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Momentum has been the defining factor in equity leadership over the past couple years, and Bill Nygren’s fourth-quarter commentary captured that dynamic directly. He opened with a familiar market aphorism, noting how investors once leaned on sayings such as “Trees don’t grow to the sky” and “Bulls can make money, bears can make money, but pigs get slaughtered” to frame expectations around mean reversion. Yet, as he put it, “the past few years have made a mockery of that advice” as trend persistence rewarded those willing to chase strength.

The most revealing part of the letter highlighted just how extreme momentum has been. Nygren wrote that the simple strategy was to “Buy the stocks that have already gone up the most! Just buy those stocks, sit back, and rebalance quarterly.”

The data justified that approach, with the top momentum quintile posting cumulative gains that “produced nearly double the S&P return in 2025.” He added that over the past two years, investors were rewarded for believing, “What goes up keeps going up.”

However, Nygren noted that the standout period for momentum ranked alongside the late 1990s, observing that “the past two years are the next highest” behind the dot-com era.

He referenced the historical parallel again with a comment that he was “hoping that is foreshadowing because that was an exceptionally favorable time for Oakmark performance.”

Where momentum concentrated capital, valuation spreads widened. Nygren pointed out that since 2022 “the S&P 500 P/E multiple has increased by 5 points… or 31%,” while “the multiple of the average stock has only increased… 7%.”

From a value investor’s vantage, that divergence creates an entry point: “When we look at the performance of average stocks compared to stock market averages, we see opportunity.”

He contrasted Oakmark’s positioning against index composition, stating that “our portfolio has never looked so unlike the S&P 500” and that due to concentration, Oakmark’s correlation to the index is “at its lowest level since the dot-com bubble.”

That structural difference was framed as beneficial because “risk declines when the assets composing a portfolio are less correlated to each other.”

Nygren challenged conventional indexing habits by emphasizing that “the S&P 500 has become much riskier and therefore more akin to a concentrated growth fund” and argued that investors can “both increase expected return and lower risk” by reallocating some exposure. He closed by reminding readers that “what goes up still must come down,” suggesting an environment where factor leadership may rotate in 2026.

You can read the entire letter here:

Bill Nygren Letter Q4 2025

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