His comments are analogous to The Washington Post releasing the Pentagon papers in 1971.
We were reminded of this recently by the French Economic Minister Bruno Le Maire. He said, “France took the leadership on taxing Google, Apple, Facebook, Amazon and believe me, we will manage to tax the Internet giants by the end of 2018 or at the latest early 2019 because it’s not only a question of justice but also of sovereignty.” We are enticed by his words, because it sounds like someone has crossed the Maginot line and the allies want to stand their ground. This is a war that we don’t want to fight. There is a myriad of industries that can only benefit from what goes on in this discussion. However, there are much fewer that lose and lose hugely, in our opinion.
Of the 10 largest companies in the S&P 500 Index, five are technology companies. Global dominance at the risk of regulatory and political risk isn’t our goal as investors. We are not alone in abstaining from these risks. In John Train’s book, The Money Masters, Warren Buffett stated in his criteria for stock selection that he wanted to avoid companies that could be subject to regulation.
In June, Rob Arnott said in Barron’s:
History tells us that of the top 10 stocks in the world, eight will disappear over the next decade—if history is any guide Apple might be in the Top 10, but won’t be No. 1. That means it would underperform the market. The rest will fall off the list. So if your investment horizon is 10 years, those top stocks have about a 90 percent chance each of underperforming. Why would you want that?
We are looking to find great businesses that can be bought today that will benefit many years into the future with few needed assumptions.
We’ll leave readers with this last thought. If Americans in 100 years are taking their children to Disneyland, we have foreseeable economics without having to know much. While the hippies may be right that making love would be a good preoccupation, it’s free. People taking their kids to see Mickey, Minnie and riding the Pirates of the Caribbean (my favorite) is not only profitable for us as investors, but we can also join in on the fun.
Cole Smead, CFA, is managing director and portfolio manager at Smead Capital Management.