Richard Rooney is underperforming the market and proud of it.
In an essay posted online, the co-founder and former chief investment officer at Burgundy Asset Management Ltd. shared ideas from a speech he gave to fellow value investors in the run-up to the holidays, about why he’s excited to own stocks that most fund managers avoid.
Anyone who curses themselves, or their portfolio manager, for missing out on this AI-fuelled market by not buying Apple Inc. AAPL-Q, Nvidia Corp. NVDA-Q or any other members of the so-called “Magnificent Seven” can take comfort in his stoic stance.
Mr. Rooney’s portfolio at Toronto-based Burgundy – a $27-billion fund manager sold by its employees this summer to Bank of Montreal – trails almost all its peers on performance over the past one and four years. Rather than being a source of shame, the veteran investor called it a “position of enormous strategic power.”
“It is almost impossible for me to show deteriorating relative performance from here,” Mr. Rooney wrote. “That may sound like a joke, but it is actually not.”
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Mr. Rooney’s strategy, honed over more than 40 years of stock picking, is to buy and hold companies with “good balance sheets, reasonable growth prospects, intelligent capital allocation, and unchallenging valuations.”
After being distinctly unfashionable for the past decade, that common sense, value-investing approach finally seems suited to the times.
Mr. Rooney isn’t predicting a crash in tech stocks. In fact, he dismissed speculation there could be an AI-inspired bubble in today’s markets that brings on a correction similar to the tech wreck in 2000.
His reasoned take is market leaders such as Apple, Nvidia and the large-cap companies are sound businesses, while many early internet-era stock plays were no more than unproven concepts. However, these market leaders cannot keep up eye-popping stock performance.
“Owning these truly great companies is probably fine for the long term but expecting them to continue to produce the kinds of returns they have generated in the past decade is naïve,” Mr. Rooney wrote.
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Stocks that make up the Magnificent Seven would need to quadruple in value over the next decade to justify their lofty multiples, according to Burgundy’s calculations.
While he’s not predicting a crash, Mr. Rooney said today’s market is far more complex than what fund managers faced a generation ago.
“If 2000 was a game of checkers, 2025 is a chess match,” Mr. Rooney wrote. “The number of variables and risk factors in 2025 is vastly greater.”
Trade wars, crypto, private credit and debt-fuelled government spending are making it far more difficult to anticipate where markets are going.
“The current equity market is probably the most distorted in history,” he wrote.
The shift to value investing Mr. Rooney has awaited may have already begun. Over the weekend, The Globe and Mail listed the 2025 Megastars of the domestic equity market.
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The top 20 picks for value and momentum include the sort of companies Burgundy embraces, such as financial services conglomerate Power Corp. of Canada, telecom Quebecor Inc., equipment supplier Finning International Inc. and printer Transcontinental Inc.
All of these stocks turned in more than 50-per-cent returns last year, outstripping the one-year returns from Magnificent Seven members Apple and Nvidia.
Mr. Rooney ended his thoughts with a line to remember heading into the new year.
“One of the great and horrible things about the stock market is its endlessness,” he wrote. “Nobody ever rings the bell and declares you the winner. The scorecard never ends, and this cycle’s great ideas are next cycle’s disasters.”
Value managers such as Burgundy, whose approach has been out of fashion in recent years, can only see their performance improve. This cycle’s Magnificent Seven heroes seem likely to struggle to match historic returns.
Looking ahead to the markets in 2026, Mr. Rooney concluded by saying: “It sometimes seems biblical: the first shall be last and the last shall be first.”