Surviving the Most Difficult Conditions

William Smead
Chief Executive Officer
Chief Investment Officer







Dear Clients and Prospective Clients:

Jim Collins is the author of a book that I have mentioned from time to time called “Good to Great”. He has attempted to help us understand the difference between merely good companies and the few great ones which have been demonstrating “greatness” over the years. What these “great” companies do in the most difficult business circumstances could give us some clues on what to do in this current economic and investment environment. The current environment is already establishing itself as the most difficult set of circumstances we have faced since the 1930’s.

To help us understand the approach of “great” companies in difficult circumstances, Collins retells the story of James Stockdale, a POW camp survivor from the Vietnam War. Stockdale withstood the kind of long imprisonment which Senator John McCain withstood and is still fresh in our memories. This survivor explained that it wasn’t the pessimists or the optimists which survived, but rather the realists. Pessimists died early on trying to escape, knowing that they didn’t have it in them to hold on for years. Optimists expected the very best and would say things like, “We will be out of here by Thanksgiving.” Thanksgiving would come and go and the optimist would turn to Easter as the point where it would all be better. Eventually, a number of optimistic deadlines would pass and the optimist would lose hope and turn into a pessimist. The realist said, “I will do whatever it takes to get through this regardless of how long it takes to get through it.” There is an inherent optimism in the position taken by the realist. The grim reality must be balanced against the great blessing for you on the other side of the valley.We are in the midst of a business coma and stock market liquidation that has to do with financial sins committed over the last ten years. It is holding all participants (workers, investors and companies) prisoner regardless of whether or not we or our companies were part of creating the problem. We do not know how long the “business coma” will last, how long stocks will be liquidated to find a bottom and how soon the inevitable rebound will come! However, we must survive.

At Smead Capital Management we have staked the survival of our portfolios on the balance sheet strength of our companies, the necessary nature of their products and the enduring quality and “mind control” of their brands. In other words, we have sought to own the realist companies which can get through this regardless of how long it takes. And we do this to not only survive, but also because the reward on the other side of the valley is huge from a historical point of view. If you made it all the way through the Great Depression to 1937 with your blue chip stocks, you saw a huge rebound in stock prices from the 1932 lows.

What can you do to be a realistic owner and steward of your assets? Make sure you are investing money in the stock market which can stay invested for at least three to five years. Put the money you need in the next two years in a safe financial instrument like a Certificate of Deposit or money-market fund. Reduce portfolio withdrawals until things improve. Where possible, liquidate non-liquid assets like boats, cars and non-income producing real estate or use them as a charitable donations in a substitution for cash outlays. If needed, review your portfolio with us regardless of whether or not we oversee all the assets.

What should we look for to get a sense that this storm is passing? First, look for low enough new home sales figures to put some of the weaker publicly traded homebuilders into Chapter 11 bankruptcy. Second, look for Arizona, California, Florida and Nevada unsold home inventories to decline. Thirdly, look for some highly respected, nationally recognized stock portfolio managers to give up or get fired (it happened right before the Tech bubble broke in early 2000). Lastly, look for the interest rate differential to narrow between high-grade corporate bonds and Treasury bonds.

We intend to survive these circumstances with you and are here to serve you in any realistic way we can.

Warmest regards,

William Smead

We Advise Investors

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

Recent Missives

CNBC The Exchange: Cole Smead, CFA on Opportunities in Individual Equities

September 19, 2023

Indexes are struggling but opportunity exists in individual equities, says Cole Smead For more information go to www.cnbc.com. Stocks mentioned: LEN The information contained in this tv appearance represents SCM’s … CNBC The...

⟶ Keep Reading

Oil Stock Disconnect

September 19, 2023

[...] Fortunately for us, push eventually comes to shove. Since there is no end in sight in the demand for fossil fuels and there is only criticism for those who are poking holes...

⟶ Keep Reading

Stock Investors in Barbieland

September 12, 2023

[...] Investors should fear death like Barbie did. We call it stock market failure. These valuations won’t go up like a six-inch heel. Flats may be more fitting for thinking about stock returns...

⟶ Keep Reading

Inflation Expectations

September 6, 2023

[...] We especially like DR Horton (DHI), Simon Property Group (SPG) and Apache Petroleum (APA), as ways to get our share of the profits from a very overvalued stock market. It is a...

⟶ Keep Reading

Investor’s Business Daily: Bill Smead on Berkshire

September 5, 2023

  Warren Buffett Keeps Getting Older. Berkshire Hathaway Stockholders Are Getting Uneasy By Aparna Narayanan For more information go to investors.com. Stocks mentioned: BRK The information contained in this tv … Investor’s Business...

⟶ Keep Reading

The Market: Cole Smead, CFA on Opportunities in Energy and Commodities

August 31, 2023

This Is an Ideal Environment for Value Investors By Christoph Gisiger For more information go to www.themarket.ch. Stocks mentioned: APA, CVE, OXY, OVV, MEG The information contained in this article … The Market:...

⟶ 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