Category: Quarterly Newsletters

As we’ve hit the halftime mark for the investment year 2022, we are faced with a daunting two-headed monster. One head is the first full year of unwinding what Charlie Munger called, “the biggest financial euphoria episode in his career, because of the totality of it.” The second head is what we call “wolverine inflation,” which is mean and leaves a stench. This combination is powerful and, in many ways, unprecedented. How do we navigate a stock market which is dealing with a two-headed monster? […]

Depending on your age, the bull market in stocks started in 1982, with stocks trading at six-times earnings and the U.S. Treasury Bonds paying 15% interest, or in 2009 at the bottom of the financial crisis. Either way, the combination of the Federal Reserve Board’s liquidity and the popularity/stock market domination of technology stocks have entered us into what we will call “The Twilight Zone.” […]

Moving forward beyond the pandemic of 2020, the theme the world woke up to is that people want more…more home, more land, more entertainment, more goods. We learned that more is a scarce good today. The best phrase for capturing the mind of consumers today is what a partner of ours mentioned to us: The Race For Space. […]

There are three pillars of investing for us at Smead Capital Management. First, we must know the history of the stock market. Second, we must understand the mathematics of the stock market. Third, we must understand the psychology of the stock market. As we enter the year 2022, we believe the S&P 500 Index and the oil/gas Industry are at polar extremes on all three pillars. […]

Halfway through the year 2021, we must be reminded to “not confuse brains with a bull market.” These are the words we were taught back in the 1980’s. When all boats float, don’t think you are a genius because your boat floated. Investors in the S&P 500 Index, mega-cap tech stocks, momentum disruption stocks and a wide variety of success stories the last five years floated. The former kings of the stock market (active stock pickers) were pronounced dead. Goodbye Warren Buffett, John Templeton, Peter Lynch and all the others who were declared kings of stock picking.

Halfway through the year 2021, we must be reminded to “not confuse brains with a bull market.” These are the words we were taught back in the 1980’s. When all boats float, don’t think you are a genius because your boat floated. Investors in the S&P 500 Index, mega-cap tech stocks, momentum disruption stocks and a wide variety of success stories the last five years floated. The former kings of the stock market (active stock pickers) were pronounced dead. Goodbye Warren Buffett, John Templeton, Peter Lynch and all the others who were declared kings of stock picking.

Our outlook for 2021 is formed by the need to get away from the crowd and to expect some very stormy weather in the U.S. stock market. We are not afraid of drowning. Therefore, we will review the circumstances at the bottom of the market in 2009 with today’s market to see where the crowd is and where we need to go to avoid the coming storm.

You are probably aware that we do a great deal of reading, writing and watching at Smead Capital Management. We recently read Peter Doran’s book, Breaking Rockefeller, which is a fabulous economic history of the world from 1840-1920 and focuses on how the monopoly created by John D. Rockefeller was broken from 1890-1910. We also watched a documentary called, “The Social Dilemma,” which explains, through the eyes of some of the social media creators, how incredibly damaging the monopolies, created by internet technology, are to society.

Everyone who owned common stocks in the U.S. went through hell in the first quarter of this year. The 36% decline in the S&P 500 Index in February and March was the fastest 36% decline of my lifetime. This hell was especially damaging to those of us who have a positive view of the U.S. economy over the next ten years.

[…]We will present the most difficult investment junctures of the last 40 years, tell you what was popular and what produced the highest future returns. We will consider looking foolish with the goal of obtaining long-term wealth creation in common stock ownership.[…]