We are at the point in this nasty bear market where those who are buying the glamour tech stocks of the last ten years (on the way down) are at a crucible. To understand the emotions of those owning the S&P 500 Index and growth-oriented common stocks we will look to the lyrics of the classic song, “At This Moment”:
What did you think I would do at this moment? When you're standing before me With tears in your eyes Tryin' to tell me that you Found you another And you just don't love me no more
What did you think investors would do at this moment when deep cracks in the FAANG stocks have developed? The answer is they have done the same thing they did with tech stocks in 2000-2002, they bought them all the way down! Now they are “standing before me with tears in their eyes.” The bad news for the index investors is that they have not found another set of companies to love.
What did you think I would say at this moment? When I'm faced with the knowledge That you just don't love me Did you think I would curse you Or say things to hurt you 'Cause you just don't love me no more
What did you think we would say at this moment? At this point in the bear market, the liquidation is dragging down all stocks, and in the process “throwing the babies out with the bath water.” We are called as long-duration investors to buy the bargains which will be created by the capitulation of the masses during the next 12 months. We are loading up on the companies which could lead the next bull market, which history shows won’t be anywhere like the prior bull market.
Did you think I could hate you? Or raise my hands to you? Now come on girl you know me too well How could I hurt you? When darling I love you And you know I'd never, never hurt you
Just so you know, we at Smead Capital Management never hate stocks because our goal is to get rich slowly. We have learned that these bear markets are necessary to purge the sins of the prior financial euphoria episode that preceded this current grief. We will pick among the rubble over the next twelve months in the shares of companies we avoided due to their popularity and the overestimation of their moats.
What do you think I would give at this moment? If you stay I'd subtract twenty years from my life I'd fall down on my knees Kiss the ground that you walk on If I could just hold you again I'd fall down on my knees Kiss the ground that you walk on baby If I could just hold you... Again
What do you think we will give at this moment if our investors stay in their chairs and ride through this? We think we can give them some of the leaders in the next bull market in sectors like oil and gas, home building, class A mall REITs, medicine and banking. These leaders will make their money providing necessities to the millennials who are in the 26-43-year-old age range when households are formed and babies are born. There have been more weddings so far in 2022 than any year in the prior ten years.
At this moment we are doubling down on our eight criteria for common stock selection and the bull market in commodities/land which broke out during the pandemic. What this means is that we are doing what we always try to do and that means that we expect to perform well going forward. Thank you for your confidence and trust. As always, fear stock market failure!
