Weekend reading: Alas, Smith and moans

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• 

  Mogul

  1 AoI July 11, 2026, 12:32 pm

  Absolutely, I find Terry’s letter muddled. He seems to lament the drivers of what he calls a bubble over several pages before announcing he is at least to some degree now chasing the momentum.
  Reads to me like the hubris of a man who cannot simply say we got it completely wrong sitting in unwieldy global consumer goods companies that were struggling against inflation, rising trade barriers and changing consumer preferences and opting out of the companies on the receiving end of trillions of dollars of AI investment.
  It’s incredible how sticky assets can be, he has substantially underperformed with remarkable consistency for 5 straight years and yet retains an 11 figure AuM, how is paying 1% and hoping for a change of fortune preferable to the alternatives, I don’t get it.
  On a random aside I find myself on holiday at the same hotel as Neil Woodford! perhaps I should ask his perspective…
• 

  Mogul

  2 Delta Hedge July 11, 2026, 1:00 pm

  A very fair summary of the Inelastic Market Hypothesis (conjecture?) Thank you.

  It’s not that the (currently positive) net passive inflow explains all of current prices, anymore than information diffusion under the EMH means that all prices always are perfectly optimal and rational.

  Rather non price sensitive inflows tend, over time, to increase each of overall market cap, the ratio of investment / disinvestment flow to price changes, the concentration in the largest names (due to index optimisation) and to increased volatility (due to reduced liquidity in the largest companies as market makers don’t increase stock holdings in them at the same rates as their cap weights rise, given the ever increasing compression in spreads for the largest stocks, and therefore reduced profitability per unit of market cap for market makers to the make the market in them).
• 

  Mogul

  3 Delta Hedge July 11, 2026, 1:24 pm

  NB: very recent falls in mega cap hyperscalers could be interpreted as either confirmative or disconfirmative of the IMH. The disconfirmative position is as outlined in the piece (although the IMH does not preclude non passive / active flows from setting day to day pricing, so it’s something of a straw man). The confirmative position for the IMH is that reducing liquidity (per unit of market cap) and increasing volatility in the largest names (due to passive flow effects) means that they will fall (or rise) more quickly, and go to extremes of over sold (or over brought), more frequently and intensely, than otherwise; and that’s exactly what we’ve just seen taken place, as predicted.
• 

  Maven

  4 Jonathan the Evil July 11, 2026, 1:40 pm

  “But [Terry Smith’s] sermons were certainly more Puritan than The Church of England.”

  That’s not very difficult, given that the Puritans found the Church of England far too close to the “corruption” of Rome, and mystical tradition.

  The whole “Mayflower” episode was about escaping to a new territory in the early 1600s, to be able to establish a Puritan colony. The religious tension in England continued until coming to a head in the English Civil War, and the associated Wars of the Three Kingdoms (England, Scotland and Ireland).

  Casual, modern interpretations of the English Civil War and the ensuing Republic (Commonwealth) often emphasise the Crown-versus-Parliament aspect, because that makes sense to the secular mind. However, a large portion of the motivation was the ongoing ferment of competing religious ideas, from Roman Catholicism though to ultra-protestant sects which Cromwell himself found intolerable.

  Within the Christian domain, the Church of England tends to be pretty broad, from Anglo-Catholics who shock Romans with their preference for the Latin rite, through to fundamentalists who go beyond what, for example, mainstream Methodists consider proper.