Investment Approach
The culmination of History, Psychology and Mathematics followed by Strong Communication
It has always been our approach to try to achieve results by developing and applying knowledge and insight in three core disciplines: History, Psychology and Mathematics. We also value a fourth discipline, Communication, as the means of ushering our clients and investors through the investment process.
History
In the words of Mark Twain, “History never repeats itself, but it rhymes.” No two situations are exactly the same. Must we then abandon the lessons of the past by dwelling on the differences between then and now? Smead Capital Management says no. The law of supply and demand will not be violated in the long run and business cycles will not be repealed. To be a visionary, one must be able to recognize the true ‘rhymes’ of history within the current context, and demonstrate the courage to take appropriate action.
Psychology
If the stock market behaved strictly according to the laws of Economics, investing would be easy. It’s human behavior that creates the uncertainty. Through constant observation and analysis, we are always striving to refine our understanding of the stock market in terms of crowd psychology to better predict and respond to changes. The ability to feel the pulse of the investor community is an invaluable skill.
Mathematics
We have a deep respect for mathematical probabilities and reversion to the mean. These play a major role in our Eight Investment Criteria. We believe sound mathematical analysis helps us discern public perception from economic reality to uncover companies with the fundamentals to outperform other stocks in the long run.
Communication
Given the long-term nature of investing, it is especially important to clearly communicate our reasoning so that clients and investors will understand why we act (or choose not to act) in response to various market conditions and/or investor hysterias.