Wedgewood Partners, an investment management firm, has issued its investor letter for the fourth quarter of 2025. The company reported a net return of -1.8% for its Composite during the quarter. This performance trailed the S&P 500's 2.7% gain, the Russell 1000 Growth Index's 1.1%, and the Russell 1000 Value Index's 3.8%. For the year to date, the Composite gained 4.3%, while the indexes returned 17.9%, 18.6%, and 15.9%, respectively.
The firm stated it anticipates stronger market volatility in the coming years and has moderated its enthusiasm. Its long-standing focus on high-quality stocks, which has worked since 1992, did not succeed in 2025. The letter attributed the underperformance to poor stock selection, valuation corrections for past strong performers, and a structural underweight position in AI stocks.
Looking ahead to 2026, the letter noted that crowded AI investments and stretched valuations are creating pressure on prudent investment decisions.
PayPal Holdings, Inc. was specifically named as a detractor from performance in the quarter. On January 16, 2026, PayPal stock closed at $56.88 per share. It recorded a one-month return of -4.88% and has lost 38.04% of its value over the past 52 weeks. The company's market capitalization is $54.337 billion.
In the letter, Wedgewood Partners provided commentary on PayPal. The firm stated that PayPal reported healthy volume growth of 8% across its branded checkout portfolio, driven by 10% growth in the U.S., leading to 12% growth in adjusted earnings per share. However, PayPal also reported a slowing in volume late in the quarter, a trend attributed to a weaker macro environment and slower-than-expected uptake of new checkout initiatives.
Additionally, the company announced it would make meaningful investments in the emerging agentic commerce industry, partnering with AI developers to integrate PayPal into platforms like ChatGPT and Perplexity, along with Alphabet's agentic solutions. Wedgewood Partners trimmed its PayPal positions during the quarter, believing that combined slowing transaction volumes and heightened expenses would result in slower profit growth than previously expected.