Third, cheap stocks beat average and expensive ones over long time periods and beat them more heavily from the end of popular growth stock imagination phases.
Fourth, medical science is exploding. Treatment for migraine headaches, high bad cholesterol and many forms of cancer could massively improve and extend life. See the following BAML chart and look at the most unpopular U.S. sector for Global stock pickers:
Fifth, the population of college-educated/young families will soar by sheer demographics and the economy should benefit from the multiplier effect taught in macroeconomics (thank you, Dr. Philpot).
Lastly, interest rates are likely to rise on the back of a better economy. In previous rising rate environments, value stocks have pummeled growth stocks as increasing interest rates crush the discounting of futuristic earnings based on “popular imagination” and momentum-based extrapolation.
John Maynard Keynes might have given us a look at what today’s investors may actually be doing in the U.S. stock market by stating, “(they) are governed by doubt rather than conviction, by fear more than forecast, by memories of last time and not by foreknowledge of next time. The level of stock exchange prices does not mean that investors know, it means they do not know.”
We can only imagine what the next 10 years will be like for U.S. stocks, but George Friedman would argue it isn’t going to be what the majority of individual and professional investors expect. In fact, we believe it will be the things you least expect which end up happening. We like owning unpopular quality stocks, which we imagine could lead us to something closer to investment heaven.
William Smead is CIO and CEO of Smead Capital Management.
