Author: Smead Capital Management

Now that investors are reconsidering active stock picking and are especially interested in value stock strategies, let’s analyze where excess stock market returns come from. Excess return, or alpha, comes in four basic ways. Alpha can come from stock selection, selection timing, concentration and long holding periods.

As Amazon prepares to buy MGM Studios and announced an effort to put pharmaceutical stores all over the U.S., we are reminded of one of my favorite comedy movies, Silent Movie. Mel Brooks produced this movie as the third in a trilogy of comedies including Blazing Saddles and Young Frankenstein.

My recent reads have been stuck in the 1960’s, including Adam Smith’s The Money Game and Andrew Knowton’s Shaking the Money Tree. Both are fascinating reads into the psychology of the 1960’s. They are not looking back like John Brooks’s The Go-Go Years (a good read as well), but instead share with the readers exactly what investors were thinking at the time. The 1960’s didn’t set up investors for the decade they thought they would get. Instead, it gave them the 1970’s. The success ahead was an illusion in stock returns, not corporate growth. I’d like to use this piece to look at some of the illusions that will stalk investors and produce stock market failure in the next decade.

On May the 17th of 2021, Discovery announced a merger with the media assets of AT&T. After an initial burst of enthusiasm, investors have turned sour on the deal. We have been through a very similar experience with Discovery (DISCA) back in November of 2017 and believe that these circumstances “rhyme.”