Category: Missives

Headlines are popping up left and right about how high the 10-year Treasury yield has risen. While investors make decisions about what is the “right” longer-term cost of government debt, many journalists focus on single-factor ways of viewing it. They will support the ideas that it is tariffs, or government spending and so on and so forth. We will seek to provide a multi-factor view of this and discuss what investors are missing in plain sight. […]

For a quarter of a century, the hyperscalers have been some of the most profitable and technologically innovative businesses ever created. The reason was clear: their marginal cost per additional customer was almost zero. Costs were fixed and scale was effectively unlimited, which meant margins widened as volume grew. In the years before the current AI build, Alphabet earned 39 cents and Microsoft earned 61 cents on every dollar of capital . Paying 24 to 33 times profit to own them was aggressive but defensible. […]

As portfolio managers, we must practice what Charlie Munger called “ignorance avoidance!” Therefore, regardless of when the mania for all things AI dies, we believe there will be a bloodbath in the S&P 500 Index, and that would be “no country for old men,” who have built their financial futures around ongoing indexing success. […]

In my 45 years in the investment business, we’ve observed numerous peaks of excitement. In 1987, a bull market that started at a 1982 bottom below 800 on the Dow Jones Industrial Average (DJIA) peaked at 2,722. It then crashed 43% in 78 days. In 1990, just following a nationwide Savings and Loan Crisis, the S&P 500 Index bottomed at 322 and peaked at 1,517 in June of 2000. The proceeding bear market took the index down to 916 on June 1, 2002. The index never officially bottomed until September 1, 2008 at 896. It has now hit a recent peak of 7,580. […]

As many of you know, our team at Smead Capital Management has studied the thinking and investment careers of Charlie Munger and Warren Buffett. In today’s Go-Go artificial intelligence-dominated stock market, we’d like to walk you through the concept of the Circle of Competence. […]

Most global investors are not attuned to what can be seen on the horizon, not far from shore. After the Great Financial Crisis, Europe was slow to address the underlying capital issues. Rather than guillotining the problems, they allowed a slow bleed to take place. They amortized problems out over a decade. The idea was to smooth the problems in their capital structure from soured loans. However, like our own personal lives, problems that are not directly addressed only get worse. […]

In my 45 years in the investment business, we’ve observed numerous peaks of excitement. In 1987, a bull market that started at a 1982 bottom below 800 on the Dow Jones Industrial Average (DJIA) peaked at 2,722. It then crashed 43% in 78 days. In 1990, just following a nationwide Savings and Loan Crisis, the S&P 500 Index bottomed at 322 and peaked at 1,517 in June of 2000. The proceeding bear market took the index down to 916 on June 1, 2002. The index never officially bottomed until September 1, 2008 at 896. It has now hit a recent peak of 7,580. […]

There is a big difference between betting on something and investing in meritorious companies with long holding periods. Although we are no longer shareholders of Berkshire Hathaway, Warren Buffett shared some wisdom with everyone recently. He made a reference to the stock market looking like a “church with a casino attached” and the stock market in general looking less than “ideal.” Through the lens of our missives of the last six months, we will unpack these thoughts. […]

There is a big difference between betting on something and investing in meritorious companies with long holding periods. Although we are no longer shareholders of Berkshire Hathaway, Warren Buffett shared some wisdom with everyone recently. He made a reference to the stock market looking like a “church with a casino attached” and the stock market in general looking less than “ideal.” Through the lens of our missives of the last six months, we will unpack these thoughts. […]

Shell (SHELL NA) announced this week that they are acquiring ARC Resources (ARX CN). Arc Resources is a gas business in the Montney Region of Canada and is a name that the investors of Smead Capital Management are fairly familiar with. For our investors who aren’t familiar with this region, it’s often referred to as liquids-rich, meaning that there is great ability to extract natural gas liquids (NGLs) from wells there. When they get gas from those wells that don’t have a pipeline to get out of the basin, the gas sells at the local AECO price. When they get NGLs out of those wells, they sell at a price similar to WTI. If you’re reading this, you should be thinking, “Wait, so gas companies in the Montney aren’t in the gas business?” No. They make most of their money from the oil prices, like WTI. […]