Category: Missives

[…] We believe the market has adapted to quality. Even the value players have adapted and most of them have attached quality to their marketing materials. The style has been adapted and we believe the next era won’t reward quality as it has over the recent past. In markets, we believe the winning hand moves around the table just as it does in poker. Luckily Buffett continues to adapt his play lately by selling Apple and buying OXY. The way we see it, the future winning hands look cheaper and more cyclical, but provide attractive returns on capital for the business in his view and in ours.

As the investors of Smead Capital Management know, we focus on the shareholder friendliness of the businesses we analyze because we believe it can differentiate their long-term returns. Warren Buffett has said, “Own a business a five-year-old can run. Just in case one does!” In today’s piece, we would like to share our framework of thinking about capital allocation and shareholder friendliness through an example that we have lost money on so far. […]

One of the very popular technology companies in recent years has been CrowdStrike, Inc. It provides cybersecurity to numerous major technology companies including the top Artificial Intelligence (AI) players. Its shares got blasted recently as the first big correction in the glamour tech stocks has taken hold of the market’s agenda. However, a much bigger issue in the stock market would be if the crowd of people who have come into the stock market since 1989 went on a buyer’s strike. […]

At Smead Capital Management, our low portfolio turnover approach often results in prolonged periods of inactivity. Rest assured, however, that a great deal happens underneath the surface each day as our investment team continues its never-ending mission to continuously improve our portfolios and avoid stock market failure on behalf of our investors. A key part of these efforts includes constantly looking for new investment opportunities, and comparing these opportunities to businesses we already own. We agree with the late, great Julian Robertson, who posited that each day we choose to hold a stock is an implicit decision to continue to buy it. With this in mind, we will lay out why we continue to own Target instead of a former holding and what we have labeled “the Mother Theresa of common stocks,” Costco. […]

In a recent The Wall Street Journal article, Jason Zweig correctly pointed out that 85% of active stock-picking funds and ETFs had underperformed their benchmark. In many ways, his thesis could be called “The Death of Stock Picking!” Since Jason and most of the financial community have built their investments around owning the S&P 500 Index at the core of their portfolio, investors have feasted on record-setting returns since the stock market bottomed in 2009. Fortunately for stock owners like us, dogs chase cars and people chase stocks! Jack Bogle is taking a victory lap in heaven for the success of his investment strategy. […]

[…] Cycles are an inescapable attribute of markets just as in nature. Cantillon’s theory helps further illuminate how these cycles are created and behave within economies. It also explains why we find oil and gas companies so attractive. Since 2014, most have written off oil and gas companies as perennially un-investable for a myriad of reasons, many we have covered in previous missives. What is often not taken into consideration is how the role of monetary interference and the Red Queen Effect have fundamentally altered the oil and gas companies for the better. Both are critical factors that compelled these companies to evolve in order to compete in this new environment. […]

We are contrarians and oddly crave the moments when history, psychology and mathematics get defied in the U.S. stock market. We believe this is one of those points in time. […]

We have gained a number of new investors and get regular vetting interest from investors who need to understand the roots of our stock-picking discipline. Our stock-picking discipline is built around our eight criteria for stock selection […]

[…] We should want customers of the investment industry to get good outcomes. Good outcomes come from good processes and aligned incentives. With US markets being the rage of the investment world, we believe that the professionals in our industry own a different portfolio than they recommend to their customers. In other words, they may get a different outcome than their customers. Regulation will never fix ethical issues. […]

[…] What Bill called “everyone thinking alike” we call a well-known fact. A well-known fact is a body of economic information that is not only known by all market participants but has been acted on by nearly everyone who participates in that market. In effect, you must bet against well-known facts to succeed in the long run in the stock market! […]