Author: Cole Smead, CFA

The investors of Smead Capital Management have been hearing us talk about ‘First World Problems’ recently. These are undoubtedly problems, but (in a manner of progress) are vastly different problems than we had before. Therefore, we feel we’ve solved the problems of the past and have opened ourselves up to new problems. This is like moving forward from pre-algebra to algebra in math. Our parents would be proud. […]

What has taken place in 2022 is nothing short of a man-made problem. The question is if you looked upriver, could this have been avoided? While it could be argued that Putin invading Ukraine was unexpected, the policy decisions and structure of the global energy markets have been shaped for years. It reads like the lamp in the movie A Christmas Story: Fragile. Besides structural issues, there have been pressures imposed on these structures that were unforeseen when they were built. These were exactly the pressures that caused what we now know as Chernobyl. […]

[…] Ideological thinking has run amok in the allocation of capital. This has transpired from government edicts and will, a typical creator of a bubble. It is promoted by the promoters, who are another element of bubbles. Their love child is what we now refer to in the investment business as ESG. […]

[…] Chairman and largest shareholder, Harold Hamm, is trying to own our shares of Continental Resources (CLR US) at a price of $70. We’ve seen it trade above there in the open market in the last month. How strange? Warren Buffett is bidding on a regular basis to buy shares of Occidental Petroleum (OXY) from other existing shareholders. The stock isn’t sprinting higher on this news. How strange? These are historically control investors who don’t mind playing for keeps. […]

Academics argue that there are three proven factors of investing: Value, quality (Asness’s QMJ) and momentum. For our discipline, we don’t believe we can add alpha in the latter. Momentum is a weird thing, though proven. To emit a yogi-ism, you either have it or you don’t. Value and quality, in comparison, are easier to price in the security analysis of our investment discipline. While investors have looked at the last decade of failure in value, we would conjecture a new question. Just as no one thought that the brightest academic minds could have produced the failure and banking crisis of Long-Term Capital Management, what if another factor fails terribly for an elongated time? To put it simply, what will happen When Quality Fails? […]

The future is always unknown. One of the most common fallacies that we’ve heard over the last two years is investors saying to us what the stock market or bond markets are telling us about the future. We find this interesting because it doesn’t tell you anything. As Buffett says, these market prices can serve you, but they can’t instruct you. We would like to share a couple of historical examples to settle this debate. […]

The news of Berkshire Hathaway’s purchases in Occidental Petroleum (OXY) has been seismic in our minds, but to most investors it has been but a whimper. We believe there are two main reasons for this. First, Buffett hasn’t had a hot hand in recent years, so the normal copycats aren’t quick to repeat Buffett’s actions. Second, he’s buying an oil company. Oil has been a three-letter swear word to most investors. Therefore, it’s been much ado about nothing. […]

[…] Buffett wondered if there was something in the water in Omaha. We know it wasn’t the waters of the Pacific. It was the people and their traditions. They practiced a craft that was learned from others, who had mastered it before them. Like these traditions, great investors have left behind things for us to study and refine the same practices they used, applied in today’s world. This is not dissimilar to what the people groups of the Pacific did. They migrated people, customs and culture toward a destination using mastered skills despite unknowns along those journeys. We are blessed to understand their story that helps contextualize our role from the teachings of people like Graham, Buffett, Templeton, Lynch and other great investors. We know this accomplishment may be against the odds perceived by the western world.

[…] In my 15-year career in the investment business, I don’t think there has been nearly as much weight to making money as there has been in limiting volatility. This creates a good picture of what investors will focus on. It also leaves the stock markets with a problem. If stocks have more volatility than in the recent past, investors will pay less for a broad basket of stocks like the S&P 500 Index, regardless of its underlying economics. Again, they’ve only been trained to pay for or reward strategies and assets with less volatility. […]