Smead Says Investors Showing 'Courage'

the phone from Seattle. By the way, the Smeed Value Fund has beaten nearly all of its peers over the past three years, returning on average more than eleven percent. Bill. Great to have you here. I do want to get into your fund specifically, I do want to talk Warren Buffett. But how does a day like today for a value guy? Are you like, oh, great, this is a shopping opportunity for me. Well, it's certainly, And by the way, thanks for having us. It's certainly is good once in a

while to remind people it things can go both directions. Uh, you know, we've had some amazing courage on the part of both investors and then people trading options on high priced common stocks that have been going one direction for four or five months that needed to get their ears pid pin back pretty well, and we've done a pretty good job of doing that in a short period of time. Well, and it's interesting just to go back to, uh, to

where Carol started with Warren Buffett. You know this idea bill that this is all happening just days after we you know, heard the annual letter. We were all read it. Uh, you know, Bloomberg, it's all over it. Every other business journalist is all over it. How do you sort of weave these two together? How do you synthesize what you heard from Uncle Warren and what we're experiencing in the markets right now? Boy, that's a that's a wonderful question.

So first off, uh, Warren Buffett and Charlie Monger have always been the people that would tell us the uncomfortable things in the marketplace. Right If if the junk bond thing was out of control in the late eighties and early nineties, they'd be happy to tell us about it. If the dot com bubble was going wild, Buffett would go to Sun Valley and stand there in front of all the dot com executives and tell them that they were going to get their head handed to them from

a historical perspective. And so what has happened now is the value investing world is devastated. Uh. This is a depression in value investing. And the spiritual leader of value investing admitted in his letter that because of age, uh and and circumstances, uh, he just gonna have We're gonna have to figure this out f ourselves from now on. He's has no urgency in the urgent zone as our

piece today. Uh. So, so therefore, you have to take all the things that you've learned over the years, like be greedy when others are fearful, and and all the things you've learned, and you've got to realize that you're no longer going to get chipped off by Uncle Warren because he doesn't want you depending on him when he's long gone. That's interesting, right, like to kind of come to um kind of an end of an era, right where we really did? I think? I think right? I'm sorry,

go ahead, no idea. I got to be quite honest with you. I was a bit emotional, Uh Saturday, I read the letter and and it just hit me. And in fact, end of an era, Carol, that just keeps coming up over and over again. Our our talk that I do on the road right now is called the antithesis of one. So so I'm sixty one years old, forty years in the business started nineteen eighty and I

was in New York. Uh uh, in fact, stopped into uh folks there at Bloomberg in December, and Paul Volker the week I was in New York, in New York, and in one he was the most powerful economic person in the world. And you can't get a farther antithesis from not being here. That's that's the that's the other extreme. And so then I watched the Super Bowl, and the Hunt family owns a team that won the Super Bowl.

And and that's the family that the Ewing family at Dallas Jr. Ewing was based on one of the Hunt brothers, right right, and and and this stuff just so so we had high inflation and high interest rates and incredibly depressed stock prices. In now we have low inflation and low interest rates, and and and uh. The household ownerships of common stocks and and financial assets has only been

exceeded by the peak of the dot com bubble. And I hear people have good you know, the common sense and so forth, saying things like, well, with these interest rates, uh that the U we're not approaching the ridiculousness of the dot com bubble. But uh, you didn't. You didn't approach the ridiculousness in the nifty fifty and nineteen two or the go go era in nineteen sixties either, and uh so, so it's just we're very much at a

change point here in our opinion, opinion of our firm. Uh, and it is that the next ten years returns are likely to be much more difficult to come by in the US stock market. Number one, Number two, you need to do pretty much the opposite of what the playbooks said to do in one, which was by the longest non callable bonds you could buy, by the S and P five hundred and avoid inflation hedges. And now the playbook says, uh, build houses, sell bonds, avoid glamour growth companies,

and and um and and and by oxy petroleum. By the way, no one has asked Warren Buffett he put ten billion into oxy and then he's been buying it in the open market, and he was on TV for three hours this morning. Nobody asked him about it. Yeah, and so how do you translate that into action for your portfolio bill? What do you look at buying? Are their names out there that fit that pretty specific bill

that you just laid out. Yeah, we so. So we looked at the charter while back in the uh in twenty nine per cent of the S and P was an energy and twelve of the twenty largest fortune companies were oil companies, and now it's four. So we saw

this unbelievable stat the other day. There will be a six percent increase each year in the number of drivers licenses in the United States the next five to ten years because people don't get a driver's license now at sixteen automatically a lot of them a waituntil they're done with college or they need one, you know, maybe they're they get married and have a kid and they need one. So so we're gonna dramatically increase the number of drivers licenses.

And the largest adult population group, millennials, will increase their use of gasoline a hundred and seven percent. Some deep diaper diverseearch from fund Strat told us, and that's ninety million out of a two hundred forty million adults. So I have ninety million people double their use of something. Even if the other hundred fifty million moved towards electric or hybrid cars and they reduce it quite a bit, it's still way more. Ten years later, you're using way

more so. So we we really like oxy and all this. All right, I know that's a top holding as well. Hey, Bill, Always fun to check in with you. Bill Smee, Chief executive Officer, chief investment officer of SMED Capital Management two point two billion in assets under management, based in Seattle, and that's exactly where we found Bill,