Where does this “insatiable” demand for “safe” investments take us? Warren Buffett compares it to the story of Cinderella. The party is great until the clock strikes midnight and everything turns into pumpkins and mice. It takes us to losses for the pumpkin-like Treasury bonds. Those who owned the popular stocks, which investors have committed to out of fear, will run around like mice. This “insatiable” demand, which is based on fear and can’t be satisfied, could and should lead to the same kind of misery which all previous episodes produced.
What we do at Smead Capital Management is not called fearing, it is called investing. We believe you should stop trying to avoid risk and try to take good risks. Where is there very little demand for meritorious companies at exceptional prices? We like financials hurt by the low interest rates and biotechnology stocks which are very profitable, but whose growth has slowed. Finally, we like old media stocks with copious free cash flow and sticky advertising mediums. In fact, we have an “insatiable” urge to be very patient and avoid the risk of being late to a party which includes a dangerous pursuit of “safety.”
1Source: Marketwatch.com
2Source: USA Today
3Source: CBC News
4Source: Bloomberg.
5Source: Bloomberg.
William Smead is CEO and chief investment officer at Smead Capital Management.