Category: Missives

When meeting with clients throughout the country, investors ask if we are worried about various well-vetted and well-known negatives. The list includes what the Federal Reserve Board might or might not do, China’s slowdown, emerging market struggles, plummeting commodities, dollar strength and the uncertainty over who will become President of the U.S. in 2017. We think investors are really asking us, “what’s the market’s biggest risk?”

Storm clouds seem to build by the day. Many investors have an ongoing love affair with a few large-cap and more futuristic companies, yet they have corrected the prices of any stock with disappointing earnings or an attachment to the production of commodities.

We at Smead Capital Management believe in the value of compounded returns. They are the friend of the long-duration common stock investor, especially when considering the intrinsic value of a company. With so much chatter among investors, the media and analysts over when the Federal Reserve will increase interest rates, we would like to share with you how we think about and use prevailing interest rates in security analysis. Together with earnings growth estimates and longevity, the discount interest rate is a cornerstone of calculating the intrinsic value of a company.