Printable Version

Dear fellow investors, 

The most famous “Hail Mary” in American football history happened in 1984. On the very last play of the Boston College football game, an undersized quarterback named Doug Flutie threw a bomb into the end zone to teammate Gerald Whelan. Boston College had won the game!

We are very late in one of the greatest growth stock investing games in history. Technology, an investment sector with a few huge winners and mostly flame-out startups, has been on a roll dominated by the largest companies in the sector. These largest wide-moat monopoly stocks have feasted on nearly uninterrupted momentum.

However, this tech stock investing era included the cheapest interest rates in my lifetime, which came to a screeching halt in late 2021. The U.S. Federal Reserve Board recognized that inflation wasn’t “transitory” and raised short-term interest rates by 500 basis points over 18 months. The result was a bear market that hit tech stocks very hard in 2022.

As we argued in a recent missive, we are now in a bear market rally led by the same FAANG stocks which were at the forefront of the prior bull market era. This is the era of financial euphoria which Charlie Munger called the biggest in his career (75 years). But just like Boston College and many other teams over the years, they are attempting a “Hail Mary” to recreate the unmitigated faith in their common stocks. This long-shot/late-game pass is artificial intelligence and is known in short form as A.I.

When a common stock sector has been fabulously good for a long time, a great deal of faith is put into the strength of its competitive advantages. As the economy has slowed due to the credit tightening, even the biggest and most successful tech companies are seeing growth slow. Therefore, the latest buzzword in earnings reports and for public relations departments is A.I.

This is all about getting late in the FAANG stock market era and starting to fall behind. It is a classic stock market “Hail Mary!” So far, hungry growth stock investors are putting their faith in this desperate attempt against long odds.

In sports, there are constant attempts at a last-minute miracle comeback. Only a tiny number of them are successful, which is exactly why Flutie’s pass is so iconic in the history of sports. He went on to be a Canadian football champion and had a very strong run in the National Football League. The chart below shows why a “Hail Mary” is needed to perpetuate this euphoria era:

Did Polaroid come up with a “Hail Mary” after the 1929 Crash? It got even in 24 years. Did the Nifty Fifty Stocks of 1972 find a new form of faith in the 1970s? Disney went from an 89 price-to-earnings ratio to 9 times in 1982. Did Microsoft, Cisco and Intel come up with a “Hail Mary” in the years after the DotCom Bubble broke in 2000? It took Microsoft 15 years to get even with their 1999 peak stock price and the other two never made it back to even.

The point is, in our opinion, these wonderful monopoly cult-like companies are attempting their version of a long-shot effort to stay on top. Sometimes prayers thrown down the field become legends, but most of the time in the stock market, they lead to stock market failure. As always, we recommend you 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.

©2023 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

Just Say No to Drugs

May 22, 2025

[...] Thanks to pressure from the new Trump administration, the pharmaceutical stocks look somewhat as deeply out of favor relative to the S&P 500 Index as they were in 1994. For political reasons,...

⟶ Keep Reading

Bloomberg: Bill Smead on Target’s Current Leadership

May 21, 2025

Target CEO Under Pressure as Boycott, Tariffs Hit Sales By Jaewon Kang For more information go to www.bloomberg.com. Stock mentioned: TGT The information contained in this article represents SCM’s opinions, […]

⟶ Keep Reading

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

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