Author: Smead Capital Management

After watching “Forrest Gump” for about the thirtieth time recently, I realized that the US economy and US stock market share a great deal in common with Forrest. In this missive, we will be reminded of the journey of a true American folk hero and of the journey back from the abyss the US economy and stock market have made since early in 2009.

A great deal of time and energy is spent trying to determine when the current bull market in stocks will end. We at Smead Capital Management make no effort to time the stock market because after 33 years in the investment business I’ve never found anyone who did it successfully. We do try to avoid capital misallocation and thought you might want to look at the history of the investment asset classes to see how periods of popularity lead to misery and periods of misery lead to above-average returns.

On a recent business trip to Europe, we noticed—anecdotally—a lack of hope in the economic future of Europe. There is a good reason for the lack of hope. Hope, we believe, comes in the form of new life. When all of the austerity being practiced in developed nations around the world is pretty much done, something else needs to happen for economic growth to take hold. At Smead Capital Management, we believe developed economies need rebirth and the birth last week of a son to the Royal family is a watershed event. In our view, this kind of hope could be a critical factor in the success of the US large cap equity market in 2014 and beyond.

A long time friend once said, “Bill, on the stocks that worked it didn’t make any difference what you paid!” What he was referring to were the stocks which rose to many times your original purchase price and the investors who participated over the long run in the shares and ended up happy and wealthier. Is Wells Fargo (WFC) one of those companies and will Warren Buffett’s recent purchases get vindicated? As we enter the second half of 2013, this is a great discussion point for long-duration common stock investors in a market which has been strong since September of 2011. What matters most, stock market fluctuations or long-term ownership discipline?