WEBVTT - Smead Says Investors Showing 'Courage'

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<v Speaker 1>This is Bloomberg Business Week with Carol Messer and Jason

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<v Speaker 1>Kelly on Bloomberg Radio. So our next guest is a

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<v Speaker 1>value investor, much like Warren Buffett and Berkshire Hathaway. Berkshire

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<v Speaker 1>is among his top fifteen or I think twenty holdings.

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<v Speaker 1>Joining us once again is Bill Smeed, CEO and Chief

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<v Speaker 1>investment Officer at SMED Capital Management two point two billion

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<v Speaker 1>in assets under management. Bill joining us once again on

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<v Speaker 1>the phone from Seattle. By the way, the Smeed Value

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<v Speaker 1>Fund has beaten nearly all of its peers over the

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<v Speaker 1>past three years, returning on average more than eleven percent. Bill.

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<v Speaker 1>Great to have you here. I do want to get

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<v Speaker 1>into your fund specifically, I do want to talk Warren Buffett.

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<v Speaker 1>But how does a day like today for a value guy?

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<v Speaker 1>Are you like, oh, great, this is a shopping opportunity

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<v Speaker 1>for me. Well, it's certainly, And by the way, thanks

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<v Speaker 1>for having us. It's certainly is good once in a

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<v Speaker 1>while to remind people it things can go both directions. Uh,

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<v Speaker 1>you know, we've had some amazing courage on the part

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<v Speaker 1>of both investors and then people trading options on high

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<v Speaker 1>priced common stocks that have been going one direction for

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<v Speaker 1>four or five months that needed to get their ears

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<v Speaker 1>pid pin back pretty well, and we've done a pretty

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<v Speaker 1>good job of doing that in a short period of time. Well,

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<v Speaker 1>and it's interesting just to go back to, uh, to

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<v Speaker 1>where Carol started with Warren Buffett. You know this idea

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<v Speaker 1>bill that this is all happening just days after we

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<v Speaker 1>you know, heard the annual letter. We were all read it. Uh,

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<v Speaker 1>you know, Bloomberg, it's all over it. Every other business

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<v Speaker 1>journalist is all over it. How do you sort of

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<v Speaker 1>weave these two together? How do you synthesize what you

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<v Speaker 1>heard from Uncle Warren and what we're experiencing in the

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<v Speaker 1>markets right now? Boy, that's a that's a wonderful question.

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<v Speaker 1>So first off, uh, Warren Buffett and Charlie Monger have

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<v Speaker 1>always been the people that would tell us the uncomfortable

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<v Speaker 1>things in the marketplace. Right If if the junk bond

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<v Speaker 1>thing was out of control in the late eighties and

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<v Speaker 1>early nineties, they'd be happy to tell us about it.

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<v Speaker 1>If the dot com bubble was going wild, Buffett would

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<v Speaker 1>go to Sun Valley and stand there in front of

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<v Speaker 1>all the dot com executives and tell them that they

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<v Speaker 1>were going to get their head handed to them from

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<v Speaker 1>a historical perspective. And so what has happened now is

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<v Speaker 1>the value investing world is devastated. Uh. This is a

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<v Speaker 1>depression in value investing. And the spiritual leader of value

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<v Speaker 1>investing admitted in his letter that because of age, uh

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<v Speaker 1>and and circumstances, uh, he just gonna have We're gonna

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<v Speaker 1>have to figure this out f ourselves from now on.

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<v Speaker 1>He's has no urgency in the urgent zone as our

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<v Speaker 1>piece today. Uh. So, so therefore, you have to take

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<v Speaker 1>all the things that you've learned over the years, like

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<v Speaker 1>be greedy when others are fearful, and and all the

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<v Speaker 1>things you've learned, and you've got to realize that you're

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<v Speaker 1>no longer going to get chipped off by Uncle Warren

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<v Speaker 1>because he doesn't want you depending on him when he's

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<v Speaker 1>long gone. That's interesting, right, like to kind of come

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<v Speaker 1>to um kind of an end of an era, right

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<v Speaker 1>where we really did? I think? I think right? I'm sorry,

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<v Speaker 1>go ahead, no idea. I got to be quite honest

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<v Speaker 1>with you. I was a bit emotional, Uh Saturday, I

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<v Speaker 1>read the letter and and it just hit me. And

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<v Speaker 1>in fact, end of an era, Carol, that just keeps

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<v Speaker 1>coming up over and over again. Our our talk that

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<v Speaker 1>I do on the road right now is called the

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<v Speaker 1>antithesis of one. So so I'm sixty one years old,

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<v Speaker 1>forty years in the business started nineteen eighty and I

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<v Speaker 1>was in New York. Uh uh, in fact, stopped into

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<v Speaker 1>uh folks there at Bloomberg in December, and Paul Volker

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<v Speaker 1>the week I was in New York, in New York,

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<v Speaker 1>and in one he was the most powerful economic person

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<v Speaker 1>in the world. And you can't get a farther antithesis

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<v Speaker 1>from not being here. That's that's the that's the other extreme.

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<v Speaker 1>And so then I watched the Super Bowl, and the

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<v Speaker 1>Hunt family owns a team that won the Super Bowl.

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<v Speaker 1>And and that's the family that the Ewing family at

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<v Speaker 1>Dallas Jr. Ewing was based on one of the Hunt brothers,

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<v Speaker 1>right right, and and and this stuff just so so

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<v Speaker 1>we had high inflation and high interest rates and incredibly

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<v Speaker 1>depressed stock prices. In now we have low inflation and

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<v Speaker 1>low interest rates, and and and uh. The household ownerships

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<v Speaker 1>of common stocks and and financial assets has only been

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<v Speaker 1>exceeded by the peak of the dot com bubble. And

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<v Speaker 1>I hear people have good you know, the common sense

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<v Speaker 1>and so forth, saying things like, well, with these interest rates,

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<v Speaker 1>uh that the U we're not approaching the ridiculousness of

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<v Speaker 1>the dot com bubble. But uh, you didn't. You didn't

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<v Speaker 1>approach the ridiculousness in the nifty fifty and nineteen two

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<v Speaker 1>or the go go era in nineteen sixties either, and

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<v Speaker 1>uh so, so it's just we're very much at a

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<v Speaker 1>change point here in our opinion, opinion of our firm. Uh,

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<v Speaker 1>and it is that the next ten years returns are

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<v Speaker 1>likely to be much more difficult to come by in

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<v Speaker 1>the US stock market. Number one, Number two, you need

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<v Speaker 1>to do pretty much the opposite of what the playbooks

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<v Speaker 1>said to do in one, which was by the longest

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<v Speaker 1>non callable bonds you could buy, by the S and

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<v Speaker 1>P five hundred and avoid inflation hedges. And now the

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<v Speaker 1>playbook says, uh, build houses, sell bonds, avoid glamour growth companies,

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<v Speaker 1>and and um and and and by oxy petroleum. By

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<v Speaker 1>the way, no one has asked Warren Buffett he put

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<v Speaker 1>ten billion into oxy and then he's been buying it

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<v Speaker 1>in the open market, and he was on TV for

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<v Speaker 1>three hours this morning. Nobody asked him about it. Yeah,

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<v Speaker 1>and so how do you translate that into action for

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<v Speaker 1>your portfolio bill? What do you look at buying? Are

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<v Speaker 1>their names out there that fit that pretty specific bill

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<v Speaker 1>that you just laid out. Yeah, we so. So we

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<v Speaker 1>looked at the charter while back in the uh in

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<v Speaker 1>twenty nine per cent of the S and P was

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<v Speaker 1>an energy and twelve of the twenty largest fortune companies

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<v Speaker 1>were oil companies, and now it's four. So we saw

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<v Speaker 1>this unbelievable stat the other day. There will be a

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<v Speaker 1>six percent increase each year in the number of drivers

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<v Speaker 1>licenses in the United States the next five to ten

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<v Speaker 1>years because people don't get a driver's license now at

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<v Speaker 1>sixteen automatically a lot of them a waituntil they're done

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<v Speaker 1>with college or they need one, you know, maybe they're

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<v Speaker 1>they get married and have a kid and they need one.

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<v Speaker 1>So so we're gonna dramatically increase the number of drivers licenses.

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<v Speaker 1>And the largest adult population group, millennials, will increase their

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<v Speaker 1>use of gasoline a hundred and seven percent. Some deep

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<v Speaker 1>diaper diverseearch from fund Strat told us, and that's ninety

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<v Speaker 1>million out of a two hundred forty million adults. So

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<v Speaker 1>I have ninety million people double their use of something.

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<v Speaker 1>Even if the other hundred fifty million moved towards electric

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<v Speaker 1>or hybrid cars and they reduce it quite a bit,

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<v Speaker 1>it's still way more. Ten years later, you're using way

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<v Speaker 1>more so. So we we really like oxy and all this.

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<v Speaker 1>All right, I know that's a top holding as well. Hey, Bill,

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<v Speaker 1>Always fun to check in with you. Bill Smee, Chief

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<v Speaker 1>executive Officer, chief investment officer of SMED Capital Management two

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<v Speaker 1>point two billion in assets under management, based in Seattle,

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<v Speaker 1>and that's exactly where we found Bill,