The original write-up is from mid-June and can be found here. Plus a same day update here.
Looking at the share price development, I clearly got out too early from this one at around 18,85 EUR per share plus dividend:
Overall, I was clearly lucky with the timing of the entry. I closed the trade early because first, I could lock in my expected return and secondly, I was a little bit “off grid” and had limited ability to react during the trading period of the tender rights.
The main difference to my initial case was that the tender price had been further increased from 20,87 EUR to 22,35. Interestingly, for the remaining shareholders, this is not really positive as more cash went to selling shareholders.
I had checked a few times during the trading of the tender rights and they were trading relatively close to their intrinsic value.
What I find quite surprising is that at the time of writing, the stock is still trading pretty high above my “undisturbed” value before the announcement. And how long it took to come down from the “inflated” tender price. I have to confess that I don’t fully understand this.
As mentioned in the comments of the original post, I directly sold after this became public as I have no opinion on the longer term development of Paypal. This is what I wrote back then:
However one more thing is important to mention: This is a special situation investment for me. So if for some reason, Stripe & Advent withdraw their bid, I will sell, no matter what. For a “Value investment” I still find Paypal too hard at this stage.
Luckily for me, the stock did not drop down to the “undisturbed” price of ~45 USD. So I could get out with a relatively modest single digit loss in this case.
I have to admit that I was already feeling a little bit insecure after Stripe closed the OpenRouter acquisition for ~7,5 bn USD a few days earlier. Stripe is a great company but they don’t seem have an unlimited budget for M&A as a financial intermediary.
As in all of these cases, there is always the risk that a case doesn’t work out. In my opinion, the most important part here is to stick to the original plan (i.e. sell) and try to find out if I have made any “a priori mistakes”.
In this case, the only mistake was maybe not to reduce the position after the open router acquisition from Stripe.
For the future, any public take-over situations with Stripe need to trade at a wider discount to account for this episode.
Delivery Hero/Uber take over Special Sit
As mentioned in my weekly links post, the UBER/ Delivery Hero take over could be an interesting Merger “Arbitrage” Special Situation.
In a nutshell, Uber owns currently around 25% of DHR outright and has launched a take-over offer in late August at an offer price of 41,5 EUR.
Expected closing of the deal is in the second half of 2027 and the acceptance hurdle for this offer is only 51% which Uber seems to have in the bag already.
The main risk of the transaction is clearly a relatively complicated merger control and approval process in many countries and especially an intermediate step where part of DHER’s business needs to get carved out and sold to a Private Equity shop called SSW Partners.
At the current share price of 36,85 EUR/share, the “spread” to the 41,50 EUR offer is 12,6%.
This needs to compensate for:
a relative long time horizon (long stop November 2027)
a relative high premium to the undisturbed price (+100%)
and the aforementioned deal complexity
This is the stock chart from Delivery Hero which shows the significant bid premium:
All my 3 AI Tools (Claude, ChatGPT & Gemini) were recommending not to establish a position due the complexity of the deal (carve-out requirement) and the significant downside in a “no deal” scenario if the “cost of capital” is 10 to 15% p.a.
Personally, I think especially countries like UAE or Saudi Arabia could become more risky with regard to merger clearance when the war in Middle East continues to spread.
So in this case I actually follow the advice and sit on my hands. I will revisit this by end of October to see if it has become more attractive, either by a lower price or some fundamental improvements.
Interestingly, both ChatGPT and Claude offered to build an Excel spreadsheet. Here are some screenshots from ChatGPT which look very professional:
I didn’t check all the formulas, but it seems to be quite good.
In addition, ChatGPT also is checking now 2 times a day for updates.I guess Claude can do the same easily.
Although AI tools don’t change the Special Sit game completely, it clearly makes a more “equal playing field” as it reduces the effort to get into this.
The main risk that I see is that the motivation to actually read relevant documents goes down even more and that it is hard to see if the AI Agent makes mistakes or catches everything.
I do use AI tools (Gemini, Claude, NotebookLM) extensively during the research but I write everything “by hand”. In some cases, I will however copy & paste a summary or result table from a query after checking that the content is plausible. But I will always explicitly mention if I do this explicitly.
Management Summary:
Fielmann Group, the majority family owned German optical retailer has seen a significant multiple compression over the past 10 years despite a very decent operational performance since the Covid lows.
Based on a credible 5 year plan laid out in 2025, Fielmann is attractively priced and if they continue to execute under the leadership of the second generation family CEO, the stock offers significant potential over the next 4-5 years.
For this high margin, high return on capital business with a rock solid balance sheet and strong cashflow generation, the current valuation of ~15 NTM P/E and ~3,3% dividend yield looks attractive.
I talked to some other investors about this and they mostly mentioned that this looks (once again) as a one-time effect with maybe compensating negative results some quarters down the road, very similar to what happened after the attack on Ukraine.
That most likely explains the very muted reaction to a 35% increase in EBIT in Q2 and a significant increase in the full year guidance that according to the release already is conservative.
I actually bought back the shares slightly higher to the level I solid them last year (33,50 EUR vs 31,50 selling price).
What I found especially interesting in the statement from Fuchs was the following passage:
“The strong revenue and earnings growth in the second quarter of 2026 resulted from robust sales performance, driven by pre-buying effects stemming from the conflict in the Middle East,limited delivery ability among certain competitors,and organic growth. “
Digging a little bit deeper one can relatively easily find articles that the Gulf region was and is a major exporter of lubricants and especially the underlying base oils that are needed for high performance lubricants.
In addition, on major base oil refinery in Qatar was directly hit by Iran according to this article:
“Approximately 44% of U.S. Group III demand is typically supplied from the Persian Gulf, but that supply is now largely offline. Damage to Shell’s Pearl GTL facility in Qatar—caused by Iranian rocket strikes—has halted production from a key source of roughly 30,000 barrels per day, with repairs expected to take at least a year. Additional disruptions stem from force majeure declarations by producers in Bahrain and the UAE, as well as the continued closure of the Strait of Hormuz, which has stranded product in the region. “
Although I don’t know exactly how Fuchs sources its base oils, it seems that for the time being that they are able to deliver while others have problems.
Of course the situation with Iran can change any day with a single Tweet, but I guess that some supply chain managers are maybe rethinking their dependence on Guld based lubricants which could be a structural opportunity for an independent player like Fuchs.
We will need to see how this develops, but I think Fuchs looks a lot more interesting now at least from my perspective.
Then, after the approach from Stripe and Advent I mentioned the following:
Last Friday, the stock traded at 55,5 USD, offering a 9% “discount” to the potential acquisition price which motivated me to buy a 1,5% position at that level.
The risk return ratio is not too bad at that level. The “undisturbed” price is ~47 USD and there is a pretty good chance of a higher bid either from Advent/Stripe or maybe another competitor might enter the race.
As always, one needs to prepare for volatility around any news in either direction but I think it offers a nice, uncorrelated “bet” on a potentially higher clearing price.
One key player here is clearly the new CEO whose massive bonus is tied to a stock price increase that to my knowledge is much higher than the 60,50 USD offered. So he clearly has an incentive to hold out for a high price OR a nice “golden parachute” from the buyers.
However one more thing is important to mention: This is a special situation investment for me. So if for some reason, Stripe & Advent withdraw their bid, I will sell, no matter what. For a “Value investment” I still find Paypal too hard at this stage.
At the time of writing, the Paypal share price has climbed back to 58,40 USD per share, a level where I would not buy (more).
(for some strange reason, Google Finance says Paypal is now called Adobe 😉
However, that was soon followed by disappointing 6M numbers. The preliminary 2025 numbers were not great, but back then the outlook for 2026 was still quite positive in March.
This was of course very disappointing and I started to sell part of my stake after that. We can also see that the share price is now lower than when I wrote up the stock in June 2024:
An EBIT /operating profit at the lower end of the 40-50 mn range would mean an EBIT similar to 2023 and that in a year with two very big events, the Winter Olympics and the Football Worldcup.
While that is not a catastrophe, they are now clearly far away from the 10% p.a. growth path that I had underwritten originally. To be honest, I don’t fully understand why the business is so weak.
What I also found interesting, that Canadian listed competitor Evertz has been doing very well over the past 12 months at least looking at the share price:
So while EVS claims that the war in the Gulf is the culprit for the unsatisfactory business, Evertz speaks of “revived growth” in the Middle East. That is quite surprising in my opinion and casts some doubts on the EVS Broadcast story.
So overall, I am not that confident in EVS for the time being and decided to sell my position entirely as I see better opportunities elsewhere.
Frosta, the German “Hidden frozen Food champion” that I wrote up in February already released 6M results this week.
Highlights:
Overall sales volume increase by +11,7%. easily beating the market which was around +3%. The real kicker is that the Frosta Brand itself grew by +25% and seems to be further accelerating.
Among other things, Frosta has released two new lines of frozen meals: “High Protein” meals with more meat and “a la carte” restaurant quality meals. Both new lines are at a slightly higher priced point than the original.
I find this a clever strategy, not to increase the prices of their classic range but rather offer even better meals at a higher price point.
After tax income only increased by 2,4%. Gross margins increased a little from 48,3% 6M 2025 to 48,8% in 6M 2026, net income margin declined slightly from 5,5% to 4,9%.
However, the outlook for the full year is VERY positive.
If we take the two midpoints, 13% sales increase and 6,5% net margin, we would end up at 50 mn EUR net profit or an EPS of 7,35 EUR.
Considering that Frosta has ~10 EUR Net cash Cash per share, this translates into 13x P/E for a strongly growing company that is executing extremely well.
If we just compare this with the self proclaimed “Leading European Frozen Food” company Nomad foods, we can clearly see from whom Frosta is taking market share:
As always, Investors were not impressed very much:
I used however the opportunity to increase my Frosta position from 3,2% to 4,5%. And I will keep buying if the share price remains below 100 EUR.
Forsta is in my opinion one of these typical “Peter Lynch” investments: As a german, you can easily go into a supermarket, look how empty the Frosta Shelfs are and buy yourself a few packs to test the quality you get for the rather moderate price.
Paypal
In March I wrote about Paypal and just found it “too hard” for me, given my limited knowledge in the Payment sector.
Even back then, the rumor was that Stripe might be interested in Paypal but I found it not really realistic as there was a limited fit:
The share price jumped to around 57 USD, leaving only a 5-6% spread. which indicates that some arb players seem to expect and price in an increased offer.
As it is quite early in the process, I will keep watching this. If the price goes down a bit and we would see a spread closer to 10%, this could be a potentially interesting special situation.
From a structural perspective, teaming up with Advent makes a lot of sense for Stripe because then they can choose exactly the parts that they like and Advents monetizes the rest.
In this post, out of pure self-interest, I looked a little bit deeper into Terry Smith’s controversial 6M Fundsmith report and focus on the “Active vs. Passive” debate, how Fundsmith’s Buys and Sells look under my own Momentum scoring and some thoughts on changes in investment management styles.
Intro & Background
Terry Smith, the outspoken Boss of UK “Quality Value” Fund Manager Fundsmith dropped a quite unexpected 6M letter to investors where he basically communicated a pretty drastic pivot compared to what he said over the past 15 years.
In an “unprecedented” move, he switched ~50% of the portfolio within 6 months which is very unusual for his fund. In previous years, annual turnover of the portfolio was on average less than 10%.
His mantra of “do nothing” was repeated in every letter and often repeated in his talks.
In the most recent letter, he blames, as several times before, “passive ETFs” for market distortions and claims that those active managers that are currently successful are most likely “momentum chasers”.
Fundsmith to be clear is not the worst active fund. With a TER of ~1% they are also not on the extremely expensive side and since inception, the track record is still pretty ok. However, a quick look at his recent fund factsheet shows that for the past 4 ½ years, the fund underperformed the MSCI World pretty drastically:
He underperformed both, in up markets and in the down year 2022. So it is clearly not a “low vol” effect.
Nevertheless I found that letter interesting due to the following aspects in which I will dive a little bit more:
Active vs. Passive
Smith’s somehow inconsistent treatment of “momentum” which is a factor I have been paying more attention to since some time now
The question of how to generally shift/pivot/adapt an investment strategy (if at all)
Active vs. Passive
I actually read the Substack post that Terry Smith referenced which can be found here:
It summarizes quite well the general view from many active managers why too much index investing is very dangerous and might end in a total collapse of the stock market. While there might be a (smallish) probability for this scenario, it sounds a little bit like the typical “Old man shouting to the clouds” cartoon.
On the other hand, the article also doesn’t really cover that as a whole, Active Management just has never really justified its rather significant cost.
In the “good old times”, active funds had been the gate keepers between individual investors and the stock market with the only alternative being stock brokers.
These days however, the ease of buying an ETF and the low cost is clearly a very attractive value proposition compared to “classical” funds where often still an intermediary is clipping an additional fee (and or the bank).
Only claiming that there will be Doom with too many passive structures is not so convincing and rather looks like an attempt to scare regulators in protecting the still very profitable business of underperforming asset managers and wealth advisors.
In my opinion, these days an active manager really needs to have a more convincing story than just that one from Mr. Evan-Cook. Your really need to offer something to investors that they can’t get through low cost Index ETFs which is not so easy.
They argue that the opposite is true: As the remaining ones are the smart ones, there are not enough “patsies” to make the “big hay”:
In any case, it will be interesting to see how the active vs. passive debate continues, but there won’t be a magic turnaround any time soon in my opinion. Index ETFs are here to stay and the Active Management industry really needs to find ways to create actual value for investors in some way.
2) Momentum
In the letter, it almost seems that Terry Smith has written parts without looking at the whole “enchilada”.
On page 3&4 he shows a chart that Momentum is dangerously high as last seen in 1999 before the Dotcom Boom. And then, only a few pages later he writes the following:
We will take more account of momentum — both fundamental and share price — in our investment decisions. In particular, we will be much less willing to deploy the time-honoured technique of buying quality companies when they hit a glitch
As some of my readers might remember, I did start to include momentum into my decision process a year ago. But in a less drastic way than Terry Smith and more “gradual”.
In my comprehensive Scoring system, Momentum is reflected by 4 indicators as part of an overall score that also includes “Quality” and “Valuation”:
For “momentum” my crude assessment looks as follows:
Current EPS momentum (i.e. EPS LTM is higher than the previous year): 1 Point if Yes, 0 otherwise
Stock price is above the 200 day moving average 1 Point if Yes, 0 otherwise
The stock price performance of the last 6 Months (1 Month lag) is positive or negative (1 Point of Performance is > +5%, -1 point if Performance is <-5%, 0 points otherwise)
The stock price performance of the last 12 Months (1 Month lag) is positive or negative (1 Point of Performance is > +5%, -1 point if Performance is <-5%, 0 points otherwise)
So overall, my “momentum score” can go from minimum of -2 to a maximum of +4 within a total score that can reach, including Quality and Valuation, scores a total score of 18.
So for fun I just tried to score the stocks that Fundsmith sold and bought. Here is Terry’s summary:
And here is the table scoring Terry’s stocks, both, the buys and sells with my crude momentum measure:
Two things stand out in aggregate:
The stocks that he sold, on average, look indeed worse from a momentum perspective than the ones he bought. And the stocks he sold are a lot cheaper than the ones he bought.
It’s also interesting that only 3 of the stocks he bought would get a maximum Momentum score in my system (GE Vernova, TSMC and Nextpower). Some of the stocks have rather negative Momentum under my definition (Uber, Netflix & Veeva).
It’s also obvious that he wanted to have some exposure to the Datacentre /AI theme via TSMC, GE Veronica, NextPower, Legrand and maybe UBER.
Overall it looks to me that he still focuses on fundamentals but looks for more “positive fundamental momentum”.
One question I have been asking myself is why he didn’t sell some of these stocks earlier. One example which I have looked into under another context is Essilor Luxottica. Here is the chart of the implicit NTM PE over the past 10 years:
We can see that until the end of 2025, the stock was valued at 40x NTM P/E, far above the average.
If we look at the margin and Return on Capital ratios over time we can see that after the merger between Essilor and Luxottica, margins never recovered there previous level and Return on Capital was a depressing mid single digit.
That begs the question why you would want to own such a stock at such a valuation in the first place.
Anyway, Terry Smith clearly now wants to avoid “unloved” stocks and is looking to invest more into stocks that do at least from a fundamental perspective well, even if the new stocks are on average significantly more expensive than the sold ones.
With such an approach, in my opinion, his “do nothing” mantra won’t work, because in the current environment, fundamentals can change ven more quickly than before.
It will be interesting to see if and how fast he will turn over his portfolio going forward.
3) If and how to shift/pivot/adapt an investment strategy
One “peer” to Terry Smith is Nick train from Linsell Train funds who has a similar “quality focused” approach. In his 6M letter (Global Fund) however, he is rather adding to his losers than selling them. One prominent example is Intuit:
But buying a consensus AI loser stock today doesn’t mean arguing no risk from AI (or anything else we haven’t yet seen coming). It means taking a calculated risk, based on
likelihood and the trade-off with price, and accepting the emotional discomfort of appearing unconventionally wrong. To give a pertinent example, Intuit was easily the Fund’s worst performer in June, declining 21% in USD terms, down now nearly two-thirds from last year’s highs. Whilst 2025’s valuation was arguably steep at a c.2.5% free cash flow yield, the collapse to what is now over 10% feels egregious. As above, we think it likely that the prior
bullishness resulted from the general extrapolation of past successes – with, it must be said, some justification: Intuit has grown revenues organically at double-digit rates every year this decade, whilst its EPS is up 4.5-fold versus FY2016. But the forward bearishness, predicated we assume on acute (but typically unsupported) fears of AI disintermediation, feels disproportionate. The non-GAAP multiple on next year’s EPS (which management still guide to grow at c.16-18%!) is now down to 11x. To achieve a normal nominal return (say the US market’s historic 9% p.a.) now implies negative forward earnings growth. As little as a year ago, analyst debate focused on whether Intuit could sustainably hit 20% revenue growth versus the prior mid-teens rates
I think the Nick Train vs. Terry Smith “contest” is an interesting case study on the merits of changing your investment approach abruptly.
One needs to mention that Nick Train’s track record for this fund is even worse than Terry Smith’s, underperforming the MSCI World by a pretty wide margin since inception in 2011:
Overall, I think in every long investment career, it will be necessary to change and adapt one’s approach to investment in order to stay relevant.
The most famous example here is Warren Buffett who changed his approach fundamentally at least 2 times. From Graham Deep Value to Quality to “Full scale take-over conglomerate” investing. With his initial approach, he would never had been able to reach the size that he has reached today. The same with listed-minority investments in general.
From what I have seen, a rapid increase in AUMs for any manager is often in the end much more a curse than a blessing. Yes, you earn a lot more fees but unless a manager significantly adjusts the strategy, returns will suffer after a certain increase almost inevitably.
The question is clearly how to do this in a way that does not create confusion on the investor side and is hopefully constructive for the future results.
In Terry Smith’s case, I am struggling a little bit with his previous mantra that “do nothing” is the one and only thing and then abruptly change that within a 6 month period. My feeling would have been that he should have toned down the language a little bit earlier already, unless he really did this pivot on short notice.
In Nick Train’s case, doing nothing (or not much) after now being down since inception is maybe also not 100% optimal.
For a lot of institutional investors, 3 years are maybe the maximum they can tolerate underperformance before they pull the trigger. Both Fundsmith and Lindsell &Train are clearly past that mark.
From my perspective, every active fund manager should realize that luck is a big part of the game and when things are good, one should give some credit to good luck instead of claiming all the outperformance due to superior skills. I guess that might make things a little bit easier when inevitably things don’t look so great.
In any case, I do think that a shift in strategy should be prepared and executed including relevant and documented changes in process and also personnel.
What you clearly also need is some patience. Don’t expect that a structural change will improve performance on day one. This will need time.
In any case, as mentioned above, Active Equity Management is facing a lot of headwinds any way, which makes it even more difficult to dig yourself out from an “performance hole”.
Summary:
It is obviously too early to tell if and what we can learn from Terry Smith’s recent actions, but on the surface they look a little bit like a “panic move”.
Going forward, Lindsell & Train will be a good comparison because they seem to keep doing what they have been doing and are even doubling down on their losers.
In any case, for me personally it is clearly some kind of evidence that completely ignoring “momentum”, being fundamental or purely stock price driven is not a good idea. “Do nothing” in my opinion is harder than ever and maybe not the dominant strategy going forward. In my opinion, using momentum as an additional factor in stock picking and portfolio management can clearly improve the process to a certain extent.
value and opportunity 