Category: Missives

Saved by Zero

[…] The U.S. Federal Government has set a net zero carbon goal by 2050. Tremendous resources have been applied with borrowed money to fund these goals and subsidize money-losing green investments. After pouring money into green investments, investors are wisely fleeing the fantasies associated with the environmental movement’s agenda. Are we really more together? […]

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Looking for the Outsiders

William Thorndike’s book “The Outsiders” has been considered a classic for some time now. His story teaches readers about the business performance of Henry Singleton, Katherine Graham, John Malone and Daniel Burke. These are people who weren’t household names like Jack Welch, but produced results that would make any investors feel jealous of the success they had. At a moment like today where the world seems vastly different than where we have been for much of the last decade, we would like to use this piece as a way to remind ourselves where “The Outsiders” may sit and provide an example of ones that we’ve witnessed, but others don’t recognize. […]

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Lonely Contrarian Divergence

[…] 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. […]

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A Ticket to Purgatory

The Sherman Antitrust Act was created to stop our democratic republic from being ruined by “the concentration of capital in vast combinations.” The fear was that if too much of the success of industry went to too few people, our system would get disrupted.

The bad news is that the federal government has ignored the original purpose of the act. In our opinion, our society was first disrupted by the success of the FANG stocks and is now being disrupted by the Magnificent Seven. The good news is that the stock market has a history of solving problems on its own. What has happened over time to the largest and most popular stocks as measured by market capitalization? […]

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The Great Conflagration

We consider Ben Bernanke to be the father of 21st-century central bank policy. His work in dealing with the credit crisis in 2008-2009 was just the right policy at that time. The problem for economists is that they tend to fight the last war. The Great Financial Crisis was an economic problem where demand was dropping off from credit evaporating. The government tried to spend money to replace this destruction, but couldn’t politically equal the loss of economic output. The central banks could only pray that the most accommodative monetary policy would ease the fiscal belt that wasn’t loosening at that time. This was the last war for economists and has dominated economic research. Like anchoring or recency bias would tell us, this may have little to do with the problems in our future. […]

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Drivers and Stock Pickers

In studies, 90% of drivers think they are above average. We believe that 100% of the people who pick stocks for a living think they will be above average. Is being above average a worthy goal and is the generation of alpha or excess return something to strive for? […]

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Chronological Snobbery

C.S. Lewis coined the term ‘chronological snobbery’. According to Lewis, the definition of chronological snobbery is “the uncritical acceptance of the intellectual climate of our own age and the assumption that whatever has gone out of date is on that count discredited.” In our minds, it is how humans undercut the wisdom of a prior time by assuming that we are so much more advanced in our current day. […]

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Stock Market-Interest Rate Rhymes

Warren Buffett regularly reminds his shareholders that interest rates are a gravitational pull to stock prices. History shows that the movement of stock prices and interest rates don’t necessarily happen simultaneously but play out over time. Where are we now in this continuum between long-term interest rates and stock prices? […]

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70/20/10 Rule Redux

A friend of our stock picking discipline reminded us of a very important force in the stock market. It was called the 70/20/10 rule, and it was promoted by Roger Edelman, Richard Evans and Gregory Kadlec in an early 2013 Financial Analysts Journal article. We had written about this in 2016, but today’s circumstances beg for a reminder. […]

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Long-Term Puzzle Pieces

[…] First, the S&P 500 Index is likely to produce very poor inflation-adjusted returns for the next 10 to 15 years. Second, we believe money can be made in the shares of companies which benefit from inflation like oil and gas stocks. Third, the most common question we get is, “When does the incredible run end for the 10 stocks that have made most of the returns in the last ten years?” Our answer is that it doesn’t make any difference to us when it happens, because we won’t own them now or when they get their reckoning.

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