Author: Cole Smead, CFA

[…] Let me also start this missive by saying that we at Smead Capital Management believe Jeremy Grantham is doing a great job of telling people how high the likelihood of stock market failure is. He’s trying to scare people and that is prudent advice. We tip our cap to him. We want to go into a second-level thinking discussion of how to take advantage of Mr. Market right now using Jeremy’s comments as a benchmark. […]

[…] Investors should fear death like Barbie did. We call it stock market failure. These valuations won’t go up like a six-inch heel. Flats may be more fitting for thinking about stock returns going forward. The only way to fight this for stock investors is to be scrutinous about the businesses you own and what you are paying for those stocks. In the Barbie movie, Ken wandered the real world trying to make sense of things. He only came to bad conclusions and never ended up with Barbie. Stock investors could be no different in their own fantasy land.

[…] Mr. Market knows that low ROE produces low multiples and high ROE produces high multiples. He’s just very manic when he is jaded. We are seeking high-return businesses that are mispriced. By God’s grace, there are a lot of jaded investors and a lot of mispricing in this space. We’re sorry that Mr. Market is jaded. The right business managers can take us places. These companies are lonely now and (in comparison) we love it. We are sorry that investors are jaded.

In October 2008, Warren Buffett penned an op-ed in The New York Times titled, “Buy American. I am.” Warren argued that though things looked terrible, he was buying stocks personally. He was selling government bonds he held to buy these securities. He argued how poorly cash would do at that time and in the foreseeable future.

Fast forward to today when Berkshire Hathaway (BRK) sits on $130.62 billion in cash. It’s not deploying capital very quickly via Warren, Charlie Munger, Todd Combs and Ted Weschler to investments, let alone stocks. There is one thing that has burned a hole in Warren’s pocket though: OXY. […]

My father and I both attended a small liberal arts college that was one of the strongest academic institutions in its region and was tough to get into. While it sat far away from the amenities of a large city and was historically weak in sports, it produced a lot of success out of its powerful educational rigor. It was also highly likely for you to marry someone you went to school with. The paradox that this marriage potential created at the college was that the odds are good, but the goods are odd. This is the statement that can be made for common stock investing today. […]

[…] In many respects, there is a three-point line that has arisen in the stock market, whether investors or money management firms recognize it. The higher percentage, two-point shots have come in the form of owning the S&P 500 Index or blue-chip quality American companies. However, the investors shooting these highly successful shots haven’t won in the stock market recently, particularly over the last 15 months. Instead, it has been more cyclical, capital-intensive businesses, or as we think about it, higher risk, like the three-point line. Energy companies, commodity-oriented businesses and other lesser-known industries have been putting the most points up on the board. […]

The news of the shocking OPEC+ announcement of a supply cut is saturating the minds of investors and market prognosticators. We would like to remind our investors of the longer-term implications of what we are seeing around the economy and markets pertaining to the energy business. We normally understand this from purely looking at the energy business, but also want to look at it from a technology lens. […]

The events that began with Thursday’s tumult in financial stocks and precipitated the FDIC takeover of Silicon Valley Bank and Signature Bank were swift. The only thing that ran through my mind was the regime change that we are continuing to see. This didn’t remind me of something I’ve seen personally before, but instead one of the best movies of the last 20 years, Argo. […]

On February 5, 2023, Charlie Munger sat down as the Chairman Emeritus of the Daily Journal Corporation (DJCO) to answer questions from shareholders and the public. We think of it as the question-and-answer session of the Berkshire Hathaway meeting with an extra serving of pithiness and wit. We at Smead Capital Management believe Mr. Charles T. Munger is one of the wisest people to walk the earth today, particularly in the category of worldly wisdom. We stand at attention anytime he decides to opine on subjects. I wanted to write on a few of the subjects he touched on as we believe they are helpful for our investors. […]

We are closing in on what we think may be the question of the decade. If a majority of stock market capitalization in the US is passive or indexed, does this cause problems for stock markets? Bloomberg columnist John Authers addressed this conundrum by saying, “Logic dictates that not all assets could be run passively. If that were to happen, the market would stop functioning and cease to have any use in pricing and allocating capital.” We disagree with the ceasing to function. Markets were made by God to clear, but one question remains: at what price? […]