It is our opinion that the most important question in stock picking is one related to the Millennial group. Will they drive the U.S. Economy in 2015 through 2020 and in the process greatly impact the long-term profitability of the businesses which benefit the most from their emergence?

As we enter 2015, we at Smead Capital Management would like to separate how unsuccessful investors use Mr. Market and how successful investors use his "voluntary" participation in the stock market.

Its only after the animals are out of the barn that investors want to close the door. This means attempting to make most of the money from participating in common stocks, but somehow regularly going to cash in the worst declines.

The "well known fact" with regards to oil over the last decade read like this: because of huge GDP growth in emerging markets like China, there were going to be 400 million new middle class citizens born of uninterrupted prosperity; they were going to want all the autos, consumer goods, $10,000 watches and food that Americans have.

We have been out on the road telling the story of Smead Capital Management and explaining our portfolio of common stocks. One of the many benefits of these meetings is the feedback we get from existing investors, potential investors, the financial media and other interested parties.

The economies of China and the United States appear to be headed in the opposite direction. Chinas economy is decelerating fast and the U.S. looks right on the cusp of having its economic growth accelerate, as evidenced by the revised quarterly GDP number of 3.9% released on November 25th, 2014.

A great deal has been written about how lower gasoline prices could stimulate discretionary purchases in the United States. RBOB gasoline futures peaked on June 20, 2014 at $3.12 per gallon and closed on November the 14th at $2.04. Those in the bearish camp like Randall Forsyth at Barrons argue that lower oil and gas prices will negate and ruin the economic benefit of the oil boom.

Two long-time friends go up in the mountains on a hunting trip. At 4:30 A.M. of the second day, one of the men wakes up at one end of the tent to find his buddy dressing and putting on his running shoes at the other end. He asks him what he is doing. His friend says, There is a bear outside our tent. The other guy exclaims, You cant outrun a bear! His friend replies, I dont have to outrun the bear, I just have to outrun you.

As a recovering amateur athletethe pinnacle of my athletic career was four years of Division III college golfone concept became obvious at almost every level of athletic endeavor: let the game come to you. Rather than trying to impose your will on the opposing team or opposing player very quickly, you instead seek to discover your opponents weaknesses and use the duration of the contest to establish your superiority.

As value stock picking managers, we assume we will be operating in a bifurcated equity environment. We think the bifurcation will be between sectors of the stock market which appear over-capitalized due to rear-view mirror success and those which look undervalued when considering the present value of their future income stream. The combination of numerous forces, both positive and negative, will most likely create this bifurcation.

Someone recently asked a group of us which band we saw at our first rock concert. My answer was the Canadian band, The Guess Who, in 1975. With hits like No Time, Undun and These Eyes, The Guess Who hit the perfect balance between my 17-year old testosterone driven aggressiveness and my urge to romance the woman of my dreams. The key members of the band in the 1960s and 1970s were Burton Cummings and Randy Bachman.

Wed like to ask a self serving and much nuanced question: is your active equity portfolio manager buying businesses for you or are they trying to guess what the stock market will do in the next month or few years? Much like Samuel L. Jackson asks, Whats in your wallet? in television commercials, wed like to ask, Whats in your portfolio?

A great deal of confusion exists today about the merits of passive investing as compared to well-researched active management. An added layer of confusion arose in March when Warren Buffett explained that 90% of his widows money would be invested in a low-cost S&P 500 index fund. If this summer was a football game, 15-yard personal foul penalties would be thrown everywhere as experts piled on top of that announcement.

Since the stock market has done extremely well from its abyss-like low in March of 2009, many investors are worried about the risks associated with owning U.S. large-cap stocks. A cacophony of articles have been written which not only look for the stock market to correct, but also have an expectation of the kind of bear market decline which would set investors back for five years, like the declines in 2000-02 and 2007-09. Those declines each hit the S&P 500 Index for a loss of 40% or more.

Globalization has created an interconnection between major world economies and commodity prices. China, as the world's most populous country, rearranged the commodity landscape by growing their economy at double-digit compounded rates from 2000-2010. By doubling their use of oil, copper and other major commodities, China created a golden era for commodity investors and everyone involved in oil exploration and production.

Financial advisors and registered investment advisors feel severe pressure to throw in the towel on manager selection methodologies and accept index returns. Yet, many of these stories forget one central concept: indexes are actually inexpensive actively-managed portfolios. Every actively managed fund is an index itself.

The Comic-Con convention comes to Seattle every year. The city teams with 15 to 45-year-old folks who love to emulate their favorite comic and movie characters. We have joked lately that we should hire a young woman to dress up like Dorothy from the Wizard of Oz and come with us when we speak in public. Wed have her click her ruby red heals together and say, There is no place like home!

As someone who came into the investment business in 1980, I was immediately enamored by the logic of Sir John Templeton. He was the founder and portfolio manager during the first 40 years of the Templeton Growth Fund. During his tenure the fund beat the S&P 500 Index by 2% per year, net of annual expenses. We believe his best concept as a contrarian investor was his idea of buying common stocks at the point of maximum pessimism.

Recently we heard a market prognosticator declare that we could have a 30 percent decline in stock prices in the next 12 months. Presumably because investors fear starting over again, like many did at the market bottom in 2009, the talking head had ample emotion on which to make such a grandiose assertion. This fear of starting over reminded me of the recent Tom Cruise movie, "Edge of Tomorrow," where Tom Cruise plays a soldier forced to live the same day again and again in efforts to develop answers on how to defeat a force which would end the world. Hence, living on the "Edge

Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful. We often hear the last part of this wonderful quote from Warren Buffett, but here at Smead Capital, we find the beginning just as instructive. We thought we would unpack the entirety of his thoughts and dissect it for our faithful investors.

On my way home from work recently my progress was impinged by a group of protesters headed up 4th Avenue in downtown Seattle to the headquarters of the Gates Foundation. Bill and Melinda Gates are spending millions trying to figure out how to make the U.S. education system more efficient and successful. Some of their recommendations are thought to damage efforts by the most powerful teachers unions to protect the interests of teachers. The Gates Foundation wants to bring efficiency and seems to understand that they need to be agnostic in their approach.

We continue to be encouraged by the endless interest in doomsday writing about the next 2008 and the way asset allocators have positioned themselves to defend against its possibility. The most popular writers seem convinced dismal returns are in front of us, economic success in the US is impossible and that the next US stock market decline will punish fully-invested common stock owners. It is our belief the next ten years will include two bear markets of over 20%.

At Smead Capital Management we are conscious of the few, but significant pitfalls which we believe exist for the long-duration common stock investor. One of the main pitfalls we want to avoid is the over-capitalization curse. This is a situation where investor enthusiasm gets very high, prices get historically high and investors drown the company, industry or sector with capital. In our experience, it pays to avoid the over-capitalized areas for as long as five to ten years as they work their way back to being hated and contentious.

The first time I saw the movie, Napoleon Dynamite, I walked out of the theater before the final wedding scene. This caused me to miss Napoleons brother Kip singing "Always and Forever" to his new bride, LaFawnduh. The key line in the song was, "I love technology, but not as much as you, you see!" Kip found LaFawnduh "in a chat room," which indebted him to technology.

Howard Gold is an inquisitive writer for Marketwatch.com and we think has done us all a great favor in his latest column titled, Not even a bull market can interest people in stocks. He points out via the chart below thatdespite a huge rebound the last five years in US common stocksequity holdings as a percentage of global investable assets just climbed to levels only seen at major stock market low points. Relative to the past 50 years, this stock market has been abandoned and orphaned even as it had made participants wealthy.

We at Smead Capital Management have been discussing some of the follies common to human nature and what we see as some pervasive trends in the investing world. These conversations got us imagining what C.S. Lewiss, The Screwtape Letters, might sound like if they were applied to todays investment environment. The satirical letters are written by an advice-giving bureaucrat in Hell named Screwtape, to his nephew Wormwood, a young demon who is learning how to lead humans astray. Taking some liberty with Lewiss work, we present what we believe Screwtape might say if he were tr

Instead of behaving wisely, we think investors have been "throwing babies out with the bath water" this year. We believe speculators have fled out of the Biotech ETFs and have unwittingly sold Amgen (AMGN) between $129 and $109 per share because it is the largest holding of most of these targeted vehicles. From our vantage point, investors have tossed out EBAY (EBAY) in the internet space, Gannett (GCI) in media, Pfizer (PFE) in Pharma and Bank of America (BAC) and JP Morgan (JPM) in the banking sector.

In this missive we will explain why we believe the patient benefit at the expense of the impatient and why those who over-think the stock market are incredibly inefficient and move their money to those with less complicated views on finance.

Here you will find our review of the 2014 Berkshire Hathaway Annual Shareholder Meeting. As we consider these men pioneers of long-duration common stock investing, we wanted to share what we believe were the best nuggets of wisdom from the weekend.

At Smead Capital Management, we often get asked if we visit the top management of the companies we research. While we read everything we can and do get exposed to the management of our companies over time, we believe it extends credulity to think that a 15 to 30 minute meeting with a senior executive of one of our firms is going to produce alpha for our clients. And, even if the meetings were useful, is there a single senior manager in the US who would tell us that they have big problems around the bend or that their common stock is immensely over-valued?

In his book, Great by Choice, Jim Collins points out that companies he defines as great have good luck and bad luck just like all the other companies do. The great companies handle difficult circumstances better than good companies and take the most advantage of the breaks they get in business.

At Smead Capital Management, we believe that everyone who invests has faith in someone or something. We also believe that who and what you put your faith into is greatly influenced by the time period involved. As we look out into the rest of 2014 and beyond, we would like to consider the kind of faith required by the largest pools of investment dollars in the US. This includes looking at who they are trusting, what they are trusting in, and what time frames they are operating under.

Many years ago, United Airlines had the slogan, "Fly the Friendly Skies." At Smead Capital Management, we like to own companies for a long time which are "friendly" to their public shareholders. In this missive, we will define what it means in our eyes to be shareholder friendly and give a company specific example of this friendliness.

At Smead Capital Management, valuation matters dearly. We believe all the academic studies from Fama-French, Bauman-Conover-Miller and Francis Nicholson, show that cheap stocks as measured by price-to-book value (P/B), price-to-earnings (P/E) or price-to-dividends outperform more expensive stocks. We especially love Nicholson?s 25-year study because it shows that the 100 cheapest stocks that make up the lowest P/E quintile see their outperformance expand the longer you hold them. Cheapness is the gift that keeps on giving.

To understand our third criteria for selecting stocks, you need to imagine athletes who have found the fountain of youth. Consider this: Robinson Cano has been one of the most consistently successful baseball players over the last ten years, and the Seattle Mariners just signed Cano to a 10-year contract for $240 million. Companies, however, don't have ten to twenty-year careers, because the average company in the S&P 500 Index lasts 50 years.

The Berkshire Hathaway 2013 Annual Shareholder Letter came out on Saturday the 1st of March, 2014. Mr. Buffett was in rare form and we'd like to share some of his key thoughts which speak directly to what we do at Smead Capital Management.

Rarely has anything been said about business which is more brilliant. Or at least that?s our take on a quip from one of my favorite movies, O Brother Where Art Thou. In the movie, a music producer showed up at the radio station where the The Soggy Bottom Boys recorded their single, ?Man of Constant Sorrow,? which had become an overnight smash hit. He announced to the blind man running the station, ?We?ve got to find those boys and sign them to a contract before the competition does!? The blind man leans back and says, ?O, yes, we got to beat that competition.?

At heart, Smead Capital Management is a stock picking organization. On top of our bottoms-up stock picking discipline, we are driven by our belief and respect for the laws of economics. One example of this is the subject of demographics. As long-duration investors, we want to understand where the aging process is taking demand in major product categories and how it will shape spending and production in the US. In other words, what economic needs will grow at the margin and who out there among companies that fit our other seven criteria can meet that marginal demand.

Warren Buffett says, "What the wise man does in the beginning, the fool does in the end." In a Barron's feature over the weekend, writer Andrew Bary dug into the portfolio of Harvard's Endowment through an interview with their CIO, Jane Mendillo. After all, who could possibly be wiser than what many would argue is the most respected undergraduate and graduate university in the world? Using a combination of Bary?s article and our perspective, this missive will seek to determine whether the Harvard Endowment is wise or foolish.

Many investors are wondering why emerging stock market misery currently equates to weakness in the US stock market as represented by the Dow Jones Industrial Average and the S&P 500 indexes (large-cap). Long time followers of our writing at Smead Capital Management are aware that we have been making the argument this would happen since 2010 and we are happy to review our thesis.

In our business, we like to say that insider transactions never lie. For this reason, one of our eight criteria for selecting common stocks is strong insider ownership, preferably with recent purchases. Additionally, as contrarians, we want to make our original purchases in a business at a time when most investors are scared to buy for one reason or another. When we see officers, directors and substantial existing shareholders of a business buying at prices which are temporarily depressed, we raise our confidence in the long-term future of a business.