We have no way of knowing whether Amazon will succeed enough in the future to justify buying it today and holding it for a long time. We do think we know that our basket of companies is offered at reasonable/bargain prices in relation to the S&P 500 Index. We also believe that some part of them will survive and prosper with high returns on equity for a long time. Based on Munger’s teaching, if they do survive and prosper, we could end up with “one hell of a result.” Here are his thoughts on tortoise stocks versus hare stocks:
“It is occasionally possible for a tortoise, content to assimilate proven insights of his best predecessors, to outrun hares that seek originality or don’t wish to be left out of some crowd folly that ignores the best work of the past. This happens as the tortoise stumbles on some particularly effective way to apply the best previous work, or simply avoids standard calamities. We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
Lastly, our best way of thinking about this investment contrast is imagining that we were the wealthiest person on earth and we could afford an investment of $740 billion. Would we buy the whole company called Amazon or would it be obvious to us to buy the other 12 companies that fit our eight criteria for close to the same amount?
William Smead is CIO and CEO of Smead Capital Management.