Author: Bill Smead

[…] We are very late in one of the greatest growth stock investing games in history. Technology, an investment sector with a few huge winners and mostly flame-out startups, has been on a roll dominated by the largest companies in the sector. These largest wide-moat monopoly stocks have feasted on nearly uninterrupted momentum. […]

Watching Warren Buffett and Charlie Munger Saturday in Omaha caused us to think about a very popular 1960s TV show called, “The Dating Game.” Hosted by Jim Lange, the game was played with the host on one side of a wall with a male or female contestant. On the other side were three people of the opposite sex and they were attempting to answer questions and get a date. The political pressure against oil drilling and exploration makes “dating” look very attractive to us in the oil industry! […]

[…] Charlie Munger said, “This is the biggest financial euphoria episode of my career [75 years] because of the totality of it.” It would only make sense that this episode would die harder than any other prior euphoria episode. And, for that reason, fear stock market failure.

We have been reminding everyone that we believe we are unwinding a financial euphoria episode that Charlie Munger called “the biggest of his career, because of the totality of it.” In the process of its unwinding, the sins committed during the euphoria episode will have a price to pay. Many investments got over-capitalized by nearly free money. […]

There were many good things to think about from Warren Buffett’s letter to shareholders which came out recently. In this piece, we’d like to drill down on two subjects that Buffett highlighted. […]

As a young stockbroker in the 1980s, I was very enamored with T. Boone Pickens. Pickens recognized the huge value that built up in common stocks in the inflationary 1970s and began to use the financial backing of the Junk Bond King, Michael Milken, to become an activist on Wall Street. His little company, Mesa Petroleum, started investing in undervalued large cap oil stocks and threatened to do large leveraged buyouts (LBOs) with the assistance of Milken’s firm, Drexel Burnham Lambert (my employer). […]

[…] Stock market history argues that the next bull market in stocks will emerge when all the sinful behaviors of the last financial euphoria have been cleansed from the system. It will be marked by stock market failure and there will be no urge to recreate the woogie-like euphoria of the prior period. We believe success in common stock investments will come from companies which benefit from persistent inflation and a relatively strong economy led by 92 million Americans aged 25-45 years old. Is it different this time?

A recession is two consecutive quarters of economic contraction. Historically, highly inverted yield curves like we have now are predictive of recessions. The 10 Year Treasury Bond interest rate has dropped from 4.3% at the peak to 3.5% currently, even as the Federal Reserve Board reinforces the idea that short rates will be taken above 5%. This has created very high short rates relative to longer-term rates reinforcing the recession predictions. […]

[…] In the stock-picking world of the last 40 years, we consider Warren Buffett, Charlie Munger, Peter Lynch, John Templeton and other long-duration value investors to be the “cool kids.” They took dramatically less risk by investing where others feared to tread and required a high margin of safety. They bought part of a company as if they owned the entire business. […] 

It appears to us at Smead Capital Management that investors are behaving in a way that will damage their capital and cause them to suffer stock market failure. In 2022, as the favorite tech stocks of the last ten years got trounced, individual investors poured $100 billion into mutual funds and ETFs dominated by ownership of the very stocks which have created the most damage to their results. We get asked all the time if we are stepping up to the plate on stocks like Apple and Google, for example. […]