tiger Management, had amazing returns. Then performance sputtered during the tech bubble and he told clients he was shutting down in March 2000, the bubble’s exact peak. In [his final letter to investors](https://aletteraday.substack.com/p/letter-78-julian-robertson-2000), Robertson didn’t mince words, calling the craze “a Ponzi pyramid destined for collapse.” He complained that “the only way to generate short-term performance in the current environment is to buy these stocks.” The comparison between the two managers isn’t perfect because “quality” is a slippery category to define. Some of Smith’s holdings, such as Microsoft and [Alphabet](https://www.wsj.com/market-data/quotes/GOOGL), belong to the “Magnificent Seven” and had done well until recently. Is Smith’s style due for a comeback? Yes, eventually. Even Buffett, the world’s most famous “value” investor, has long preferred quality stocks, including big winners for [Berkshire Hathaway’s](https://www.wsj.com/market-data/quotes/BRK.B) portfolio such as Coca-Cola and Apple. Luckily for him, shareholders had to stick around for the entire bumpy, profitable ride. FIN.