Title: The Revenge of Value Investing? Smead Capital Explains Why | In the Money with Amber Kanwar
Show: In the Money with Amber Kanwar (YouTube podcast) — special episode live in Phoenix, Smead investor-day week
Guest: Bill Smead (founder/chairman) AND Cole Smead (CEO) — Smead Capital Management (father-son duo; both quoted, same firm/source)
Date: 2026-02-05
URL: https://youtu.be/HvJ1bNku8vU
Length: 1:04:58
Note: YouTube auto-transcript as pasted; (mm:ss)/(h:mm:ss) cues verbatim. Garbles: "Bill and Cole Sme/Smee"=Smead, "Leman O'Neal"/"lemon o'clock"=Lehman moment, "Nortell"=Nortel, "Drexel Burnham Lombair"=Drexel Burnham Lambert, "Z7 fund"=(closed-end fund, as heard), "Ben Ink/Ben Anker"=Ben Inker (GMO), "Simon Properties"=Simon Property Group (SPG), "Mer/Merc/MC"=Merck (MRK) — but "Mer convinced Buffett"=Munger, "Unicrite/Unicredited/Unicell"=UniCredit (UCG), "bow"=BAWAG Group, "Orchel"=Andrea Orcel, "Mnt"=M&T Bank (MTB), "Co America"=Comerica (CMA), "Holdco"=HoldCo Asset Management, "Helmsley bot"=Hemsley bought (Stephen Hemsley, UNH insider buying), "United Health/UHC"=UnitedHealth (UNH), "Fred Hutch"=Fred Hutchinson Cancer Center, "Horton"=D.R. Horton (DHI), "Lenar"=Lennar (LEN), "warehouser"=Weyerhaeuser (WY), "Puget Sound Energy/Puisan"=Puget Sound Energy, "Jim Patterson"=Jim Pattison, "washugle"=(garbled; "cut a fat hog" idiom), "novice"=Cenovus (CVE), "Barry Bannister at Steel Nicholas"=Stifel Nicolaus, "the frackers by Greg Zuckerman"=The Frackers (book), "Harold Ham"=Harold Hamm, "apploving"=AppLovin, "constellations/constellation software"=Constellation Software, "open text"=OpenText, "land man"=Landman (TV show), "Perian"=Permian, "Str Kona/TR Kona"=Strathcona, "Pipstone"=Pipestone, "Robin Williams"=(joke re Adam Waterous's appearance), "Jonathan Wellm of Rocklink... Michael Leechin"=(next-episode guest, garbled), "eBay"=eBay (EBAY), "Qualcomm"=QCOM, "Costco"=COST, "Cisco"=CSCO, "Workday"=WDAY, "Salesforce"=CRM, "Service Now"=NOW, "PayPal"=PYPL, "Amgen"=AMGN, "Barclays"=BCS, "Western Alliance"=WAL, "Fifth Third"=FITB, "West Fraser"=WFG, "Tamarak Valley"=TVE.TO, "Brian (CEO) and Steve (CFO)"=Brian Schmidt / Steve Buytels (Tamarack).

(00:00) We are saying that the United States economy is going to do really well because we are spending like drunken sailors on leave in our entitlement programs. >> The S&P 500, which is no longer the diversified portfolio it used to be, not on tech, not on growth stocks. >> We are on location in Arizona.
(00:16) We've got Bill and Cole Sme on the show. The father and son duo manage 5.5 billion dollars and they've got a warning for investors. >> What we're dealing with is too many fools chasing their dreams in stocks. It's the revenge of the value investor. Since '09, have you been worried for lemon o'clock, Google, Meta, that's this generation's Nortell? This is a sector that even Canadian fund managers turn their back on.
(00:42) >> I say, "Everyone's got a daddy." Here's my daddy. >> Here's your daddy. >> When you choose a Raymond James adviser, you're getting more than independent financial management. You're getting access to complete financial guidance under one roof. From tax and estate planning to trust services for generational wealth and strategies for life's key milestones like buying a home, funding your children's education, or preparing for retirement.
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(01:34) Discover how Raymond James can help you live a life well planned. Visit raymanjames.ca. The information in this podcast is forformational purposes only and does not constitute financial, investment or professional advice. The views expressed by the host and the guest are their own and do not necessarily reflect the opinions of any organization or company.
(01:55) The host and guest may maintain positions in any securities discussed on the podcast. Always consult with a qualified financial adviser or professional before making any investment decisions. In this episode, we discuss United Health and Tamarack Valley, which are both stocks I own. Hi everyone, welcome to a very special episode of In the Money with Amber Canoir.
(02:17) We are live in Phoenix, my very first time in Arizona, and I am so grateful to have been invited here by Smee Capital. Not just one, but two SMEs. We have Bill and Cole Sme. Thank you so much for having me. >> Thanks for being here. Yeah, this is great. >> This is a lot of fun. Um, and we've gotten to know each other, Cole, because you've done a bunch of interviews with me, talking about Canadian energy stocks, and you've got a little bit of the Canadian bug.
(02:40) You're going to be entering the Canadian markets at some point this year. Um, so we'll look forward to that development. But this is my first time >> interviewing a fatherson duo, if you can believe that, >> which I bet you probably can. I would just love to know like h how does this all work? Well, let let the chairman go himself.
(02:59) >> Yeah. Well, uh you know, it's it's worked extremely well. Uh what happened was, uh Cole had been in the industry and uh it's very difficult to create a clientele as a financial adviser when your dad has been in the business for 25 or 30 years and has all the relatives, all the family, friends, you know, uh we even went to the same college. Yeah.
(03:25) Right. So, so uh so anyway, so we started the company uh in ' 07 and >> so you started together. >> Uh yeah, I can't I started day one with the company. >> Yeah, he started day one with the company and uh and then his role has just grown and grown and grown and grown and and uh and and the good news is he's a mass earner.
(03:47) He just loves to absorb and learn and and so forth. So it worked out quite well and it didn't take too many years that he was added as a a portfolio manager on the main fund. I don't remember exactly what year but it wasn't that much longer and so at that time we had we had myself and two uh co-managers and u anyway so yeah now it just uh he's adapted quite well internationally.
(04:12) It's it's a great uh a great thing to uh to pursue because we like the logic and the structure we have for stock selection and to turn it on more undervalued markets in the United States has been a great thing. >> And it's interesting how you guys split it up. You know, you're kind of not overlapping. You focus bill on domestic and coal.
(04:33) You're looking at international opportunities. >> Yeah, we our team works conjunctively. So, um uh concurrently, I should say. So, so like we have three analysts that work with us. Um, you know, they'll they'll be here uh the next couple days at our event and uh our our team, you know, we'll go one second from looking at a UK stock and next thing you know, um, you know, we'll be looking at a US company.
(04:52) Uh, you know, there are things that can run in common. So, for example, we've looked a lot at REITs lately. Um, some of the problems in the diversified REITs in Canada um are some of the same things that we're seeing in public markets in the United States. So, I would say in general, you can see things that are similar.
(05:05) um go watch the SAS destruction of say the constellation softwares that's happening in the US as well. So there there's not absolutely different things but like the mania of tech that's a US thing. >> That's not a foreign thing in comparison. >> Yeah. And and the the foundation of it is that uh in in the international we're working off the eight criteria for common stock selection.
(05:25) So having that eight criteria and then uh Cole and and the analyst team have added some kind of views based on return on invested capital that actually uh shine quite well on things we've already owned for a long time >> but then also make an additional way of using the eight criteria to u drill down.
(05:47) In other words, would you like to own this entire business yourself as a private business? Correct. Is is the the way of thinking about it. So you apply that domestically. Cole applies that abroad. It's the same. >> Yeah. So he's he leads our US work. So when I say leads, uh he he's the final decision maker there and we're all we're all working together on that and then I'm the lead decision maker for our international portfolio.
(06:05) That's where the buck stops. We like accountability. We like transparency. If our US portfolio doesn't do well, they're going to go to Bill. If we don't do it well internationally, they're going to come to me. >> Yeah. And friction. Um the the the fewer decisions we make, the smarter we are, right? or as someone once said, if you rub a bar of soap, it gets smaller and smaller.
(06:26) So, we we put a lot of effort into figuring out what to buy and then we try to keep our turnover at a at a minimum. And that is uh one of the secrets, I think, of our long-term success. And um I grew up in a family business so I feel like I can say this that the way you might talk to your chairman is maybe a little bit more direct than if it was >> in your office than if it was you know not your father.
(06:50) >> That might that might be true. >> I might that might be the biggest understatement of the entire weekend uh the entire uh conference. Yeah. Yeah. >> Okay. So let's talk about the result of we'll just leave it at that. >> Yeah. Yeah. Let's do that. um uh and talk about the results of this because this is a really interesting time to have a US fund manager and an international fund manager because one of the big questions right now is are we seeing the end of US outperformance relative to international equities? Are
(07:20) you two aligned on on what the answer is? Oh yeah. There's a lot more cheap stocks outside the United States. The United States. But my my topic tomorrow is going to flush out the risk that Jack Bogle did a brilliant thing in the United States uh gosh 40 years ago. >> He said you you know if you just owned uh 500 companies and rode through the ups and downs of the market, it would do do great for you.
(07:50) That was the S&P 500 index. and it started out being a highly diversified portfolio, 500 uh stocks. Well, it no longer is. It's got 40% in the top 10 or 15 holdings. It in effect is making stock picks, which was the whole idea behind doing it was to get away from making stock picks. >> The second thing, we've had the biggest 15-year stretch in successful momentum investing in US history.
(08:16) There's never been a better stretch. In other words, you bought the best performing stock of the year before the the next year you you did great 15 years in a row. And that's that's never happened before. So So what we've got here is a a a market that is just begging for trouble and getting a a feeling among investors that active investing is dead.
(08:43) And that is beautiful because what what would Mer say or Buffett Munger say about the best way to succeed is what? >> Well, the secret to life's weak competition. >> Yeah. >> So, let me add one more thing to that. So, you get cheap stocks, but then the other thing that's really important is historically speaking, the return on equity of American business has been the highest in the world. Okay.
(09:01) And I say that because there's been good capital allocation historically in the US. So, for example, things like stock buybacks, they're kind of looked at as oh that's an American practice. It's not American. It's called human. But we treat it as that kind of that weird idea. So what we see now is abroad is you got cheap stocks and we're starting to see good capital allocation to show up in the form of stock buybacks and you've heard us talk a lot about that like >> outside the United States >> outside the United States versus at the
(09:22) prices that some of these US business are going off. You wouldn't want to buy back any stock. And what are they doing? They're still buying back stock. And so I I point out that the capital allocation is enhancing the returns more than people think because back to Bill's point, the stocks are cheap. >> Now h have you always had this philosophy? Be honest.
(09:39) Have you like since 09 have you been worried? I feel like there's a certain type of investor that's always waiting for Leman O'Neal. I haven't heard of that before. >> Or or were you constructive? Um and is there something different about this time? >> Well, uh talk about the history of the discipline. >> Yeah.
(10:01) So, uh, in about 1983, uh, I was at Drexel Burnham Lombair, which was a great company for a while, and then it it folded up in 19 in 1989. A >> and, uh, we brought a a closed end fund public called the Z7 fund and, and the guy had seven criteria for common stock selection. >> Well, uh, when I was handicapping Greyhounds while I was working at the CAS paper mill in in the summer, >> sports betting on greyhounds is what that means. Yeah. Yeah. Yeah.
(10:28) >> Okay. In the in the summers, you know, from 76 to 1980, I had five things that I was looking for in a race. I I was trying to find a dog that fit five characteristics. And so this this guy had seven uh characteristics he was looking for in stock picking. And I looked at that, I thought, that's what's missing.
(10:50) I'd been picking stocks for three years already. God knows what I was picking and and why. I actually did pitch Coca-Cola six times earnings paying a 5% dis dividend in 1981 and everyone said no uh because they could earn 15% in a treasury >> right those were the >> so anyway so I said I need my own so what I did I co co-opted about four of the qualitative things but then there were certain things that I added to it one of them was strong insider ownership preferably with recent purchases and that's one thing Cole has done a brilliant job in the international fund
(11:22) with is he that he has grasped that and really run with it. So he looks for wealthy people in countries outside the United States that are very successful personally in their track record. And so if if Patterson owns a lot of his company, that makes us way more interested in the company. Yeah. And and that that's been true in our United States and that's been true outside the United States.
(11:48) And and so we came up with eight criteria for common stock selection. some of them are qualitative uh strong balance sheet um you know etc. But then now uh the with the markets being so good for so long and so many goofy things going on now we've leaned in to the idea that hey it's a return on invested capital that matters which is just it's it's it's within the context of those eight criteria.
(12:11) >> Y >> and sorry but to answer my question have you have you been bullish up until this point? Well, well, great question. We're we're always bullish on our portfolio. Okay, it these two portfolios are the only common stocks that Bill and Becky Sme own >> or Katie >> or Cole and Katie Sme. Okay, so in other words, I don't have any oneoffs.
(12:36) And by the way, sometimes the the the urge to do a one-off is intense. Two years ago, two and a half years ago, I was at the London Value Conference and they asked us to pitch a stock at the London Value Conference and the first speaker was Ben Ink. So, Ben Anker comes in and does all this neat academic evidence of why, you know, it's good time to look at value.
(12:57) So, I get up there and I I'm pitching Simon Properties at 102 with a 7% dividend. and and and and I can remember it crossing my mind at that time if I was ever going to break my rule and go buy an individual stock that that was that was a no-brainer right at that time and and but anyway, so I haven't done that.
(13:19) So again, you know, we're eating exactly the same cooking that our investors >> I think what's different um is, you know, I remember in the bottom of09, we'd go to folks Amber and we say, "Gosh, you know, stocks are so cheap. It's a great time to get involved. could we be the conduit of your, you know, investment selection for this great market? And the answer was, we were young, unknown as a, you know, standalone entity.
(13:38) We're less than two years out the out the gate. And, um, we were bullish as all get out. I remember Bill did a presentation called bull market stew. And the idea was like, what components of a stew do you want to have for a good bull market? What would you put in the >> um here we sit today and it's like everyone can tell you how great the market's been and everyone can tell you how, you know, just up and to the right.
(13:54) Just close your eyes as they say. >> And the problem with that is that's where the psychology is. No one wanted to own stocks back then. Pitching gold was a better sales pitch back then. Owning treasuries was a better sales pitch. Commodities were a better sales pitch. Fast forward to now, those other things don't look as, you know, lusterfilled.
(14:10) >> And actually, Bill, you were saying before we started recording, like all those things that had you constructive in '09, everything is reversed and so you're not as constructive now. Well, certainly uh on uh the S&P 500, which is no longer the diversified portfolio it used to be, uh not on tech, not on growth stocks.
(14:33) Uh I it it it it mortifies me to watch people justify 6 months ago 52 times earnings at Costco. Costco is a wonderful company, but there's never been a company that big that's ever been able to grow enough to justify paying 52 times earnings to buy it. So, so th this whole growth stock and momentum and quality basically uh uh you know Mer convinced Buffett in the in the early 1970s to find wonderful businesses at a reasonable price or a low price a and and hold on to them for a long time with wide moes and high quality. Well, wide mode and high
(15:16) quality is so popular. They just had the the the Barons had their um uh round table >> round table, right? And just listening to those people, I just thought, gosh, there I I didn't hear an original thought in in 15 people. I mean, it it was like they need me something terrible. >> Um and we're we're going to get those original thoughts cuz we you can bet that we've got those stock ideas.
(15:40) It sounds like what you guys are talking about is 2026 is going to be the revenge of the value investor. It it could be. But here's the weird part. We've talked a lot about this this last week. We were visiting with our the trustees of our fund for example and having the same discussion.
(15:55) Um if you look at value, let's use the Russell 1000 value. Uh the biggest holding in the Russell 1000 value is Google. Okay. So I I made this joke and most people don't even get it. Probably don't find me funny. But I say like even value doesn't know what it is. >> That's the interesting part. If I go look at the average value portfolio, Bill or I, we'll look and say that doesn't look like value to us.
(16:14) No, it they because it trades at a discount to the S&P. It's the most expensive S&P in in my 45 years in the business. They they think, "Oh, this company is is 20 times earnings, therefore its value." >> Let's talk about two areas of the market. Um, and I want to get I think I know what you're going to say, but let's talk tech.
(16:34) Do you not own any tech stocks? And what do you see as the ultimate conclusion of the trillions that are being spent to build out AI infrastructure? >> Yeah. So we yeah we own Qualcomm in the US portfolio and then uh former lead tech now considered discretionary is eBay. Okay. And we we we've always liked eBay because it's like the the redheaded stepchild of tech.
(16:55) It's just never been Amazon. It's but but so you know why are we attracted to those two businesses? They to Bill's point earlier they have good capital structures. They produce good returns. Um, in fact, eBay is actually way outperformed PayPal as an example. And PayPal was formerly the more exciting part of the business as an example.
(17:11) So, use this environment right now. The SAS world, right? Software as a service, just to describe that for all the listeners is um, you know, and when I say software as a service, just to put some names out there, it's the it's the workdays of the world. It's it's, you know, um, uh, it's Salesforce, it's Service Now, it's all those kind of businesses.
(17:28) apploving >> constellations >> constellation software in Canada open text is another you know kind of out there so I say that because that world is getting crushed >> and those were the former darling quality growth stories and the only place that really hasn't underperformed is the big cap tech or what we call internally the hyperscalers okay now what do we liken this to and this will be to Bill's point this will be what my presentation's on tomorrow in effect I think we think of the hyperscalers like the telecoms of the late 90s. So in
(17:58) Canadian Parliament, Nortell, >> okay, um which was 30% of the TSX back then. Okay. At the height >> and so um those were the real losers. Nortell was gone within 10 years. Um AT&T and Verizon in the United States context have been 25 year losers. >> Sorry. Like Google, Meta, >> but they all came out of that.
(18:15) But here's the catch. >> No, no, no. I'm saying that's this generation's Nortell. >> Well, here's why I say it. Because if you look at the forward returns of say the survivors AT&T, Verizon, they made 5% compounded for 20 years. So, those are phone companies. I just I'm going to push back on this because um you know, people who who have been scared out of those stocks, you've been scared out of making money.
(18:39) Meta is a really lovely business for a shareholder. Um Nvidia is not an unprofitable tech company. It's it's spitting out billions of free cash. >> Well, I agree. So, so here's here's where the paradigm changes. That's what's that's good. >> So So the see the difference is so again let's go back to the '90s. Okay. So the telecoms were the capital intensive part of that mania or what I call the capex mania.
(19:01) >> Now were the dotcoms part of that capex? No. They didn't have to spend any capex. It was all opex. Was Microsoft spending a bunch of capex? The answer is no. It was all opex. >> So let's just say let's say we don't know what the industry is and we're just sitting down and playing a game of okay you say Bill Cole do would you rather have a capital intensive business or an asset light business? What would you rather have? And we'd say, well, asset light cuz it doesn't need any capital and the best businesses don't require
(19:26) any more capital. What's interesting about this is these businesses were asset light and they're now going to a transition of being the most capital inensive businesses in the world. Now, what naturally happens when you become a capital intensive business, your returns go down, >> returns on capital.
(19:42) And so, as you look at this, the difference is they were the ones that didn't have to spend the capital in 99. Now, they're the ones that have to spend the capital. History never repeats itself, but it rhymes. So, we have a chart that shows the 10 largest cap companies in the world at the end of every 10 years, 1980, 1990, 2000, 2010, and 2020.
(20:05) That list changed almost completely every 10 years. The largest in uh 1980, six of top eight were oil companies. M yeah >> in 1990 eight of the 10 were Japanese stocks which by the way not only led to a bare market led to a 30year bare market in Japan that that that market basically ceased to exist for 30 years in 20 2000 it was the dotcom bubble it was laced with the tech bubble 2010 was the brick trade pro right the whole dig up uh Western Australia, stick it on a barge and take it and build a condo building in in in
(20:50) in Shanghai. That that was 2010. And then 2020 was the fangs. And and and now >> this is Facebook, Apple, Amazon, Netflix, Google. >> Yep. Facebook, Amazon, Netflix, Google or Apple. And now it's morphed into the Magnificent Seven. And and the problem is that all recorded history is not going to get rearranged for the benefit of the these investors.
(21:16) What I like to say is show me anywhere in the Old or New Testament of the Bible that God said everybody's supposed to make a lot of money on their stocks without having to even apply any serious thought to it. And the answer is it it it's not in there. It's not going to happen. uh all you know is something really bad is going to happen uh to stock market prices of the overowned most popular things and and that is coming that is coming.
(21:46) Now does that mean you can't make money in common stocks and the answer is no. Uh, for example, from 2000 to 2010, uh, uh, Buffett, who warned everybody at the Allen and Company summit in the summer of 99 about how overvalued stocks were, he he made 5.8% while the S&P fell.9% compounded for 10 years. A lost decade for end of 99 to end of '09.
(22:15) Lost decade for the S&P. No money. Made no money. Okay. and and and so that's the problem. And then for that to be true, it's got to be worse in the big concentrated positions because we got to turn over who the top 10 are every 10 years. >> The composition will change. >> By the way, Exxon and Microsoft in those five decades are the only two C companies that made it uh twice or more.
(22:42) Can can I counter that with this idea that those stocks aren't as expensive? Uh take a Google, take an Nvidia. Um and and Google is actually growing faster now because it is seeing a return on the investment since making an AI. >> The the o the oil stocks were not expensive in 1980. >> Okay. >> They they were cheaper than the other stocks.
(23:06) >> Yeah. So they're I mean they're cyclical. So to your point, our our view is not that their revenue isn't growing >> and there might be somebody win. >> That's that's not the catch. The catch is that their returns on capital are declining. >> Yeah. >> And so, you know, think about it like this.
(23:20) I'll just I'll throw some quick numbers out uh to your listeners. >> And we have seen this group stall. >> Yeah. >> They're not they're not just >> there are canaries in the coal mine that show that oxygen is starting to get low. >> So So I'll use we looked at Meta's recent year. Okay. Because they just reported this last week.
(23:37) So, uh, they used an extra $45 billion. Oh, by the way, just stop and think. They used an extra 45 billion to run the business. Um, what was the return on that 45 billion? Now, if you look at net income, they would say that they made about 3% return on that added capital. Now, no one's going to be like, "Wow, what an incredible number." 3% return.
(23:59) If you use free cash flow, they lost free cash off that incremental return. Okay. So now what's weird to us is we're sitting there like these are terrible, terrible year-over-year numbers. Microsoft said the same thing. We grew our capital base a lot making investments and because the revenue growth wasn't as much as they wanted, they absolutely tore them apart that same day.
(24:22) Now what was the difference? They were both bad returns on incremental invested capital. >> But Meta was growing faster on >> they perceive Yeah, they so so >> but that doesn't matter in the long run. Revenue growth does not matter. So let's go back to to the.com bubble. Okay. So what happened was and in fact I was sitting at I was a member of Seattle Rotary and uh Microsoft reported earnings on December the 27th of 1999 and the stock soared that day up 6% uh and and became a $500 billion market cap which was the biggest at the
(24:57) time. Three months later, like clockwork, Cisco uh had had uh reported earnings and and they soared to a $600 billion market cap. Cisco just passed that number recently and they're like 12 times as big a company as they were then. Yeah. Okay. See, the problem isn't whether the underlying business uh uh survives and is important.
(25:27) That's not what we're dealing with here. What we're dealing with is too many fools chasing their dreams in stocks that have already made the people that are going to get wealthy from being involved in them wealthy already. And and let me add something to this. It's one of my favorite subjects now. Uh and you might not have heard this, but there's an old saying, you know, why did Willie Sutton rob banks? Have you heard that before? >> Yeah, tell me.
(25:52) >> Because that's where the money is. Okay. So a lot of people ask us it's like what will change here? At some point in time those businesses will get robbed of their capital for people to do other things. Now when the stock market turns sour on the S&P there's going to be two forces.
(26:14) First of all, if those concentrated positions become difficult, people will sell those. And that will automatically call cause people to do poorly in the S&P, causing some of their owners to turn in their shares, which automatically hits those biggest ones the most, which causes them to go down, which will cause somebody to want to sell them, and you just get going in a vicious, unverirtuous circle the wrong direction.
(26:40) We've had the virtuous circle going for 15 years. Just imagine how much torment. Now everybody asks us when will mortgage rates go down? That's when mortgage rates will go down because that's where the money is for people to get scared. Then what they will do is they will want to earn interest and that will drive mortgage rates down.
(27:03) And the 20 to 40 year olds who aren't yet married and don't yet have kids who've been participating in the stock market will see it turn sour. And by the way, their attitude will change really fast. They'll go from loving the stock market to not caring about it at all and going back to their social media feed to figure out whatever they figure out there.
(27:20) I haven't quite figured out what they figure out, but anyway. So, and and they'll go >> about Cole's haircut. >> No, no, no. Here's here's what will happen. And this is the way it was when I started in the investment business in 1980. I would call business owners and I'd say, "Hey, could I call you when I get a good idea?" They'd say, "Yeah, you could call me.
(27:37) " I say, "Well, what do you own right now?" He says, "I own the business. I own the building the business is in. I own two rentals. I own a couple of oil stocks and I have some gold." A young person wanted to invest between 20 and 40, bought a house. >> Maybe they lived in it, maybe they rented it. Why? Because it protected you against inflation.
(27:59) and stocks had done horrendously from 1969 to 1981. So they just looked and said, "Oh, do I want to put my money into this thing that's done terrible or do I want to put this thing in some tangible way that I can get some money back from it?" And we will go there. You watch. We are going to go there in a in a over the next 10 years in a big way.
(28:17) >> And your solution is still staying invested, but finding those other pockets like housing. I don't hear you hiding out in gold. And I think a lot of people think, okay, if I'm listening to you, you're calling for some big big disaster. Why don't you hide and go? >> You're hitting on one of my favorite subjects, thing that triggered us.
(28:36) And if people look at our portfolio and think, gosh, this is different than what this means used to do. In uh May 1st of 2020, Barry Bannister at Steel Nicholas put out a chart going back 220 years >> and it was comparing how stocks had done compared to commodities. And when the Saudis took oil to zero in April of of of 2020, that was the worst point in an entire 220 year time period for commodities.
(29:10) So I believe that what this gold and silver move is about is first think back what happened. We got very involved in the oil business. Cole recommended that we read u the frackers by Greg Zuckerman, right? And and we read it and here's this guy Harold Ham who gave his wife a billion dollars to go away so he could keep 82% of his company and and he was using the dividends every 90 days to buy 10 to20 million more of his own stock.
(29:36) And so we got involved big in the oil business. So we from the low point on May 1st of 2020 to three years later, nobody in any category touched us. I mean, we just smoked everybody. But even in commodities, you what you have is a 20-year rotational bull market. Just like the common stock market, the last 15 years has been very rotational with a lot of tech along the way, but very rotational.
(30:04) And so gold and silver are a perfect example. They've had this great bull run in a rotational bull market in commodities. They they've done it on some of the inputs associated with electricity because you know copper is an example. A and gold uh oil's been in a timeout because President Trump has been after him and trying to jawbone the price of oil down to get his inflation numbers so he can be very aggressive.
(30:30) We'd like the economy to run hot. Yeah. Okay. But see, so one thing, so we're not saying the economy is going to do terrible. So I think the dichotomy or the paradox, if you will, is that a lot of people in the value world, they're like, "Oh, it's going to go so terrible. It's going to financial ruin and we're all going to fall off a cliff.
(30:46) " That's not what we're saying. We are saying that the United States economy is going to do really well because we are spending like drunken sailors on leave in our entitlement programs, which means all the boomers collect their check. And I do not fall into the camp of millennials that think we got rugpulled into society like m much much of the other 40-year-olds I do run into nowadays.
(31:05) But I say that because ultimately it's a hot economy. Hot economies tend to cause lots of pressures on inputs at their base level, aka commodities. So is it surprising to see a a uh silver or copper that have been underinvested for years pick up and then watch meme traders take advantage of it? >> Day in the sun. >> No, that's not shocking at all.
(31:25) Um it's not dissimilar to kind of the price moves we saw in oil when that ripped. >> But you're not participating in it and you're still convicted of let me we own Glen Core like in the copper market. They're in copper, zinc, nickel in the coal business. So we're we're involved in there, but here here's I mean let's just use gold.
(31:43) People say, well, you know, why don't you own gold? Like we'd say, well, gold is a better thing than the gold miners. The only problem is the gold miners are a terrible place to get wealthy. Even when gold's good, they don't make money. >> What was they? What what what was Buffett's thing about? >> It's different this time, right? >> If you took all the gold bars in the world.
(31:58) >> Yeah. He said if you took a cube, you make a gold cube and he said you could buy all the common stocks in the land. This is back in 11 at the at the shareholder meeting. You could take all the investable farmland out there, etc. He said you get all that for the price of the all the gold. What would you rather have? >> Because of the brick trade, everybody wanted gold because the Chinese were getting to buy gold and yada yada.
(32:16) >> So we we we love the position that oil is just from the hated perspective. It's like, okay, great. Um, by the way, lumber, lumber's really cheap. >> We're going to talk about that. No spoilers. It's coming up in the pro pic. Um, I do want to get into some of the mailbag because I want to get as actionable as we can.
(32:34) Um, and talk about how you express these views in the portfolio. And we got actually some questions. European banks, they're having their day in the sun um, like they haven't in a long time. And I think you got you guys own Barclays and Uni Credit, >> correct? and bow. >> Yeah, bow as well. >> And bow. Okay.
(32:53) Talk to me about that trade. What you know, how it got um hot again. And and whether whether there's there's legs in any of these names. If somebody's ignored the sector because it's been money losing for years, why look at it now? >> Yeah. So, you know, this all really kind of started picking up back in 22. Okay. Let let me I'll just give you I'll use Unicrite as a simple example.
(33:14) Um Unicredited back then was telling all their shareholders that they had all this excess capital. What happened during the pandemic was the ECB did not allow any capital to be dispersed by the banks. Um if you go back to the TARP and all that with the US banks back in 09, what they did back then is you you could not increase your dividend.
(33:32) In the case of the ECB during CO, they said you can't use buybacks and and release capital. So what happened is they built up all this capital. So you get done. They're still cheap postco. And to your point, they've done so bad for so many years. There's like scars and people like, oh banks, oh gross, those don't make money in Europe.
(33:48) And so Orchel comes to the helm. Uh he says, "Hey, we have all all this excess capital. We're way too cheap and we're going to run this bank more efficiently." >> This is Andre Orcel Orchel >> Orchel from Unicell >> from Unicredited who's like a >> he's a savant in our mind. So he says this >> Texas cowboy and uh >> well he's he's a banker.
(34:07) So by the way Cole's been really good. One of our mottos is we'd much rather know who is smart than to be smart. >> Yeah. >> Okay. And so he he's jumped on that and found these international players that that are super smart. And and I'd also add that what we went through in in starting the fund um uh in at the bottom in '08 and getting abused and watching what went on uh and and then buying Bank of America uh in >> that was a great that was a great kind of petri dish for what we saw there middle of Occupy Wall Street at that
(34:40) time. And then 6 months later, uh, JP Morgan had the whale trade. They lost $6 billion on the whale trade and and their stock plummeted and we jumped on that. We we took advantage of those. So, >> there's one big difference though. Back then, the US banks, their return had to go way up to be good.
(34:57) So, you had to bet on the come, if you will, in that situation. The European bank's returns were already much higher. Yeah. >> And and and the metric we ran is we tracked book value per share. That's what we did. And so we look and said if you buy back stock for all these cheap prices, book value per share growth would be higher than the return equities.
(35:14) That was our working thesis is that if book value per share growth runs over 10% you'll get book. >> Yeah. >> And it was like okay great let's test this theory. Way we do that in this world is put money into it. And so you wake up and and there's been incredible moves. The difference though is there is this view that oh they're Europeans they're weak >> that it's just a natural weak.
(35:33) So their economy is going to be weak. They're going to be foolish you know. And what's happened is the economy continues to stay strong. Spreads in banking are great. One other thing I'll add in Canada, United States, we have pretty competitive banking markets. So, you know, like you all use can if RBC is throwing a price, everybody knows what the price is.
(35:47) Same thing here with like Bank America. Well, the difference in Europe, it's a negotiated deposit market. >> So, like >> every person >> generally speaking. So, what is your grandmother getting down at the local bank? >> Well, only your grandmother knows that. And if she wants to get a better rate, she's got to go talk to, you know, Giovani down at the bank and find out what he's going to do today. Yeah.
(36:05) >> And what I love about that is that means we can make better spreads because we don't got to tell our depositors what we're making. >> Yeah. So, we like we like to buy stocks that don't they don't have to have a lot of things go right uh effectively. >> Let's have let's see how you apply that and talk about some of the US stocks that you own um in some sectors that maybe aren't getting a lot of love, but one of the um one of the sectors is healthcare. Um and you own Merc.
(36:33) Yeah, we own Merc and uh you know we do our our u webcast each quarter and talk about our our our we we feature one stock each time that we flush out the eight criteria and what was it >> two quarters ago? >> Two quarters ago we did MC at like $83 a share. >> Yeah it's 110 >> and now it's 110. It's been >> and the whole the whole healthcare space in general has been cheap because of what's been going on politically and >> politically.
(36:57) >> But why did you pick Merc? cuz there's, you know, >> well, first of all, we've owned it off and on for a long, long time. >> It's been a long-term holding. >> Now, now remember, uh, first of all, I've had a dear friend get healed by imuninooncology, and they completely own the market for imuninocology. The worry with them is what's your next act going to be that that in in the drug business, they always worry about, well, you're making great money and you have these wonderful products, but you you're you're big enough now. you're going to
(37:26) have to have something great to replace that. Well, so does Apple and and so does most every other business. That's just the nature of business. But what they do is they take 18 to 20% of their revenue every year and this is true for Amgen and and the other pharmaceutical companies and they put it into the major uh medical research institutions in the United States and all over the world.
(37:53) Okay, that they can. And what happens is if you're at Fred Hutch Cancer Cancer Research Institute and you're the funer of the research and they discover something that works, which immuninooncology was discovered there, then you get to commercialize it. Okay? But you're taking 18 to 20% of your gross revenue.
(38:15) You're not uh depreciating that. You're just right up front just boom. So their income statement is the most conservative income statement of anybody's because their most important long-term investment is expensed upfront >> quarterly >> uh uh quarterly and so uh the beauty of it is they're likely to come up with great things >> and nobody else does that model.
(38:39) They typically it's an R&D model in in >> that's a typical biotech would be like grow your model sell it to someone else. Okay. And effectively these are distribution platforms with big R&D inside. >> Yeah. And and so so there's that. And and so we've owned Amgen for a since the fund started and uh wonderful company.
(39:00) It's never really gotten I mean this is about as popular as it's gotten and it's not even to a market multiple. >> Yeah. The the only other >> I was going to say Merc is like 12 times >> but the whole space has been cheap. We we went and looked through the whole space. The only thing that really perturbed us, Amber, as we look through the space of all the, you know, you run to these people where they're like, "I'm the future's so bright.
(39:20) " And you're like, "Okay, so 3 years ago, 2 years ago, you had much higher stock prices." Um, why are you not buying back stock now at these lower prices? So, well, the future's so unknowable. Yeah, but 3 years ago when your stock was higher, you were buying back a ton of stock. And it's like, well, we never know what the future brings.
(39:36) Let's at least allocate capital. >> So, we like mean reversion trades. So we saw a chart that showed that healthcare was incredibly undervalued in relation to the rest of the S&P. Yeah. Therefore, we do some homework. And so that kind of leads into, okay, so here is the formerly most admired company in the entire healthc care space, the United Healthcare, uh has a huge hickey, has the president of the United States breathing down their neck, uh has a earnings.
(40:02) >> You don't care about that policy headwinds. >> Uh well, no, no, no. Policy policy headwinds are what got us into Bank America and JP Morgan. You don't get that. >> You had Elizabeth Warren then >> you had you I mean that was intense pressure. I mean there was intense pressure cuz everybody on both sides of the aisle was pretty unhappy with what happened in the banking industry.
(40:24) So so so the the stock plummets. So we bought some at 300 then we bought some at 271. And and uh and why? Well because it it fits our eight criteria. Cole just did that on the webcast pretty much to a tea. Do we know we're going to succeed? No. What we do is we take our shots. Uh we take our shots.
(40:47) We'll probably be right about 60% of the time. But our differentiator over the long haul uh against our value peers is our value peers like to buy a cheap stock, a 55 cent dollar as as computed by them, and when it gets to 85 or 90 cents, they sell it and they go to another one. Well, the stock market's been going up for 15 years.
(41:10) What are you going to rotate to when things have been strong for 15 years? So what we do that our our value peers don't do is we hold our winners to a fault. That was what my topic was for last year's thing was reinvesting unrealized gain in future gains. So for example, we've sat through the correction in the last year in the homebuilders.
(41:34) Why? Because we're the most underbuilt homes in the United States just about ever. Uh a a and there are more people between 20 and 40 than we've ever had. They're slower to get the average age of a first-time home buyer is 40 years old. That shocked me when I heard that a week or two ago. That was to me that was shocking because when when when when I graduated from college and you got a job, the first thing you wanted to do was buy a house because >> How much debt did you have? Uh well well no we have income we we put three we put
(42:06) we put 3% down as a first-time home buyer and we borrowed $92,000 and we were glad to do it cuz it's a forced savings program. You know the reality is I'm I'm old enough and I've watched the experience of enough human beings. There are way more people that have gotten wealthy owning homes than have ever gotten wealthy in the stock market.
(42:28) >> Which is crazy because actually the stock market has performed better. >> Yes. But but the average person can't take a lot of that volatility. >> The the the lack of girrations, the lack of punishment I is is what's goating people into thinking it's not going to happen anymore. >> Okay.
(42:47) So any particular home builder? >> Well, Horton and Lenar are the Costco and Walmart of the home building business. They are too expensive. They're for No, no, no, no, no, no, no, no, no. You're you're you're jumping ahead. Uh uh th those two companies are 40% of the home building revenue in the United States of America. Okay.
(43:08) Horton provides the lowest cost brand new home in all 36 states. So it's Costco, right? You get you get the lowest cost home. Uh and and what's happening the more difficulties there are in the next two two years due to circumstances due Trump trying to get the institutional people out from buying homes. I don't care.
(43:30) There's low, you can list all the all the all the struggles, but those struggles are way harder on the smaller companies that don't have the spectacular balance sheets that these guys have and don't have the the the better return on equity because they've all moved to a landlike position, meaning they don't have to have that much capital tied up in their business.
(43:52) One of the the >> it's more of an opex business than business. >> It's it's more of an opex. So therefore whenever it gets good the next time they are going to just cut a incredibly fat hog. So think about >> washugle terms. >> Yeah. Yeah. >> I assume that's good. We want that. >> Well, no. When you go to eat ham and stuff, you want to cut a fat hog.
(44:12) >> Um everyone's probably like, "Oh my god, there's so much to this means I didn't know." Because up in Canada, they're like, "I just thought Cole talked about energy, Canadian energy stocks." and they've had to wait maybe 40 minutes into this conversation before I finally do bring up we're learning we're peeling the onion on me but >> well by the way they also want to know like you know I say everyone's got a daddy >> here's my daddy >> here's your daddy >> that was that was like almost an iconic line where you were saying for anybody
(44:40) who missed that episode that in the Canadian energy sector everybody needs a daddy you need and so the sector is going to consolidate >> um so let's talk about this sector Now still remember you were on you said novice is your number one in the XUS. >> Yep. It's also our biggest energy holding US portfolio. >> In the US portfolio also >> and in the US portfolio.
(45:01) So you like it too. Um I mean the sector has been so resilient to forget about the commodity price. It's still done so well. I hear you know if people are quibbling it's like I don't like the valuation. >> Yeah. Cole's got all the great he can give you the greatest detail information on that. My thing is very simple. The Canadians have better dinosaurs.
(45:22) >> Yeah, that's what that's what he likes saying. So So >> cuz the wells last for 25 years. Yeah. >> See, the problem is and the land man thing is a classic signal of this. The the show land. >> Yes. Yeah. It >> it the Perian Basin's going to roll over in the next two three four years. >> We we've turned over the market though.
(45:40) So it used to be Canadian discount. >> Yeah. >> Okay. So to your point, why is Senovas outperformed a lot of the US players? Well, because the Canadian discount's gone away, generally speaking. Now, if someone says, "Okay, what what are we doing in Canada particularly?" Generally speaking, we fall into let's go out and buy oil sands.
(46:00) We like oil sands sagd assets. >> Um because when they book, they book high reserve life to build point, right? So, 25 30 or greater years of, you know, I'll call it assets in general. Okay. Um does that mean that's all we participate? No. I mean, Tamarak Valley is not an oil sands, you know, like that.
(46:17) Um but I say that that's our general mo versus if you look on our US side today. Um like you know for example we own APA we own conical Phillips etc. Um those are more attractively priced relative to the Canadian assets were so there's been kind of a two-year move. It's like all of Wall Street said oh hey there's this thing called asset life and they all started gravitating.
(46:36) So that's why the Canadians have done very been to your point very resilient in this. That being said also everyone knows there's a price and there's a market. So, you know, I was just at a conference recently and talking to some of the Canadian executives and everyone's, you know, what's the price per flowing barrel that these stocks are trading for and they're all looking at the multiples and asking, well, based on that, how do we lay out the stack? The last thing we've talked a lot about this last couple years in bull spaces, liquidity
(46:59) is important. So, if you go and say, well, who's done the best? The most liquid have done the best. Why? Because if you want to enter or exit the energy business, you can do that in the most liquid. So, there's still a spread based on liquidity. And so as you've seen like the Tamarack Valley from a year ago to today, what's going on? As their liquidity picks up, the valuation picks up too.
(47:18) >> Yeah. >> Um I'm going to give you the chance to um talk a little bit about Tamarak Valley because yeah, it's a Clear Water play. Um but I know that you've been quite upset >> at uh some of their basically they adopted a poison pill in case somebody comes along and tries to do a a Meg transaction. >> Yes. Yeah.
(47:38) >> Cole loves to wrestle with boards. >> Yeah. Yeah. No, I not not in general. Uh, you prefer not. So, so just let me um so Tamarack Valley, they're doing everything. Yeah, they're they're they're doing everything great. Uh uh they're using, you know, as most people know, they're using water flooding. What they're getting out of those walls are incredible.
(47:53) The returns on capital are great. >> Steve, uh Brian, who's the CEO and Steve uh who who's the CFO, they're doing a great job. So, we're big fans of Brian and Steve. Okay. Um that being said, they came out in December with a poison pill like you mentioned where they want the shareholders to give the board a certain right uh commonly used you know referred to as a poison pill where the board can set a price the number of shares that the shareholders participate in.
(48:16) >> It basically prevents a hostile takeover makes it difficult >> and I agree. So, let's say we're running a mining business and our our all single asset is not going to be fully operable for 3 years and someone comes in to swoop in to take us out before we're operable and getting the real value out of the mining asset.
(48:34) Okay, there's a good reason to have a periodic provision for a poison pill because we don't want this to get taken away until the cash flow starts coming. That makes sense. And in a mining asset, I get that before it comes to market. >> In this case, we don't have that. So it makes no sense. Now ultimately what we've learned in Canada is there are Canadian securities laws right? So for example in a plan plan of arrangement you have to get two/3s approval kind of you kind of have to get two/3s as we learned with me you don't have to you
(49:04) could get less than that and so when the boards have this much capacity and power to dominate shareholder rights already why should we give them more what like we learned in meg ultimately what I love about the transactions is the shareholders got to say and do what they wanted and that's how it should be.
(49:21) Have you got any feedback? Because I know you've been on that's like a month. >> We we Yeah, we've discussed it with management. Yeah. Um we've let them know our two cents. Um here's what I'm shocked at and and I I'm you know, this will probably be like a shots fired thing, but I'm appalled that more people in Toronto do not care about this at all.
(49:39) I mean, they just don't say a word and they let them come and rob them of this right in the middle of the night and they're like, "Oh, well, just sit staring in the corner while someone's robbing." >> Trump has kept him too busy. >> No. So, I just >> I'll tell you why. Um it's not it's it's likely not owned by anyone in Toronto. >> Sure. >> And I me was >> not like we just um the the stocks have done well.
(50:02) The generals have started to come back. But this is a sector that even Canadian fund managers turned their back on. Can you believe in a in a country like Canada that is so um rich in natural resources, guess how many dedicated energy funds we have? two, did >> you know that? So, so that's why no one cares. >> But their largest shareholder is a Toronto fund.
(50:24) >> But, but did they did they all things equal? I mean, I'm just Did they drink the ESG Kool-Aid up in Canada? >> Um, >> by by the way, I was in Norway about >> I don't know if I'd call it Kool-Aid, but that it definitely um environmental pressure >> banks. Yes. So participating. So I was in I was in Norway at a conference >> and not just that sorry I'll finish but um also foreign investors for many reasons walked away.
(50:48) >> So I was in Norway at an investment conference where we're supposed to try to appeal to the institutional type investors and so forth. And I got up there and I said uh uh ESG stands for extra stupid growth. Okay. uh from 2017 to 2021 uh like $500 billion dollars was invested in US in ESG funds and ETFs products.
(51:13) >> Yeah. And nothing was invested in the oil business. Okay. And now uh Musk is telling people he's getting out of making electric cars, which by the way, doesn't that just mean that that business is nothing but air? I I mean that's a whole another subject. But I mean, if they're not making cars, >> I think they're still making cars.
(51:33) >> Well, >> he's going to merge it maybe with SpaceX. >> Well, well, no. SpaceX isn't owned by Tesla. >> Not Not now. >> It's not in Tesla. So, that doesn't give you any I mean, what's in there? I mean, I'm going to make robots. >> Oh, that sounds like air to me. >> Yeah, >> it's air.
(51:51) And you know what? People have that much faith in the guy and and they haven't talked to his ex-wives, I don't think. Having said that, solar stocks have doubled in the last month. So maybe there's a a deep deep value trade. >> Uh >> crickets. Okay, >> that is interesting. If you can get him crickets, that's a big deal. >> Yeah, I pay like I that's a that's a badge of honor.
(52:14) Rendered Bill speechless. Um let's get into some of your high conviction ideas. Your pro pickics. Proix is brought to you by ATB Financial. With over 100 billion in assets, ATB Financial is powering possibilities for more than 843,000 financial services clients. ATB Cornar Capital Markets is a leading North American investment firm providing holistic corporate and capital markets advice and fullervice financial solutions. Visit atb.
(52:48) com/inthemoney for more information. We have one um from you, Bill. you've brought uh Fifth Third Bank. So, we've talked we've talked a lot um you know about banks, how you bought the the the financials in the crisis. Something interesting is happening with these regional banks are starting to outperform. >> Yeah.
(53:11) Well, here's what's interesting is this crisis with United Health >> is following a very similar pattern to what happened when Silicon Valley and First Republic Bank in March of 2023 went in into the dark hole. It's funny. I had a friend call me a couple of days after that. He said, "Bill, I have $2 million on deposit at Silicon Valley Bank.
(53:36) What's going to happen to me?" I said, "Oh, it's very simple. You're going to get $250,000 of that back and you lost the rest of it." Okay. Now, what happened was they ended up standing behind those deposits, letting somebody else buy those two banks. >> And and by the way, that's the most inflationary thing that's maybe I mean, there's been we've thrown 10 trillion at CO.
(54:05) were doing all these stimulative government things, but that that that was a big-time sin. I mean, so but anyway, so the stocks of the regional banks plummeted. >> Well, we didn't know enough. That's what I thought was going to go on is he was going to lose $1,750,000 from that. So, we didn't want to touch it then.
(54:25) So, it ended up they stood behind it and they rallied. And then in November of 2023, there was a retest like you know, on the economy like United Health is doing, right? They got scared of the economy, they got scared of that. And so we did some research. What we were looking for was strong balance sheet uh uh very meritorious regional banks that were boring.
(54:46) >> Okay, we wanted boring and and so we came up with three. Western Alliance that's doing a lot of great things in our area, but they operate in almost all across the country in various businesses therein. We came up with Fifth Third and we came up with Mnt in Buffalo. I mean, what could be more boring than being in Buffalo? So, so anyway, so fifth, third.
(55:05) So, we put 1% in each of them because their capitalizations were so low, they barely qualified to be in a large cap value portfolio and and, and what's happened since then is Western Alliance has done great. And and uh Fifth Third has done great. And then Fifth Third announced recently that they're buying Co America and and getting >> You like that deal? >> And we really like that deal.
(55:25) It was good enough that Holdco, one of the um one of the activists on it were screaming from the top of a roof that they were, you know, taking advantage of America shareholders. And so we think they got a really good price based on what we read in that deck. >> And when you buy a bank, there's like a 15 person executive team that is instantly unneeded.
(55:44) >> They don't synergies. >> So this back to the the cost-saving synergies like the oil business as we talked through in a prior time with Meg, just go look at SGNA. Yeah, >> you're going to wipe a lot of that SG. The other thing, you know, the tech stack in the in the banking business is a big deal.
(55:59) So, you're taking all these scale, you're putting it together. It's just a scale game. >> And we think that same thing's going to happen in the US oil companies uh at there's going to be a lot of consolidation. >> Same kind of SGNA idea. >> So, that's why you like APA, you mentioned. >> We like APA. That's >> Yeah, they have they have 350 million of of SGNA at APA.
(56:17) And when you go talk to the folks at APA and say, "Hey, >> it's like expenses selling general." >> Yeah. Just you know, cost to run the business. When they bought Kalen, we said, "Hey, how much did it cost to, you know, in SGNA that you cap on?" They said, "Zero." >> It's like, "Okay, so if someone comes in to buy APA, I don't know, let's get it down to, you know, 100 million of SGNA.
(56:33) " Well, let's run 5 to 10 times. >> You think APA is a target? >> They should be. They have the offshore and and then uh uh Chevron attempted to buy Ana Darko back in 2019 and Oxy outbid them. So, if you look at today at $40 a share with Buffett owning 28% of Oxy, uh you're getting Anadarko and Oxy uh for about what they offered to to buy Anadarko practically and and and uh to their credit uh Exxon and Chevron have told President Trump that, you know, it's pretty hard for us to justify our shareholders in investing in the oil
(57:17) business in a country that fleeced us out of tens of billions of dollars, right? They Venezuela, they confiscated their their So, so anyway, so it it it wouldn't take that much of if you stay around $70 a barrel, there's going to be a lot of consolidation. >> Yeah. >> Um I just want a point of clarification because you kept mentioning United Health.
(57:40) >> Is that a name that you're >> Yeah. getting involved in? >> Oh, yeah. We just got involved in that recently. >> Yeah. We're in the fourth quarter. Yeah, it it uh we we we put 2% of our portfolio into it through the end of last year. >> And why that timing? Because the stock's been under pressure for some time.
(57:57) So, you've been watching it under pressure. Uh >> but it's all it's all the way down to where we bought it. >> Oh, yes. So, I want to know >> which which we I mean, we don't buy stuff for how we're going to do in 6 months. We buy stuff for how we're going to do in 10 years. My point is like you you've been watching it under pressure and then you only recently decided to step in.
(58:18) >> No, in the fourth quarter we started buying it. >> We we bought it last year. >> Yeah. Late last year. Yeah. Last year, but but it's been since April. >> Yeah. We had looked at it 10 years prior to we looked at back in. >> We've been conscious of it for years cuz it's a it's been a super well-run business and they provide products and services that the United States government cannot live without.
(58:38) And and >> and so do you think it just goes back to 600? No, no, no. They're going to earn less than they did in the past. We think we think they'll learn. >> Yeah, it'll go back there someday. But, but let's face it, if the S&P 500 loses money over the next 10 years and United Health knocks out uh counting dividends, a 7% compounded return during that time, it it's going to be a great thing, though.
(59:00) >> This multiple is going to rise. >> You know, I can't resist a buy the dip opportunity, so I had to follow up on that. >> It's back to it's back to where we originally started. So, you can imagine what we might be thinking. >> Okay. um that you might add. You might add >> We'd like to see the insiders though.
(59:13) Helmsley bot. That's what originally got us involved. So >> um okay, Cole, we're running out of time, but I want to get your picks out on the table as well. >> You know, we know what you think about Adam Waters. I think at this point um Strath Kona though it has really um >> you know after after failing in its attempt to buy um MAG did the special dividend you know naturally the stock comes under under pressure but even then it has it has underperformed the broader energy group what's going on >> yeah so they paid out their $10 special
(59:48) I think the high in the stock was around 42 >> so you think $10 net of that was at 32 then >> um you yeah 26 six today. So, I look at that is it's pulled back to a point where it's like very attractive compared to a lot of things out there. Um, here's what I would just say. I >> Why is it lagging when everything else is doing well? >> Uh, well, they just had a lot going on and they really rerated from where they were.
(1:00:08) I mean, think of how much, you know, don't forget if you go back to when that came out of Pipstone. Um, you know, that was trading in 20s, low 20s, counting the $10 special. I mean, think about that for a while. So, so as we look forward, it's like, okay, has Adam said everything that he was going to do and been very forthright and direct? I mean, I I even remember when people are like, "Oh, is he really going to pay a $10 special? >> Is he just going to lie to us?" Well, under securities law, that might be tough, but I don't know. Um, so I say
(1:00:37) that because he's done exactly what he's told people he's going to do. Now, do I think what they got in their purchase uh their related party transaction with Senovus when they took over that Saskatchewan asset >> Mhm. >> I think they stole that from Senovas, but I think Senovas needed to do something to do that.
(1:00:54) So, I say that because I think that value is worth a lot. The value of that asset they bought is worth a lot in Saskatchewan. So, I think we'll see that. But, you're going to see a company go out and grow production. You know, they're going to tell you that they'll they'll grow production less than $30,000 uh dollars per flowing barrel Canadian to do that.
(1:01:07) Why are they doing that? because it trade for 60,000 per flying barrel. >> But but what what other executive in Canada looks like Robin Williams? I mean, think of that. >> Yeah, that's true. Um, okay. We've got uh just let's try and do this in two minutes, but a name you haven't I don't think.
(1:01:23) Have you discussed it yet? West Fraser. >> Yeah, we own West Fraser. >> You own West Fraser, a Canadian Lumber. Tell me about why are we buying Canadian lumber? >> So, we've actually owned it for a decade. Okay. So, so um back to policy, back to Bill's point on United Health. We love when government gets involved with business because they tend to be bad at business and create opportunities for investors.
(1:01:40) >> So you're up if you've owned it for a decade. >> Correct. We've we've own we've owned that whole time for years. >> Well, correct. So So we started in the '60s in 2017 back when the softwood lumber dispute ended. Tariffs were coming up back then. So you buy a stock in the '60s, it goes to 140ish at its peak and you wake back up at 96 roughly today and you think, well, I went from making incredibly good money to making okay money.
(1:02:06) Okay, now that being said, when does that business great? Two times it can be incredible to be a buyer. One, when supply is coming out of the industry, which is what you're seeing. You're seeing curtailing supply. That's always very bullish because price regulates price or you know low prices always cause high prices in the future. That's one.
(1:02:24) Two is if there's one thing that I'm going to get down on my knees and say, "Dear God, I'm in the lumber business. What's the one thing I really want?" Jim Patterson open market purchase because he did that back during COVID in the depths and depression back then that the housing business was thought to be in. Um he did that obviously in West Frasier stock in the open market.
(1:02:41) And so I say that because Jim has been a great counteryclical buyer. He's a very old person. you know, nowadays from what I, you know, I've heard he's not that active compared to what he used to be. But that's the one thing I really want is just a lot of insider buying and Jim would be a great person to do that. >> And Cole's very familiar with the fact that I was in Seattle for uh 40 years.
(1:03:01) And I used to tell people the two worst performing stocks of my time in the investment business in Seattle were Warehouser and Puget Sound Energy. Puisan Energy used to run commercials telling people to use less of their products. >> Gas, natural gas. >> Yeah. >> And it's like why? >> Well, well, and electricity also.
(1:03:21) And and then Warehouser >> has the most fabulous uh farming operation in in the practically in the world, right? Trees. They they they they farm trees. >> Yeah. And all they care about there's like now probably 120 heirs or 160 heirs that get fed divid they live off the dividends off warehouser so they run it like it it's only fun it's a trust fund stock and and >> so he really had to sell west Fraser to you >> well no it it it it makes complete sense it's >> we own the home builder so a lot of this is do with housing so if housing's in a
(1:03:58) tough spot the lumber producers that is their swing producer in fact is US homebuilders. >> Yeah. Yeah. So, so the point is uh it it if Jim Patterson was running warehouser, we'd probably buy the stock >> maybe. >> But he's not a young man. What are you up to? But he's not a young man. There needs to be a a a mini gym.
(1:04:19) >> Um well, you've got a mini Bill over there, but you're still a you're still a young man. Bill, thank you so much for your time and your insights and for having the show in Phoenix. I really appreciate it. >> Yeah. Thank you so much. That's Bill and Cole Sme joining me. Don't miss our next episode.
(1:04:37) Um, also a value investing episode. We've got Jonathan Wellm of Rocklink, the former money manager for Michael Leechin. Don't miss that and we'll catch you on the next episode.