4Q23 U.S. Value Strategy Newsletter: Outlook 2024: Crossing The Stock Market Bar

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We recently released an episode on our podcast, A Book With Legs, discussing a book called Graveyard of the Pacific. The author, Randall Sullivan, explained how dangerous the Columbia Bar is to cross and why it is the deadliest waterway in the U.S.

Having crossed over it 100 times in my life to catch a summer salmon, I am well aware of the risk. Guarded by the very able U.S. Coast Guard, boaters are instructed on the level of danger each day.

While navigating the waters with my father, a master ship pilot, we never took unnecessary risks. Whenever the Coast Guard signaled a high danger level, we heeded their advice and remained onshore. The principle held true: even the most adept seamen understood that some risks weren’t worth the potential rewards, regardless of our eagerness to reach our fishing grounds.

If there was a Coast Guard for the U.S. stock market, we believe they would be issuing a warning to owners of the S&P 500 Index and popular common stocks. Let us share the data that the stock market Coast Guard would use to urge caution.

First, both individuals and professional investors are as heavily involved in stocks as they have ever been (fishing like never before):

Source: COT, Cypress Capital. Data for the time period 7/1/2010 -12/31/2023.

Second, the most aggressive investors are filled with confidence in the face of small craft warnings:

Source: Vanda Research, Financial Times. Data for the time period 1/1/2014 – 12/31/2023.

Third, corporate insiders are selling like there will be a wave coming which can knock over big boats:

Source: Cypress Capital. Data for the time period 6/1/2014 – 12//31/2023.

Fourth, the recent explosion in stocks has front-run the Federal Reserve Board cutting short-term interest rates in 2024. In other words, the fisherman might have limited out in late 2023.

Source: S&P Down Jones, Ned Davis Research, NDR. Data for the time period 1/20/1972-11/20/2023.

Lastly, we believe the stock market has misconstrued the incoming tide of inflation. The assumption is that inflation is licked, just like it was assumed in 1973 and 1977:

Source: Apollo. Data for the time period 1/1/1966-9/30/2023.

We believe a well-piloted portfolio would lean into the inflation possibilities to own plenty of oil and gas production (OXY, OVV, APA, DVN, COP). As investors, we’d like to help U.S. citizens buy a new home (DHI, LEN and NVR). Lastly, we would like to take advantage of a stronger-than-expected economy to own necessity providers like banks (JPM, BAC, AXP, WAL, FITB, MTB) and consumer stocks (UHAL, HD, TGT).

We’d like to thank our shareholders for their confidence and trust as we crossed over our anniversary to become a 16-year-old strategy in early January.

Fear stock market failure,


The recent growth in the stock market has helped to produce short-term returns for some asset classes that are not typical and may not continue in the future. Margin of safety is the difference between the intrinsic value of a stock and its market price. The price-earnings ratio (P/E Ratio or P/E Multiple) measures a company’s current share price relative to its per-share earnings. Alpha is a measure of performance on a risk-adjusted basis. Beta is a measure of the volatility of a security or a portfolio in comparison to the market. FAANG is an acronym for the market’s five most popular and best-performing tech stocks, namely Facebook, Apple, Amazon, Netflix and Alphabet’s Google. Growth investing is focused on the growth of an investor’s capital. Leverage is using borrowed money to increase the potential return of an investment. Momentum is the rate of acceleration of a security’s price or volume. The earnings yield refers to the earnings per share for the most recent 12-month period divided by the current market price per share. Profit margin is calculated by dividing net profits by net sales. Quality is assessed based on soft (e.g. management credibility) and hard criteria (e.g. balance sheet stability). Value is an investment tactic where stocks are selected which appear to trade for less than their intrinsic values. The dividend yield is the ratio of a company’s annual dividend compared to its share price.

The information contained herein represents the opinion of Smead Capital Management and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Smead Capital Management, Inc.(“SCM”) is an SEC registered investment adviser with its principal place of business in the State of Arizona. SCM and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which SCM maintains clients. SCM may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Registered investment adviser does not imply a certain level of skill or training.

This newsletter contains general information that is not suitable for everyone. Any information contained in this newsletter represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. SCM cannot assess, verify or guarantee the suitability of any particular investment to any particular situation and the reader of this newsletter bears complete responsibility for its own investment research and should seek the advice of a qualified investment professional that provides individualized advice prior to making any investment decisions. All opinions expressed and information and data provided therein are subject to change without notice. SCM, its officers, directors, employees and/or affiliates, may have positions in, and may, from time-to-time make purchases or sales of the securities discussed or mentioned in the publications.

This Newsletter and others are available at smeadcap.com

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