Navigating Style Drift
The high cost of learning new tricks in pessimistic situations
Investors have styles. For professional money managers, this is often a matter of legal mandate - they’re boxed into buying only bonds, or equities, or sticking within a specific market-cap fence. But even for the rest of us, individual preferences inevitably bleed through. We label them with neat terms like “Value,” “Growth,” or “Momentum,” but the reality is often more subtle.
The Evolution of the Greats
Style is a byproduct of experience, market conditions, and who you’ve been listening to. Take Warren Buffett. He started his career hunting for “cigar butts” - statistically cheap businesses with one or two puffs left. It was Charlie Munger who convinced him to shift toward “quality at a reasonable price.”
That style switch allowed Buffett to move into much higher market-cap fishing grounds. Had he stayed a cigar-butt purist, he likely would have had to return capital to investors just to keep his focus on those companies. Instead, that drift paved the way for Berkshire to become the behemoth it is today.
On the other end of the spectrum sits Neil Woodford. Once celebrated in the UK for his success in large public equities - often with a quasi-activist tilt - he later pivoted into significant exposure to unlisted companies1. That stylistic shift proved fatal when liquidity mismatches forced fund suspensions and ultimately the collapse of his flagship funds. Though, given his track record with public entities, he may yet have a successful second coming.
The Double-Edged Sword
Sometimes style drift is healthy. As you accumulate experience, your mental models sharpen. You suffer losses. You refine. You discard tools that don’t serve you and learn to use others more precisely. I’ve experienced this personally: I went from having zero exposure to options, to being a regular trader, to losing money, and finally to using options as a pointed tool - something used infrequently and only in surgical situations.
On the other hand, style drift can be incredibly frustrating. When your old mental models no longer apply, the “frequency of the catalysts” changes. Quarterly reports start looking different than what you’re used to, and that gap between expectation and reality causes significant mental agony.
Why I’m Thinking About This (Because It’s Happening to Me)
Over the last year, I’ve realised I am currently navigating two distinct style drifts.
First, the shift from Diversification to Concentration. My portfolio moved from being over-diversified to being concentrated. Suddenly, I’m exposed to the vagaries of individual annual reports. In the old days, a scathing write-down in one stock might cost me 0.8% of my portfolio; now, as with Stellantis, it costs me 1.5%. When a large allocation falls out of favour - like Berkshire currently - it becomes a massive drag that nothing else can easily compensate for.
Second, the shift from Quality-at-Fair-Price to Value/Turnaround.
I used to own companies with proven track records and positive momentum, even if they were a bit costly. Now, look at my 2025 additions: Harley-Davidson, Stellantis, Facilities by ADF, Crocs, Novo Nordisk, and TheTradeDesk. Each of these was sizably down from its peak when I bought. While that made them attractive, there were ample market indications that they wouldn’t provide positive returns in the short term. The hard truth is now appearing in the quarterly reports: Harley is selling fewer motorcycles, even if the capital allocation story remains intact.
It is a novel, frustrating feeling. I am used to seeing earnings go up collectively at the portfolio level, even if one or two stocks lag. Right now, that collective growth isn’t there.
The Waiting Game
The more I think about it, the more I reach the same conclusion: To expect these companies to magically turn around within two or three quarters is lunacy. Once the market signals its pessimism (through a significant downrating of the stock), you have two choices: be a master of entry timing (which is a rare skill I distinctly don’t possess), or wait it through. The hope is that the entry price was low enough that the short-term downside is contained, and as the situation eventually inflects, the returns show up.
Or, they may not. It is entirely possible that this cohort of selections - or my analysis of them - is flawed. The only way to find out is to have the discipline to see it through.
Final Thoughts
Style drifts are real. Expanding your style can increase your “fungibility” as an investor, but it comes with intellectual and mental challenges. You have to have the stomach to follow the process to its conclusion, whether it rewards you or not.
I’m becoming more conscious of my own drifts - from diversified to concentrated, and from quality to “cigar-butt” turnarounds. I’m determined to learn from both.
What’s been your experience with style drift? Have you ever changed your “fishing grounds” only to realise the water was choppier than expected?
On that note, happy investing!
Documented very well in the book - Built on a Lie: The Rise and Fall of Neil Woodford and the Fate of Middle England’s Money, by Owen Walker