Category: Quarterly Newsletters

If you are a regular reader or have met with us in the last couple of years, you are aware that we have a very dour view of how the US stock market will be impacted by the unwinding of the financial euphoria episode which initially peaked in late 2021. […]

In Warren Buffett’s 1999 Allen and Co. talk in Sun Valley, Idaho, he argued that the stock market has historically had what he called a “Biblical kind of symmetry!” As we come to the end of the stock market’s second quarter of 2023, we will ask the following question: Is the U.S. stock market bumping up against natural and historical limits? […]

One of the strangest things we have seen among investors is the willingness of older retirees in today’s stock market. On July 6, 2023, Anne Tergesen wrote an article in The Wall Street Journal on this exact subject titled “Older Americans Invest Like 30-Year-Olds”. She opens the article by writing, “Older Americans keep rolling the dice in the stock market, ignoring the conventional wisdom to protect their nest eggs by shifting more of their investments to bonds.” Retired investors were practicing this because, until more recently, they were receiving poor income from the bond market. They also feared what inflation could do to bonds. […]

As we end the first quarter of 2023, the Federal Reserve Board is trying to decide whether “to be or not to be” the inflation fighter. The stock market is struggling with an effort by the Federal Reserve Board to strangle inflation with tight monetary policy. This is in response to their ignoring inflation 18 months ago by calling it “transitory.” As James Grant said recently on Bloomberg, “They were in consensus that it was transitory and now they are in consensus that they need to tighten.” In other words, should we suffer from “outrageous” inflation or “take arms against a sea of (economic) troubles.” […]

To kick off the beginning of 2023, there continues to be a bias we see in equity investor portfolios. These portfolios have many of the traits investors see at the endpoints of the economy like software, consumer products and computer chips. What they often don’t own or under-own are the building blocks of the economies of the world. These tangible products drive construction, power transportation or enhance production. We believe this is particularly true in producers of oil, for the movement of goods, and the production of commodities that create most of the electricity like natural gas and coal. We get excited for the prospects surrounding this phenomenon because there is nothing better than a lack of competition in the ownership of economically-needed products. Our investors are buying unwanted assets. […]

[…] The frustration of other investors and the strength of non-US dollar assets we believe will be our comparative advantage.

[…] We at Smead Capital Management believe the stock market wants to cause stock market failure by being extremely difficult in 2023. Most investors were fooled in 2022 by expecting circumstances similar to the prior ten years. […]

[…] In our opinion, finding asset-rich businesses that are self-funding with low-cost capital structures (cheap debt) is the most interesting investment to make. You get the cover of macroeconomic fears as your discount tool to be the buyer. However, as the cost of capital rises and economic fears dissipate over the next few years, you are likely to have fewer competitors as operating costs and funding pressure keep new entrants out. We believe that this profile of stocks trading in international equity markets is “gonna be a star.” […]

[…] At this moment we are doubling down on our eight criteria for common stock selection and the bull market in commodities/land which broke out during the pandemic. What this means is that we are doing what we always try to do and that means that we expect to perform well going forward. […]

Corona’s 1995 classic “The Rhythm of the Night” rings in our ears as we stare at the circumstances that are likely to expose the darkness of the 2020’s. We saw the light in the 2010’s and will see the night in the 2020’s. Our aim for this letter is to give an understanding to investors of the rhythm of what we are likely to see in the road ahead. […]