Speaker 1: This is Bloomberg Business Week with Carol Messer and Jason
Speaker 1: Kelly on Bloomberg Radio. So our next guest is a
Speaker 1: value investor, much like Warren Buffett and Berkshire Hathaway. Berkshire
Speaker 1: is among his top fifteen or I think twenty holdings.
Speaker 1: Joining us once again is Bill Smeed, CEO and Chief
Speaker 1: investment Officer at SMED Capital Management two point two billion
Speaker 1: in assets under management. Bill joining us once again on
Speaker 1: the phone from Seattle. By the way, the Smeed Value
Speaker 1: Fund has beaten nearly all of its peers over the
Speaker 1: past three years, returning on average more than eleven percent. Bill.
Speaker 1: Great to have you here. I do want to get
Speaker 1: into your fund specifically, I do want to talk Warren Buffett.
Speaker 1: But how does a day like today for a value guy?
Speaker 1: Are you like, oh, great, this is a shopping opportunity
Speaker 1: for me. Well, it's certainly, And by the way, thanks
Speaker 1: for having us. It's certainly is good once in a
Speaker 1: while to remind people it things can go both directions. Uh,
Speaker 1: you know, we've had some amazing courage on the part
Speaker 1: of both investors and then people trading options on high
Speaker 1: priced common stocks that have been going one direction for
Speaker 1: four or five months that needed to get their ears
Speaker 1: pid pin back pretty well, and we've done a pretty
Speaker 1: good job of doing that in a short period of time. Well,
Speaker 1: and it's interesting just to go back to, uh, to
Speaker 1: where Carol started with Warren Buffett. You know this idea
Speaker 1: bill that this is all happening just days after we
Speaker 1: you know, heard the annual letter. We were all read it. Uh,
Speaker 1: you know, Bloomberg, it's all over it. Every other business
Speaker 1: journalist is all over it. How do you sort of
Speaker 1: weave these two together? How do you synthesize what you
Speaker 1: heard from Uncle Warren and what we're experiencing in the
Speaker 1: markets right now? Boy, that's a that's a wonderful question.
Speaker 1: So first off, uh, Warren Buffett and Charlie Monger have
Speaker 1: always been the people that would tell us the uncomfortable
Speaker 1: things in the marketplace. Right If if the junk bond
Speaker 1: thing was out of control in the late eighties and
Speaker 1: early nineties, they'd be happy to tell us about it.
Speaker 1: If the dot com bubble was going wild, Buffett would
Speaker 1: go to Sun Valley and stand there in front of
Speaker 1: all the dot com executives and tell them that they
Speaker 1: were going to get their head handed to them from
Speaker 1: a historical perspective. And so what has happened now is
Speaker 1: the value investing world is devastated. Uh. This is a
Speaker 1: depression in value investing. And the spiritual leader of value
Speaker 1: investing admitted in his letter that because of age, uh
Speaker 1: and and circumstances, uh, he just gonna have We're gonna
Speaker 1: have to figure this out f ourselves from now on.
Speaker 1: He's has no urgency in the urgent zone as our
Speaker 1: piece today. Uh. So, so therefore, you have to take
Speaker 1: all the things that you've learned over the years, like
Speaker 1: be greedy when others are fearful, and and all the
Speaker 1: things you've learned, and you've got to realize that you're
Speaker 1: no longer going to get chipped off by Uncle Warren
Speaker 1: because he doesn't want you depending on him when he's
Speaker 1: long gone. That's interesting, right, like to kind of come
Speaker 1: to um kind of an end of an era, right
Speaker 1: where we really did? I think? I think right? I'm sorry,
Speaker 1: go ahead, no idea. I got to be quite honest
Speaker 1: with you. I was a bit emotional, Uh Saturday, I
Speaker 1: read the letter and and it just hit me. And
Speaker 1: in fact, end of an era, Carol, that just keeps
Speaker 1: coming up over and over again. Our our talk that
Speaker 1: I do on the road right now is called the
Speaker 1: antithesis of one. So so I'm sixty one years old,
Speaker 1: forty years in the business started nineteen eighty and I
Speaker 1: was in New York. Uh uh, in fact, stopped into
Speaker 1: uh folks there at Bloomberg in December, and Paul Volker
Speaker 1: the week I was in New York, in New York,
Speaker 1: and in one he was the most powerful economic person
Speaker 1: in the world. And you can't get a farther antithesis
Speaker 1: from not being here. That's that's the that's the other extreme.
Speaker 1: And so then I watched the Super Bowl, and the
Speaker 1: Hunt family owns a team that won the Super Bowl.
Speaker 1: And and that's the family that the Ewing family at
Speaker 1: Dallas Jr. Ewing was based on one of the Hunt brothers,
Speaker 1: right right, and and and this stuff just so so
Speaker 1: we had high inflation and high interest rates and incredibly
Speaker 1: depressed stock prices. In now we have low inflation and
Speaker 1: low interest rates, and and and uh. The household ownerships
Speaker 1: of common stocks and and financial assets has only been
Speaker 1: exceeded by the peak of the dot com bubble. And
Speaker 1: I hear people have good you know, the common sense
Speaker 1: and so forth, saying things like, well, with these interest rates,
Speaker 1: uh that the U we're not approaching the ridiculousness of
Speaker 1: the dot com bubble. But uh, you didn't. You didn't
Speaker 1: approach the ridiculousness in the nifty fifty and nineteen two
Speaker 1: or the go go era in nineteen sixties either, and
Speaker 1: uh so, so it's just we're very much at a
Speaker 1: change point here in our opinion, opinion of our firm. Uh,
Speaker 1: and it is that the next ten years returns are
Speaker 1: likely to be much more difficult to come by in
Speaker 1: the US stock market. Number one, Number two, you need
Speaker 1: to do pretty much the opposite of what the playbooks
Speaker 1: said to do in one, which was by the longest
Speaker 1: non callable bonds you could buy, by the S and
Speaker 1: P five hundred and avoid inflation hedges. And now the
Speaker 1: playbook says, uh, build houses, sell bonds, avoid glamour growth companies,
Speaker 1: and and um and and and by oxy petroleum. By
Speaker 1: the way, no one has asked Warren Buffett he put
Speaker 1: ten billion into oxy and then he's been buying it
Speaker 1: in the open market, and he was on TV for
Speaker 1: three hours this morning. Nobody asked him about it. Yeah,
Speaker 1: and so how do you translate that into action for
Speaker 1: your portfolio bill? What do you look at buying? Are
Speaker 1: their names out there that fit that pretty specific bill
Speaker 1: that you just laid out. Yeah, we so. So we
Speaker 1: looked at the charter while back in the uh in
Speaker 1: twenty nine per cent of the S and P was
Speaker 1: an energy and twelve of the twenty largest fortune companies
Speaker 1: were oil companies, and now it's four. So we saw
Speaker 1: this unbelievable stat the other day. There will be a
Speaker 1: six percent increase each year in the number of drivers
Speaker 1: licenses in the United States the next five to ten
Speaker 1: years because people don't get a driver's license now at
Speaker 1: sixteen automatically a lot of them a waituntil they're done
Speaker 1: with college or they need one, you know, maybe they're
Speaker 1: they get married and have a kid and they need one.
Speaker 1: So so we're gonna dramatically increase the number of drivers licenses.
Speaker 1: And the largest adult population group, millennials, will increase their
Speaker 1: use of gasoline a hundred and seven percent. Some deep
Speaker 1: diaper diverseearch from fund Strat told us, and that's ninety
Speaker 1: million out of a two hundred forty million adults. So
Speaker 1: I have ninety million people double their use of something.
Speaker 1: Even if the other hundred fifty million moved towards electric
Speaker 1: or hybrid cars and they reduce it quite a bit,
Speaker 1: it's still way more. Ten years later, you're using way
Speaker 1: more so. So we we really like oxy and all this.
Speaker 1: All right, I know that's a top holding as well. Hey, Bill,
Speaker 1: Always fun to check in with you. Bill Smee, Chief
Speaker 1: executive Officer, chief investment officer of SMED Capital Management two
Speaker 1: point two billion in assets under management, based in Seattle,
Speaker 1: and that's exactly where we found Bill,