Too Active, Too Passive: Too Little Understanding (Smead)

February 20, 2013

9 minute read

In conclusion, we believe that there are very few stock-picking organizations which are practicing these disciplines today. To paraphrase Buffett, hardly anyone does the discipline, but everyone we know who does it succeeds over long-duration periods. In our opinion, the scarcity of dedicated participants raises the alpha available to the ones who are practicing the discipline. The popularity of indexing and the defensive busyness of “active” managers have created a significant reduction of competition in stock picking. This raises profit margins (alpha) in stock picking, as a reduction in competition does in any other industry. Therefore, we believe that those who advise and manage wealth should make the effort to understand this discipline and benefit from this market dislocation. We believe stock-picking organizations, financial advisors, and institutional investors need to recognize these possibilities.

Best Wishes,

William Smead

The information contained in this missive represents SCM’s opinions, and should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results. It should not be assumed that investing in any securities mentioned above will or will not be profitable. A list of all recommendations made by Smead Capital Management within the past twelve month period is available upon request.

This Missive and others are available at smeadcap.com

Previous page 1 2

Author

Smead Capital Management

Smead Capital Management is a registered investment advisor headquartered in Seattle, WA with an office in London, UK. The firm was founded in 2007. The company was formed to allow investors to benefit from long-term ownership of common stocks meeting the firm’s eight investment criteria. The firm manages a US Large Cap equity strategy in separate accounts and mutual funds for advisors, family offices and institutions.

William Smead is the founder of Smead Capital Management, where he oversees all activities of the firm. As Chief Investment Officer, he is the final decision-maker for all investment and portfolio decisions as well as reviewing the implementation of those decisions in the firm’s separate accounts and mutual funds.

William began his career in the investment business with Drexel Burnham Lambert in 1980. He left Drexel Burham Lambert in 1989 as First Vice President/Assistant Manager and joined Oppenheimer & Co., where he stayed until joining Smith Barney in 1990. William remained at Smith Barney until September 2001 when he joined Wachovia Securities becoming the Managing Director/Portfolio Manager of Smead Investment Group of Wachovia Securities. In 2007, William left Wachovia Securities to found Smead Capital Management.