Bull Market Stew Under a New Presidential Administration

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Bull Market Stew Under a New Presidential Administration

  1. 1. Manager of the Smead Value Fund Bull Market Stew Under a New Presidential Administration www.smeadcap.com www.smeadfunds.com © 2009 Smead Capital Management, All Rights Reserved.
  2. 2. The Generational Opportunity Here’s the rolling 40-year returns of T-Bills and T- Bonds over the last 70 years: Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
  3. 3. The Generational Opportunity Here’s the rolling 40-year returns of Stocks over the last 70 years: Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
  4. 4. The Generational Opportunity Let’s look at what happened to US stocks the first time they earned less than 4% per year for a 40-year stretch, as they did in 1941. Here is what happened the following 5, 10, and 20 years following that event: Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
  5. 5. Bull Market Stew What are the Ingredients?
  6. 6. Bull Market Stew Ingredients One or more major Bear Market 1. declines in the prior ten years, preferably with a decline of more than 40% and overall poor multi- year stock market performance
  7. 7. Bull Market Stew
  8. 8. Bull Market Stew Ingredients Historically depressed stock prices, 2. especially among the traditionally most admired companies
  9. 9. Bull Market Stew BRK.A MRK DIS Berkshire Hathaway Merck Disney Avg Price in 1982 667.5 Avg Price $2.24 Avg Price $1.22 Dividends $0.08 Divdends $0.03 Div Yield 3.48% Div Yield 2.06%
  10. 10. Bull Market Stew Ingredients (continued) Massive negative psychology among 3. individual and professional investors
  11. 11. Bull Market Stew AAII Index – March 5th, 2009 Bullish 18.9% Bearish 70.3 Neutral 10.8 Source(s): Barron’s & Bespoke Investment Group
  12. 12. Bull Market Stew Ingredients (continued) Normally successful and admired 4. money managers called out on the carpet and in some ways humiliated (preferably on the front page of the Wall Street Journal)
  13. 13. Bull Market Stew “A Recent Filing With Securities and Exchange Commission says the  trustees of DWS Dreman High Return Equity (KDHRX) voted last June to remove the fund's manager after a 20-year run.” “The manager, 72-year-old David Dreman of Dreman Value Management, led the fund to a 47% loss in the past year, admittedly a bad year for all, placing it in the bottom 3% of its peers, according Bloomberg data.” “In a surprise move, First Pacific Advisors said that its well-known chief  executive, Robert Rodriguez, will leave for a one-year sabbatical starting in January.” “Mr. Rodriguez has been frustrated with the world of professional investing in the past year. He correctly predicted the credit crunch and subsequent economic downturn but has struggled to deliver strong stock returns.” Source(s): WSJ.com
  14. 14. Bull Market Stew Ingredients (continued) Buy and hold investing viewed as an 5. idea that is no longer useful
  15. 15. Bull Market Stew Jim Cramer CNBC Host Source(s): Businessweek.com
  16. 16. Bull Market Stew Ingredients (continued) Seemingly unsolvable economic 6. problems as part of a deep recession
  17. 17. Bull Market Stew “The 40 years ending in 1941 included the stock market panic of 1907, which drove down the Dow Jones Industrial Average nearly 38 percent; the World War I Era, where the period between 1910 and 1919 was one of the worst ever for stocks; AND, oh yes, the Great Depression. Finally, icing on the 40-year cake, the Japanese bombed Pearl Harbor on December 7, 1941.” Source(s): “Generational Opportunity” - O’Shaughnessey Asset Management
  18. 18. Bull Market Stew Ingredients (continued) Accommodative Federal Reserve 7. Monetary Polices and stimulative fiscal policies from the U.S. Government
  19. 19. Bull Market Stew Source(s): frbatlanta.org
  20. 20. Bull Market Stew Ingredients (continued) Public short selling has hit record 8. levels
  21. 21. Bull Market Stew Value Line – December 26, 2008 % of total NYSE short sales by: Wk. ending Wk. Ending 12/17 12/10 Public: 72 74 NYSE Spedialists: 7 6 Other NYSE Members: 21 20
  22. 22. Bull Market Stew Ingredients (continued) Cash in Money Market Funds at 9. record levels in relation to stock market capitalization and paying low interest rates
  23. 23. Bull Market Stew Source(s): Hays Advisory
  24. 24. Bull Market Stew Source(s): Hays Advisory
  25. 25. Bull Market Stew Ingredients (continued) Very intelligent and credible 10. economists and analysts explaining clearly and logically how terrible things are going to be for many years.
  26. 26. Bull Market Stew Nouriel Roubini Professor at NYU Source(s): The Wall Street Examiner
  27. 27. Bull Market Stew Nouriel Roubini Professor at NYU Source(s): Badische Zeitung
  28. 28. Bull Market Stew DJIA S&P 500 Index Average over 1982 960.8 Average over 1982 131.6 Today’s DJIA Level 8409.85 Today’s Index Level 907.39 Appreciation 8.75x Appreciation 6.90x
  29. 29. Smead Capital Management 1420 5th Avenue, Suite 2625 Seattle, WA 98101 (877) 701-2883 info@smeadcap.com www.smeadcap.com

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