British 'Warren Buffett' Shifts Strategy, Embraces Momentum Stocks Amid Market Changes
In recent months, a debate has intensified on social media investment forums like Reddit over whether to invest in value stocks, established companies trading below their intrinsic value and often paying dividends, or momentum stocks, which have been rising due to market trends. While some Reddit users have declared "value investing is dead," this is not entirely accurate. However, momentum investing has gained unexpected support from Terry Smith, the British fund manager often dubbed the "English Warren Buffett." Smith, who runs the Fundsmith hedge fund, has historically favored buying good companies at reasonable prices and holding them without frequent trading. Yet, his fund posted a negative 2.9% return in the first half of 2026, lagging behind the MSCI World Index's 11.2% gain and the S&P 500's roughly 10% rise.
Acknowledging this underperformance, Smith told investors he will now incorporate momentum factors into his investment decisions. He warned against "catching a falling knife", buying declining stocks, because momentum-driven markets tend to exacerbate downward spirals. Smith also avoided many artificial intelligence (AI) stocks due to their high valuations, only to see them continue climbing, contributing to his fund's lagging results. Passive index fund inflows have further intensified this trend.
Lior Shachar, head of the high-tech sector at BDO, noted that since the start of the year, the S&P 500 rose about 10%, while the SPMO ETF, which tracks the 100 highest momentum stocks in the index, surged 29%, and the semiconductor index jumped 79%. He attributed momentum's rise to AI-driven enthusiasm, algorithmic trading systems, and retail investors fueling self-reinforcing market moves, contrasting sharply with traditional value investing principles.
Smith referenced Warren Buffett's approach of buying good companies at good prices and holding them, citing Buffett's American Express investment as an example. However, Smith now believes that ignoring momentum risks greater losses. Berkshire Hathaway's stock itself has declined 2% this year. Meanwhile, JP Morgan strategist Jan Hui argues that value stocks remain attractive outside the U.S. as a hedge amid ongoing inflation and high interest rates, though investors should beware of "value traps", cheap stocks that keep falling.
The consensus among experts like Shachar is that a diversified approach combining both momentum and value investing is prudent, especially given the cyclical nature of sectors like semiconductors and the potentially temporary AI boom. This balanced strategy aims to navigate current market dynamics more effectively.
