Category: Missives

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. […]

[…] We are not bears on America, or on the capacity of markets to generate wealth over time. We are optimists about the arc of human enterprise, the ingenuity of capital markets, and the compounding power of patient ownership in exceptional businesses. We are not optimists about the near term, not because we enjoy that position, but because the evidence requires it. We believe the most likely outcome is not a catastrophe but a prolonged period of flat to modestly negative real returns for the passive index investor.

Almost everyone is attempting to sort out the ongoing investment ramifications of the U.S. effort to eliminate Iran’s ability to attack their neighboring countries. We would like to think of this from multiple angles via the academic disciplines of history, math, economics and psychology. In doing so, we would like to gain perspective on how it could affect investments and performance. […]

[…] Effectively, in our way of viewing, the U.S. stock market, as represented by the S&P 500 Index, is in a two-strike count. Valuation, psychology, history and economics all argue that this is maybe the most expensive stock market in history. What this means is swinging for the fences is a bad idea, and wise investors should look to hit the ball where it is pitched. This is where they are given a favorable risk-reward relationship over the next five to ten years. […]

Relying on the kindness of strangers has never been a good business or investment strategy, but it doesn’t mean that people don’t wish that it worked. The main issue with this hope is that it’s foolish to believe that other people’s grace and money will always be there. […]

There are two sides to the current stock market. One side, ignorance avoidance, requires us to know where the money is. The other side, stock selection, is to know where the money is going. Since Willie Sutton knew where the money was, he robbed banks. We will discuss where the money is now and where we think it will go. […]

[…] In psychology, there are two main forms of rejection (duration and magnitude). For those of us who know history and appreciate the rhymes that Twain taught us, this mania has already lasted longer (duration) and been more all-encompassing than the DotCom bubble (magnitude). It has taken the S&P 500 Index to a more expensive position relative to most of the respected valuation metrics (Schiller CAPE, Buffett’s stock market indicator, US household equities as a percentage of US financial assets), to name a few. And anyone who stays late at this party could run the risk that Cinderella took at the ball. Warren Buffett said, “At midnight, everything is going to turn to pumpkins and mice! But the trouble is, there are no clocks on the wall.” […]

For over eighteen years, we have maintained the same investment discipline and the same eight criteria for stock selection. We have deliberately sought opportunity in the sectors and structures the market has decided are too complicated, too cyclical, or simply no longer fashionable. This philosophy has rarely felt more necessary or more lonely than today. […]

My first experience with a major economic/stock market bubble was the dot-com bubble of 1998-2000. Many investors forget that the Nasdaq and S&P 500 Index bubble that ended March 10, 2000, was the first bubble in a series of three bubbles. In this missive, with the help of the band Foreigner, we will walk through the three bubbles that cursed investors from early 2000 through 2015. […]