Author: Bill Smead

There is a big difference between betting on something and investing in meritorious companies with long holding periods. Although we are no longer shareholders of Berkshire Hathaway, Warren Buffett shared some wisdom with everyone recently. He made a reference to the stock market looking like a “church with a casino attached” and the stock market in general looking less than “ideal.” Through the lens of our missives of the last six months, we will unpack these thoughts. […]

Almost everyone is attempting to sort out the ongoing investment ramifications of the U.S. effort to eliminate Iran’s ability to attack their neighboring countries. We would like to think of this from multiple angles via the academic disciplines of history, math, economics and psychology. In doing so, we would like to gain perspective on how it could affect investments and performance. […]

[…] Effectively, in our way of viewing, the U.S. stock market, as represented by the S&P 500 Index, is in a two-strike count. Valuation, psychology, history and economics all argue that this is maybe the most expensive stock market in history. What this means is swinging for the fences is a bad idea, and wise investors should look to hit the ball where it is pitched. This is where they are given a favorable risk-reward relationship over the next five to ten years. […]

There are two sides to the current stock market. One side, ignorance avoidance, requires us to know where the money is. The other side, stock selection, is to know where the money is going. Since Willie Sutton knew where the money was, he robbed banks. We will discuss where the money is now and where we think it will go. […]

[…] In psychology, there are two main forms of rejection (duration and magnitude). For those of us who know history and appreciate the rhymes that Twain taught us, this mania has already lasted longer (duration) and been more all-encompassing than the DotCom bubble (magnitude). It has taken the S&P 500 Index to a more expensive position relative to most of the respected valuation metrics (Schiller CAPE, Buffett’s stock market indicator, US household equities as a percentage of US financial assets), to name a few. And anyone who stays late at this party could run the risk that Cinderella took at the ball. Warren Buffett said, “At midnight, everything is going to turn to pumpkins and mice! But the trouble is, there are no clocks on the wall.” […]

My first experience with a major economic/stock market bubble was the dot-com bubble of 1998-2000. Many investors forget that the Nasdaq and S&P 500 Index bubble that ended March 10, 2000, was the first bubble in a series of three bubbles. In this missive, with the help of the band Foreigner, we will walk through the three bubbles that cursed investors from early 2000 through 2015. […]

One of the things we have in common with Warren Buffett is that we started our risk-taking career handicapping at racetracks. Buffett handicapped the horse races in Omaha, and I handicapped greyhound races near Portland at Multnomah Kennel Club in Gresham, Oregon. Buffett was too young to bet, so he created a tip sheet which he sold at the track. I was in college and most of the time was sending bets with my relatives while working swing shift at the Crown Zellerbach paper mill in Camas, Washington. […]

As summer comes to a close and life adjusts back to normal for most of us, we thought it was a great time to get back to basics and take a look at the current U.S. stock market. Our basics include owning strong companies that fit our eight criteria for stock selection, primarily in industries that are out of favor, as well as multi-year winners that we allow to compound for years. As we have echoed Warren Buffett for years, sins of commission hurt (buying losers 30% of the time), but sins of omission can hurt long-term results and affect long-term returns immensely more than losing duds. […]

[…] We own a portfolio of stocks that are massively under-owned by the S&P 500 Index and, in many cases, out of favor among active stock pickers. Stock picking itself is well discredited by the momentum of the last 15 years. Healthcare and energy are as small a part of the index as they have ever been. In a stock market that could become difficult at some point, we feel we are at a competitive advantage over most participants.

Our long-time investors are probably wondering why we haven’t made any gains over the last 18 months. First, we have no ability to predict what already popular stocks will stay or get more popular. This includes tech stocks, AI stocks, wide-moat high-quality consistent growth stocks and up and coming future tech leaders. Momentum has been the single best of the factors in factor investing for 15 years! We are paid to be greedy where others are fearful and fearful when others are greedy. To say we’ve been fearful would be an understatement. […]