Author: Bill Smead

We operate under the premise that alpha can be generated by stock selection, courage, concentration, and long-duration holding periods. In today’s missive, we will talk about long-duration holding periods through the lens of our current concentrated position in the oil industry. […]

We were watching CNBC recently and an analyst mentioned what practically nobody besides us has said. She called Amazon’s (AMZN) entry into the grocery business a “failed experiment.” Amazon has been very successful with its Prime subscription model in other areas. Why do experiments usually fail, even among companies which have made other experiments succeed? As the stock market grieves the mass destruction of capital in the early stages of the tech/growth bear market, let’s delve into this very important subject. […]

[…] This brings us to Chevron CEO, Mike Wirth. So far, he has neither joined with the European oil producers, who have drunk the ESG Kool Aid. Nor has he led the company to take full advantage of the stock market circumstances/low interest rates and followed up on what he believed was a “perfect fit” nearly three years ago. He needs to figure out what Chevron is going to be. Will he be like the European major oil producers or will he seek to be an oilocrat like Harold Hamm? […]

Most professionals who employ our strategy are wide-asset allocators. We fill a sleeve in the U.S. stock ownership category and for most, that is in the large-cap space. We compete with other value funds and ETFs, which represent themselves as value strategies. Using the James 1:27 test, how do we stack up at the beginning of 2022 with other value strategies and large-cap managers that are portrayed as value managers? […]

[…] Warren Buffett says, “Invest in a company as if the stock market won’t be open for the next five years.” At Smead Capital Management, we try to do in already public company shares, many of the same things that Blackstone has done in private equity. First, we seek value in undervalued assets and underestimated business models. Second, our people are invested side-by-side with our investors.

Third, we like to make investments which meet our eight criteria for common stock selection at what John Templeton called, “The point of maximum pessimism!” He said, “If you can see the light at the end of the tunnel, you are too late!” Fourth, we try as much as possible to patiently wait for wonderful companies to get dumped into our lap by temporarily difficult and distressful events. […]

Overall common stock index performance can be a very confusing thing to most investors. From a cyclical standpoint, the history of stock price performance in the U.S. is closely associated with the Federal Reserve Board. When the Federal Reserve Board reverses an accommodative interest rate policy, it is affectionately referred to as “pulling the punch bowl.” Why do stock prices fluctuate with monetary policy and where are we in that cycle? Did the Federal Reserve Board Chairman, Jerome Powell, just “pull the punch bowl” on November 29, 2021?

Warren Buffett and Charlie Munger always refer to Aesop as the originator of investment logic. His first dictum was “a bird in the hand is worth two in the bush.” His second dictum was the fable of the “Tortoise and the Hare.” We have been getting many questions about the strength of our results and the strength of the stock market in general. We want to remind everyone that investing is a marathon, and in our case, Aesop’s marathon. […]

[…] Unless something bad happens to our very defensive list of relatively unpopular value-oriented names in the next two months, we could have the best year of the nearly 14 years of our strategy. Unfortunately for them, many investors would rather tell us what to buy, and that tells us that they will go off the cliff in the not very distant future. This means that we believe most investors will suffer stock market failure and dismal returns over the next decade. We don’t plan on being one of them.

[…] Therefore, based on history, what could happen as the bond market adjusts to much higher permanent rates of inflation as 90 million millennials replace 65 million GenXers in the key 30–45-year-old age bracket dominated by house and car purchases? Where will interest rates go and how will that affect the stock market that is overweighted in technology and multi-billion-dollar growth stocks? Which stock sectors can make money in a much more difficult stock market dealing with much higher interest rates and strong economic growth? […]

We have entered the phase when the body politic and public opinion are aware that Facebook is disturbing our society. This is very important to us as investors, because the big tech companies make up a disproportionately large part of the S&P 500 Index. The Sherman Antitrust Act was written and enacted because our early leaders were concerned about ruining this experiment in Democratic Capitalism. They felt that the most likely “disturbance” would be “the concentration of capital in vast combinations.” We believe we have reached that point with the FAANG stocks. […]