Author: Seamus Sullivan

The phrase “majoring in the minor” refers to focusing excessively on trivial details while neglecting more important aspects of a situation. This analytical flaw is especially prevalent in today’s investment environment. Quarterly earnings often overshadow the durability of a business’s long-term competitive advantage, with growth being prioritized over profitability and the scarcity of assets. This shift towards short-term investing has been gradual, but it is more pronounced when we consider the reduction in the average stock holding period by mutual funds, which has dropped from seven years in 1960 to less than a year today. […]

[…] Cycles are an inescapable attribute of markets just as in nature. Cantillon’s theory helps further illuminate how these cycles are created and behave within economies. It also explains why we find oil and gas companies so attractive. Since 2014, most have written off oil and gas companies as perennially un-investable for a myriad of reasons, many we have covered in previous missives. What is often not taken into consideration is how the role of monetary interference and the Red Queen Effect have fundamentally altered the oil and gas companies for the better. Both are critical factors that compelled these companies to evolve in order to compete in this new environment. […]

[…] At Smead Capital Management, prioritizing independent research is not only integral to our evolution as investors but also reflects our commitment to those on whose behalf we invest. Being different is inherently uncomfortable in every possible way, and although it doesn’t guarantee superior returns, we consider it a prerequisite for potential outperformance. As Marks put it, “The real question is whether you dare to do the things that are necessary in order to be great. Are you willing to be different, and are you willing to be wrong? In order to have a chance at great results, you have to be open to being both. […]

The year 2008 and the subsequent Global Financial Crisis (GFC) stand as a watershed moment in the annals of our capitalist society. It was a bailout prompted by poor capital allocation, deficient risk management, and unchecked greed. More significantly, it marked a seismic shift, both financially and psychologically. Financially, it represented a substantial transfer of debt from corporate and private balance sheets to the balance sheet of the US Government. Psychologically, it sent a clear message to investors: if you are deemed systemically important, the degree of risk mitigation employed matters little in terms of being held accountable. […]

[…] We have taken the view that our eight criteria for stock selection will guide us to invest in great companies at very favorable valuations allowing us to be able to compound our returns over the long term. We don’t particularly care what the theme of the month or year is. This style of investing, while superior over the long run, takes a balanced blend of humility, conviction in the research process and a willingness to take risks through a contrarian asset allocation. It’s easy to say but very hard to do. It is our willingness to follow our process and invest regardless of the conventional market view that we believe sets us apart from our peers (particularly ETFs). This is not just something we say, a quick glance at our portfolio demonstrates it’s what we do as well. […]