Author: Bill Smead

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. […]

[…] History would argue that we have years of higher oil and gas prices ahead of us, especially if the Communist Chinese release their population from its COVID-19 imprisonment and start competing on the world economic stage. Therefore, we are making every effort to over-weight our oil and gas stocks despite their stock market success in 2021 and 2022. […] 

[…] What was going on in 2012 that made home builders so depressed about their future? What should you have done in 2012 with the shares of D.R. Horton (DHI) and Lennar (LEN) in response to the NAHB survey? What is going on now for home builders which makes them so uncertain and depressed about their future? Lastly, how should we as investors react to this sentiment? […] 

The era of the dynamic sales growth tech company, with a religious quality to its leadership, appears to be over. Who are these mega-dynamic leaders? What was the key to their extended success in business and the stock market? How long will it be before these former powerhouse stocks get interesting again? In other words, when will Humpty-Dumpy get put back together again? […] 

[…] Newton’s First Law of Motion states that an object in motion tends to stay in motion unless an external force acts upon it.

In the year 2022, we have been reminded how efficiently the stock market facilitates moving money from impatient people to patient people. A bull market in stocks tends to stay in motion unless an external force acts upon it. In this case, the external force is the price of money. […]