In a recent TV appearance on CNBC, the legendary portfolio manager, Bill Miller, argued in favor of owning shares of Amazon (AMZN) because of the immensity of their "addressable markets." As contrarian investors, this got us thinking about our three core tenets of investing, what markets we want to address, and how to spot industries which are near what Sir John Templeton called "the point of maximum pessimism."
Every great growth company hopes to make the transition from fast growth pioneer to sustainable growth blue chip. When the transition occurs, a grand divorce happens between the price-to-earnings (P/E) ratio and the future success of the business. What made us think of this was the annual forecasting dinner of the CFA Society of Seattle on the evening of January 19, 2017.
We are great admirers of the writing of the elite business publications like The New York Times and The Wall Street Journal. They recently stepped into one of our favorite subjects, technology company hegemony, which has developed in the business world in recent years.
Certain economic concepts have been a source of frustration to investors over the years. The movement of bond prices up or down to bring existing bonds in line with prevailing interest rates would be one example.
Over a three-year time period, stock prices tend to mean revert. This has spawned numerous investment approaches which try to squeeze capital gains out of those reversions.
It was announced on December 15, 2016 that the current Chairman of the Federal Communications Commission (FCC), Thomas Wheeler, would be stepping down as of January 20, 2017. He has been the lead arbitrator and backer of a concept called “Net Neutrality.”
We at Smead Capital Management are in the camp of long-duration investors who believe we’ve entered an extended period of intermittent interest rate increases, a reversal from the 35-year era of intermittent declining rates we have experienced since 1981.
As long-duration common stock pickers we seek to buy meritorious companies which fit our eight criteria for stock selection.
During our discussions with clients in October we were asked repeatedly what the outcome of the Presidential election would do to our investments.
As an observer of ten presidential election cycles while working in the investment business, we thought it would be a good thing to give the current stock market environment some historical context.