The Boy Who Cried Wolf

William Smead
Chief Executive Officer
Chief Investment Officer

Dear Clients and Prospective Clients:

Good portfolio management is a lot like the boy who cried wolf. In 1998-1999 when tech stocks went nuts we “cried wolf” in 7 consecutive quarterly newsletters concluding with “The Ides of March” in March of 2000. In 2005 and 2006 we “cried wolf” on residential real estate and advised many of you to sell properties you were thinking about selling. In mid-2007 we “cried wolf” on the BRIC trade, which was the idea that emerging market nations like Brazil, Russia, India and China would grow uninterrupted and that cyclical industrials, energy-related companies, commodity and food producers would somehow cease to be cyclical and deserved the PE multiples of non-cyclical businesses. We are usually early on our “cries” by six months to two years, but we believe our cries add value to our portfolios over the years.

You’ll notice that we “cried” mostly negative opinions since 1998. However, beginning in a missive we sent on January 18th, we began to alert you to the “Next Great U.S. Stock Market”. The next bull market in U.S. stocks could be the most explosive to the upside that we have ever seen. More cash is on the sidelines than anytime since 1982 and it is being paid the lowest interest rate on Treasuries for 50 years. Stocks are the cheapest they’ve been in over twenty years. Warren Buffett is spending $3 to $5 billion each week on companies like Goldman Sachs and General Electric in an effort to overtake Bill Gates as the world’s richest man. Even my well-trained clients are calling me daily asking if they should bail out instead of doing what Buffett is doing and buy, buy, buy. Lastly, everyone was looking for capitulation in the market and we got it this week. We believe the “Next Great U.S. Stock Market” is on the way and our prediction is that the first leg of the next bull market will be the best first leg of my lifetime. And that is no fairy tale!

Warmest regards,

William Smead

The Boy Who Cried Wolf

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