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.
The news of Berkshire Hathaway’s purchases in Occidental Petroleum (OXY) has been seismic in our minds, but to most investors it has been but a whimper
In an upcoming episode of A Book With Legs podcast, we interviewed Robert Hagstrom on his book, Investing: The Last Liberal Art.
A couple of weeks ago, we gave a presentation at the first annual Smead Investor Conference near our headquarters in Phoenix.
Ben Graham is ascribed as being the father of value investing.
The beginning to 2022 has been dark to say the least.
In the depths of the lockdowns in March and April, we were together at home, day after day. The U.S. Federal Reserve Board pumped large amounts of liquidity in our economic system. The U.S. Federal Government followed by providing large amounts of fiscal stimulus in PPP loans...
In 2014, famed UK stock picker Terry Smith wrote a piece, titled Shale: Miracle, Revolution or Bandwagon?, in most ways mocking investors excitement in the oil and gas business in the United States of America.
Today’s atmosphere is one that we rarely see as investors. This is not like junk bonds in the 1980’s or the run up in Valeant Pharmaceuticals and the other generic drug companies in the 2010’s. There is not a narrow way of looking at today. It is broad.
The media and the economics profession are treating inflation like it is a friendly puppy dog. They think you can take it out of its pen and play with it for a while. The popular theory is that you bring it out in a severe dip in economic activity and when the economy gets back on its feet, you kindly ask inflation to crawl back into its pen like any good puppy dog would do.
The talk of inflation today looks much like housing did in 2007. Evidence is mounting everywhere that this is a real long-term problem that is only getting worse. You can read this in the media, but yet security prices don’t reflect how damaging this may be.
Investors often ask our team at Smead Capital Management what we spend our time on. We believe reading is the best use of our time to learn and think about the way that we can profitably apply capital for our investors.
We have been in many discussions with our investors, people in the media and the investment management industry on where housing is today.
On the insistence from a friend and a colleague, I watched the movie There Will Be Blood over the weekend.
At a minimum, the latter part of 2020 and the first half of 2021 will go down as one of the strangest psychological times for common stock investors.
Halfway through the year 2021, we must be reminded to “not confuse brains with a bull market.”
Most millennials have never seen an era where value has done well.
My recent reads have been stuck in the 1960’s, including Adam Smith’s The Money Game and Andrew Knowton’s Shaking the Money Tree.
To say that we were surprised by some of the discussion at the Berkshire Hathaway Annual Meeting would be an understatement. The conversation Warren Buffett and Charlie Munger leaned into on inflation was possibly the most interesting. Warren and Charlie gave large credit to Larry Summers for his willingness to stand alone on the effects of today’s fiscal and monetary policy on prices. We thought this was an ideal time review Buffett and Munger’s discussion and see what conclusions we could draw.
As we have been holding calls with prospective and current investors of our firm, we have been arguing that the stock market is underwhelming the success of the economy.
Even before the war is over, the winning side needs to consider how to “win the peace” which will follow.
My wife are new residents to the Phoenix-area, since moving here in the middle of 2020. We haven’t fully settled on where to send a couple of our kids to school.
We think this is an excellent time to ponder the thoughts of Buffett and Munger.
Fortunately, human behavior has a history of repeating itself at extremes. The worst buying decisions are made at the top. Just like bonds, the convexity is true when yields rise going forward. It’s a slippery slope and could be vexing.
We have enjoyed watching what happens in the late stage of a financial euphoria episode play out in the escapades of millennial investors on Reddit, who seem to “rule the nation.” While politicians, regulators, the media and others try to sort this out, we thought some historical perspective might be helpful.
As we begin 2021, the investing public is tied up in a “frenzy,” to quote Charlie Munger from a recent interview. This “frenzy” can be captured a couple ways.
We were fortunate to watch a recent interview Charlie Munger did with Cal Tech as a distinguished alum. We consider him to be one of the most successful contrarian investment thinkers on the planet. At 96 years of age, he has no fear of being politically incorrect. We contrast this with the mountain of writing, media and rhetoric associated with the topic of climate change.
My wife brought me a box of ornaments that my mother has given to us over the years. I decided to check what I could sell them for on eBay (EBAY). What a great way to look at what is going on in equity capital markets!
As Buffett said, this looks like “one helluva party” with the individual investors, professional investors and insiders all joining in the fun. As a former fraternity member in college, the best parties were always when you couldn’t find anyone missing. It wreaks of that today in the stock market.
David Dreman’s book, Contrarian Investment Strategies, was gospel to investors when it was first published in 1979. Investors had been decimated by markets going nowhere over the prior 10 years. Stock investors were ready for something new. Dreman had produced a lot of success as an investor and wanted to share his gospel of contrarian value investing.
I got very excited when I came across an excerpt from Jordan Ellenberg’s book, How Not to Be Wrong. His book was written to teach readers how much logic and common sense is provided by math. He tells the story of Abraham Wald during World War II, who worked for the Statistical Research Group (SRG).
While listening to Rob Arnott on a recent Morningstar podcast, I became enamored with something that Arnott was emphatic about. He pointed out that the structural advantage of being a contrarian isn’t being smarter. Every winning purchase in the stock market comes as an opportunity cost to the seller.
Due to the pandemic, there is a sense of permanence on Wall Street to what has transpired. This permanence focuses on the changes that we have seen in the recent five months in our daily lives. These changes include shopping online versus shopping in-person, getting takeout versus sitting in a restaurant and working from home instead of talking sports around the water cooler with our colleagues.
The stock market is a big place with thousands of investments that you can make as an investor. It’s a frustrating place. There is a myriad of investing disciplines that you can seek out. As a millennial, my generation is learning this for the first time. Don’t kid yourself for one second: they will destroy wealth.
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.
The oddity of today’s stock market is exactly what any God-fearing value manager should pray for. There are very few scenarios in the last 50 years that can be used to model or forecast what is currently going on.
Late last year, there were three people that we observed as optimistic about the prospects of the oil business. These people were Warren Buffett, Sam Zell and Peter Lynch. In revisiting their comments before and after the shutdown of the economy, we can see that two of the three have significantly altered their opinion.
The capital markets are a highly complex system, where perturbations can cause a tidal change. Every business around the world has been affected by Covid-19. For a profitable business anywhere, this is a calamity. For a business that was losing money before this, it’s a tombstone.
Investors have been awoken to the carnage of the last three weeks. These circumstances, while unenjoyable, may be hiding the actual problems with today’s market. The unforeseen circumstances of today are no different than the past.
In a recent piece, Bloomberg journalist Keith Naughton laid out a wonderful counter-argument to the consensus of opinions for what the future looks like. His piece, “Millennials Could End Up Being a Boon to the U.S. Auto Market,” talks about the good news of the auto businesses future via Benchmark analyst Mike Ward’s research.
One of our favorite financial writers is Bloomberg’s John Authers. He recently wrote a tongue-in-cheek article about an investment company by the name of Hindsight Capital. In hindsight, or in the company’s case, Hindsight Capital, he talked about what the firm did and what you should have done over the last ten years to produce outstanding returns.
One of the exciting buzz words among advisors and institutional investors is ESG, which stands for Environmental, Social and Corporate Governance. This subject is almost always granted a wonderful panel reception at any conference our firm attends as it is the topic du jour.
In 1936, John Maynard Keynes penned his work The General Theory of Employment, Interest and Money. Most of the work was trying to strike against the consensus of economics. Many in the intellectual communities of the west believed in the classical theory of economics.
When baby-boomer adults were in their twenties, we sang along with Mark Knopfler and Dire Straits. Their song, “Money for Nothing” defined the era of music videos. We got cable in 1981 and will admit that we were glued to the TV watching music videos of the bands and performers we loved.
Michael Milken rose to the top of Wall Street by way of the Wharton Business School with Drexel Burnham Lambert in tow. Milken’s work at Wharton was founded on the core theory that bond investors were rewarded by taking junk bond risk.
As rates fall to zero in most of the world, the line that has been ringing in our mind is “You can check out any time you like, but you can never leave!” This is a chorus investors have sung through their capital allocations. We believe the Eagles provided an excellent understanding of what today’s market is giving investors in their song, Hotel California.
The stock market has a history of torturing highly-valued knowledge. About every seven years a consensus forms around the fastest growing sector of the stock market, or the fastest growing country, or the fastest growing industry.
For most millennials like myself the last ten years have formed what we believe the business to be: a bull market reinvigorated by the whims of the Federal Reserve Board. If anchoring is a powerful force in investor behavior, the anchor at the depths of our millennial beliefs is that value hasn’t worked.
As I watched this year’s Berkshire Hathaway Annual Meeting, one thing struck me. There was sheer enthusiasm around the annual shareholder meeting for anything tech-oriented. Yes, it was disclosed that Berkshire had taken a position in Amazon that Friday, but it goes deeper.
Late in bull markets there is often a pervasive excitement that arises. At that time, not all profit margins are created equal. Financial euphoria can cause distortions in industries and businesses.