Author: Bill Smead

[…] This is truly a Noah stock market. Everything we have studied about common stocks, including “The Intelligent Investor” by Ben Graham, “A Short History of Financial Euphoria” by John Kenneth Galbraith, and from listening to the wise words of Charlie Munger and Warren Buffett for decades leads us to believe that we must build a common stock portfolio which will float when the multi-year bear market creates a waterfall of selling among magnificent growth stocks and passive S&P 500 Index owners. […]

[…]. The great Vanguard Windsor manager John Neff used to say, “When you want to brag about a stock, you ought to sell it.” What has been happening lately in our interactions with our current and potential investors all around the world is startling. Asset allocators are repeatedly telling us that if they sell any of their core position in the S&P 500 Index, they would get fired by their customers. In other words, the S&P 500 Index is “on top of the world!” […]

All portfolio managers practice a stock-picking discipline in which they make choices. Growth stock investors attempt to predict which companies will grow the most in the future and compare the growth they expect to what they have to pay to participate. Value managers try to buy companies that are available at a discount to the average stock in hopes of getting average to above-average company performance. We know people we admire in both camps and like to think about how an investor might try to draw from both investment styles. […]

The Federal Trade Commission (FTC) recently blocked the merger of Albertson’s and Kroger, which are the two largest stand-alone grocery chains. Their theory is that the merger would be anti-competitive and cause higher grocery prices. We find this to be another epic failure on their part to understand the purpose of the Sherman Antitrust Act as overseen by the Justice Department and the Federal Trade Commission. […]

Yogi Berra was a beloved, successful baseball athlete, manager, and cultural celebrity. An entire book was written about his verbal amorphisms. One of my favorites was when he said, “It’s déjà vu all over again!” For us as investors, we can say that this is déjà vu all over again as we practice our stock picking discipline. […]

How does the euphoria for stocks in the days after the 1980 election contrast with today’s Trump election euphoria? What were the fundamentals of the 1980 stock market compared to today’s fundamentals? What interest rates were paid to borrowers of money? We will make the case for very useful contrarianism in the aftermath of the current stock market euphoria. […]

Dow Jones (publisher of “The Wall Street Journal”) announced that Nvidia (NVDA) will replace Intel (INTC) in the Dow Jones Industrial Average. Intel was brought in to replace Union Carbide four months and nine days before the peak in Intel’s stock price. Union Carbide became Dow Chemical via merger. The shares of Intel are down markedly over nearly 25 years in price and provided a total return of 3.2%. Dow and its components gave a 326% total return over those same years. […]

Two major labor unions, the Dock Workers Union and the Boeing Machinists Union, have attempted to reach an agreement with their employers on a contract. The dock workers agreement proposes an average 8.5% per year wage increase over six years, and the Boeing Machinists Union’s proposal is for an average 7.5% wage increase over four years. The dock workers will get paid 62% more in six years than today, and, if ratified by their members, the machinists will get 35% more in four years. […]

[…] Our solution to these circumstances is running a concentrated portfolio of stocks that could be attractive to investors for reasons separate from the movement of the stock market itself. Oil and gas shares are offering an addictive legal drug and should do well in an inflationary environment where interest rates return equity risk premiums to normalized levels. Value has been relatively cheap for too long because there has been no reason to trust value for an extended period of time. Stocks like Target (TGT) and Merck (MRK) could do well from demographic sweet spots. U-Haul (UHAL) and home builders could benefit from the urge of 180 million people below 40 years of age to be “free to move about the country” to find affordable places to live. […]

We learned a long time ago that we wanted to know what smart professional investors were doing. It’s always better to know who is smart rather than being smart yourself. Therefore, we’ve constantly kept track of insider buying, what great investors like Warren Buffett and Carlos Slim were doing, and what the most successful hedge funds were up to. A recent chart stopped us in our tracks. […]