Printable Version

Dear fellow investors, 

The current stock market circumstances have created an incredible contrast between what investors say they think about the stock market versus what they are doing with their capital. The chart below shows that most investors are heavily committed to stocks even though in sentiment polls, they show themselves to be quite bearish.

This is a problem because U.S. investors have over-capitalized stocks in the last four years more than we did at the height of the Dotcom bubble of 1999-2000. This matches the confidence seen at other major junctures like 1929, 1966, 1972, and 1999.

How is this likely to play out? The stock market is likely to shake out the confidence among asset allocators and cause it to match the bearishness expressed in sentiment polls before we hit a meaningful long-term bottom. Think back to the financial crisis bear market in 2007-2009. There were as many as four significant spikes in bearishness and only the last one marked the end of the bear market.

This bear market is designed to cleanse the sins of what Charlie Munger called the “biggest financial euphoria episode of his career [75 years] because of the totality of it!” The bear market of the financial crisis was very punishing because we stared into the abyss and the economy’s transmission system was badly damaged. Therefore, there was a complete lack of economic confidence, and it bottomed because the future was being priced too cheaply in March of 2009.

This bear market is designed to punish mass foolishness in everything from FAANG stocks, glam tech stocks, high price-to-sales up and comers, meme stocks, SPAC/IPOs, cryptocurrencies and the list goes on! We even revived the meme trading in the recent bear market rally. Why are we sure it is a bear market rally? It was led by the same foolishness that triggered the bear market in the first place. Investors are gluttons for punishment in this cycle.

What are investors to do? Recognize the heart of the difficulty for the stock market (inflation and interest rate normalization) and organize investments around those factors. We believe investors should do as we do: get the 1970s playbook out and enjoy a long-term bull market in commodities and property that could get valued higher in an inflationary era. And as we always say, fear stock market failure.

Warm regards,

william smead.

William Smead

The information contained in this missive represents Smead Capital Management’s opinions, and should not be construed as personalized or individualized investment advice and are subject to change. Past performance is no guarantee of future results. Bill Smead, CIO, wrote this article. It should not be assumed that investing in any securities mentioned above will or will not be profitable. Portfolio composition is subject to change at any time and references to specific securities, industries and sectors in this letter are not recommendations to purchase or sell any particular security. Current and future portfolio holdings are subject to risk. In preparing this document, SCM has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources. A list of all recommendations made by Smead Capital Management within the past twelve-month period is available upon request.

©2022 Smead Capital Management, Inc. All rights reserved.

This Missive and others are available at www.smeadcap.com

We Advise Investors

Sign up to get our advice sent straight to your inbox.

Recent Missives

Thank You Warren Buffett

May 5, 2025

[...] We love and admire Buffett and Munger. I've always said, "I'd rather know who is smart than to be smart!" We will miss his regular communication, but we believe 40 years of...

⟶ Keep Reading

The New York Times: Bill Smead on Berkshire’s End of an Era

May 4, 2025

  How Warren Buffett Changed the Way Investors Think of Investing By Michael J. de la Merced, Maureen Farrell and Lauren Hirsch   For more information go to www.nytimes.com. The […]

⟶ Keep Reading

Bloomberg: Cole Smead, CFA on the Berkshire’s Transition to Abel

May 4, 2025

Buffett Hands Successor a Giant Cash Pile and Many Questions By Alexandre Rajbhandari For more information go to www.bloomberg.com. Stock mentioned: BRK The information contained in this article represents SCM’s […]

⟶ Keep Reading

Reuters: Cole Smead, CFA on Berkshire’s End of an Era

May 4, 2025

  Buffett to step down as Berkshire CEO after 60 years at helm, passes baton to Abel By Jonathan Stempel and Suzanne McGee For more information go to reuters.com. Stocks […]

⟶ Keep Reading

PBS News: Cole Smead, CFA on the Outlook After Warren Buffett Steps Down

May 3, 2025

Warren Buffett makes surprise announcement that he plans to retire at the end of the year By Josh Funk For more information go to www.pbs.org. The information contained in this […]

⟶ Keep Reading

CNBC: Bill Smead on Warren Buffett’s Plan to Step Down

May 3, 2025

Berkshire shareholders are ‘stunned’ as Warren Buffett announces plan to step down after 6 decades By Alex Harring and Yun Li For more information go to www.cnbc.com. The information contained […]

⟶ Keep Reading

We Advise Investors

Sign up to get our advice sent straight to your inbox.

US INVESTORS

Individual Investors

OR

Financial Advisors, Family Offices,
and Institutional Investors

OR

NON-US INVESTORS

Individual Investors

OR

Financial Advisors, Family Offices,
and Institutional Investors

OR

Scroll to Top