Category: Missives

The investors of Smead Capital Management believe, which we count ourselves among, that energy stock valuations in the stock market have become too depressed. Mr. Market gets scared, as he does from time to time. This can go on for a while, but we have seen a couple of private transactions in two different parts of North America energy markets that explain how attractive the pricing is for the assets that Mr. Market could own. […]

[…] Thanks to pressure from the new Trump administration, the pharmaceutical stocks look somewhat as deeply out of favor relative to the S&P 500 Index as they were in 1994. For political reasons, the new administration is looking to bring inflation down. The persistent inflation from the massive $12 trillion of U.S. Treasury borrowing done to get us through COVID-19 seemed to doom any reelection possibilities for President Biden. Therefore, President Trump wants to get Republican candidates elected in the midterm elections. To him, driving down drug prices (and oil prices) is the way to gain favor with voters. […]

[…] The Trump administration believes that it must act swiftly and take a wrecking ball to the way international trade has been organized. What they are attacking is David Ricardo’s economic theory that everyone benefits by making what each country makes better than the other countries. Under normal circumstances, the U.S. has been happy to let numerous other countries prosper under very generous trading rules. Post-COVID-19, the current presidential administration believes that the prior system is unsustainable because it has been massively subsidized by U.S. deficit spending. The interest expense and future principal payments look ominous. […]

Over the last 15 years, the United States economy and financial system have been built on the back of a stock market ownership society. The premise is that average to above-average income households will prosper in the stock market and that prosperity would benefit those who don’t own common stocks themselves. This was a similar premise to the one used by President Reagan to produce prosperity in the 1980s, which was called “trickle-down economics.” In theory, President Trump’s tariffs are intended to benefit average to below-average income American households by onshoring jobs and factories. Someone might call this “trickle-up economics.” […]

We want to ensure our investors know that we are standing side-by-side with them, as the stock market can do fairly illogical things from time to time. We’d like to discuss our three worst-performing securities in the US portfolio to help our investors understand why we are sitting on our hands and allowing our discipline to proceed. We are pounding the table at the opportunity within our grasp and wish to assure investors that we like what these circumstances are giving us. We believe they will guide us toward the successful outcomes that we have seen time and time again. […]

When you grow up with a father who worked in the brokerage business, you hear a lot of stories. The especially interesting ones are those about the investment business in the 1980s. Many times, my dad, Bill, has told me about Jack McCarthy, who ran the Affiliated Fund at Lord Abbett & Co. in the 1980s. At that time, the podcast of the era was sending a recorded tape of your thoughts to get the word out to investors. In 1984, Jack’s wisdom and recommendation were timely. […]

Investors who have come to us in the last three to four years are probably wondering if we’ve been here before. By here, we mean a stretch of significant underperformance relative to our benchmarks. The answer is, yes. Let’s review those prior circumstances to see if we can learn something about where we might be headed. […]

[…] This is truly a Noah stock market. Everything we have studied about common stocks, including “The Intelligent Investor” by Ben Graham, “A Short History of Financial Euphoria” by John Kenneth Galbraith, and from listening to the wise words of Charlie Munger and Warren Buffett for decades leads us to believe that we must build a common stock portfolio which will float when the multi-year bear market creates a waterfall of selling among magnificent growth stocks and passive S&P 500 Index owners. […]

[…]. The great Vanguard Windsor manager John Neff used to say, “When you want to brag about a stock, you ought to sell it.” What has been happening lately in our interactions with our current and potential investors all around the world is startling. Asset allocators are repeatedly telling us that if they sell any of their core position in the S&P 500 Index, they would get fired by their customers. In other words, the S&P 500 Index is “on top of the world!” […]

The phrase “majoring in the minor” refers to focusing excessively on trivial details while neglecting more important aspects of a situation. This analytical flaw is especially prevalent in today’s investment environment. Quarterly earnings often overshadow the durability of a business’s long-term competitive advantage, with growth being prioritized over profitability and the scarcity of assets. This shift towards short-term investing has been gradual, but it is more pronounced when we consider the reduction in the average stock holding period by mutual funds, which has dropped from seven years in 1960 to less than a year today. […]