Sales Desk – US   877.701.2883
Sales Desk – International   +353 1 525 9677

US INVESTORS
Non-US INVESTORS

Sales Desk – US   877.701.2883
Sales Desk – International   +353 1 525 9677

US INVESTORS
Non-US INVESTORS

Category: Missives

Employer Mandate: A Pharma Bump in the Road

As long-duration value investors, we at Smead Capital Management have been very attracted to the conservative accounting, shareholder friendly dividends/buybacks and bright pipeline futures of major pharmaceutical/biotech companies like Merck (MRK), Pfizer (PFE) and Amgen (AMGN). Lately, there has been weakness in these shares and we’d like to review our best theory for recent fears and price weakness, while reviewing the merit of these high quality shares.

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July 9, 2013

The Art of Low Turnover

We have argued vociferously that active managers have given up their preferred position in the investing marketplace to passive indexes because of high turnover. A recent Wall Street Journal article referenced 78% turnover as being the average among large-cap US equity funds. Studies have shown that as much as 144 basis points each year in return is chewed up by trading costs. Explaining turnover and its impact is one thing, but it is more important to ask a question. How do you practice low turnover while seeking maximal long-term performance?

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June 18, 2013

Yen Weakness: Buffett’s “Shot Heard Round the World”

We returned recently from the Berkshire Hathaway Annual Shareholder Conference. The most exciting and profound comment to us was what Warren Buffett said about the unprecedented actions the last three years by the Federal Reserve Board. Buffett was asked about the risks of the Federal Reserve’s current plan to buy Treasuries to keep interest rates very low. Buffett said he has faith in Federal Reserve Board Chairman Ben Bernanke, but did acknowledge that it will be a “shot heard round the world” as soon as it looks like the Fed’s Treasury buying plan winds down. At Smead Capital Management, we have been thinking for over one year about the ramifications of the open market setting short-term interest rates and the Federal Reserve Board beginning to reverse their “quantitative easing”. We looked closely at the winners and losers from the current policy and it brought us to today’s key question. What if Yen weakness/Dollar strength is already the “shot heard around the world” and most market participants are missing this fact?

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May 13, 2013

Screaming “Bear Market Rally”

In the summer of 2009, I was a regular guest on CNBC shows like “Larry Kudlow”. We believe we were invited to participate in those panel discussions because we were the token “bull” in the conversation and I am obnoxious enough to state my piece against significant mental and verbal opposition. The US stock market had bottomed in March of 2009 and rallied explosively into the late spring and early summer. We felt that the March lows and big first move of the bull market were similar to the move the US stock market made in August of 1982. However, the choruses of experts were screaming that we were in a “bear market rally” and that only fools would buy stocks at those “inflated” prices. The wide-spread consensus back then appeared to be that that the rally was only temporary. We believe the psychology of that group think was a great predictor of what has come to pass.

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May 6, 2013

What’s Your Advantage

In the March 9, 2013 issue of Barron’s, writer Jonathon Laing wrote an excellent piece about Howard Marks. This article provides the base from which we can discuss the main components of investment portfolio composition. These components are information, analysis of information, and decisions made from information and analysis. In doing so, we will bring to light why we believe today’s best opportunity is in long-duration common stock investing.

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March 12, 2013

Smooth Returns

Harry Markopolos was working for a hedge fund of funds and attempting to put a portfolio together that would “smooth” long-term returns. In the process of marketing what his company was doing, he ran into a client who already had a money manager doing that for him. The money manager the client used was Bernie Madoff. When Markopolous looked at the long-term track record of Madoff’s client, he instantly knew that it was mathematically impossible to have a return that high with as little year-to-year variance in the return. We at Smead Capital Management would like to ask a few questions. How do you legally “smooth” investment returns? What price do you pay to “smooth” returns? Why do we as long-duration common stock owners not care about “smooth” returns?

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March 5, 2013

Losing the Bid

Many times in my 32-year career people ask me to comment on whether an established trend for a popular investment will stay intact. The most recent example was last year (2012) when our firm was asked on numerous occasions to comment on the stock of Apple. My answer is always the same. We don’t know when the hot streak will end for the popular investment and we don’t feel comfortable with popular securities.

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February 26, 2013

Our Job: Whether; Market’s Job: When

Warren Buffett describes the stock market’s purpose as being “a wonderfully efficient mechanism for transferring wealth from the impatient to the patient”. We are reminded of this by a series of news reports and commentaries on subjects greatly influenced by basic economics. In today’s missive, we consider what the law of supply and demand says about China, oil, and housing in the USA.

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February 12, 2013

Too Active, Too Passive: Too Little Understanding

The wealth management and institutional consulting communities have allowed indexing to be called “passive” investing and stock-picking disciplines to be called “active” management. This implies a mindless approach to indexing and a great deal of busyness to stock picking. A number of recent articles and commentaries have been written which question the viability of stock-picking disciplines in an era of numerous indexing choices and ETF vehicles. We at Smead Capital Management believe these labels are at the heart of a great deal of confusion about what works and what doesn’t work in both equity mutual funds and separately managed accounts.

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February 5, 2013

2013, “Things Can Only Get Better”

As long-duration common stock owners, we at Smead Capital Management don’t put much emphasis on predicting the year-to-year movements in the stock market. We expect at least a 10 percent or greater decline during each year and a greater than 20 percent decline at least once every five years. With that caveat in place, we will throw our two cents into the debate about what the US stock market will do in 2013.

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January 8, 2013
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