Two from Smead Capital Management. First up, July 6:
Dear fellow investors,
Love is in the air, everywhere I look around
Love is in the air, every sight and every sound
And I don’t know if I’m being foolish
Don’t know if I’m being wise
But it’s something that I must believe in
And it’s there when I look in your eyesChairman and largest shareholder, Harold Hamm, is trying to own our shares of Continental Resources (CLR US) at a price of $70. We’ve seen it trade above there in the open market in the last month. How strange? Warren Buffett is bidding on a regular basis to buy shares of Occidental Petroleum (OXY) from other existing shareholders. The stock isn’t sprinting higher on this news. How strange? These are historically control investors who don’t mind playing for keeps.
Public markets need to recognize that, “Love is in the air, everywhere I look around.” People in the oil and gas business are petrified of the environment that we are in because they had to live through the miserable 2010s and stared into the abyss of negative oil prices in the spring of 2020. This has caused the industry to look at mid-cycle pricing of $50-$70 per barrel in making their capital allocations and forecasts. We don’t agree with this, “And I don’t know if I’m being foolish.” These companies are cheap and exploding with cash. No new supply is in sight. We see $85 per share, “And it’s there when I look in your eyes!”
Love is in the air, in the whisper of the tree
Love is in the air, in the thunder of the sea
And I don’t know if I’m just dreaming
Don’t know if I feel safe
But it’s something that I must believe in
And it’s there when you call out my nameInvestor unwillingness to own oil and gas investments comes down to a few simple things. First, they have been taught that volatility is a bad thing. In fact, the investment business might have a special place in hell ready for the promotors of these insane doctrines. You wouldn’t know who Sir John Templeton and Warren Buffett are if they hadn’t been willing to trade volatility for investment success. The unwillingness to provide capital in lieu of focusing on volatility is near-sighted. We believe that low volatility is a crowded investment space.
We are thankful for these teachings because it is keeping volatile commodity markets far away from the capital allocations of individual and institutional investors. This is making owning oil and gas very profitable per dollar of market cap or book value, but leaves these stocks open to “the whisper of the tree” and, in the Hamm and Buffett sense, “in the thunder of the sea.”....
....MUCH MORE
And June 28:
Buffett, Jones and Hamm: An Oil Wisdom Trifecta
Previously from Smead (either Cole or his Dad, Bill):- Factor Investing: "When Quality Fails"
- The Lack Of Prospects For ESG (at the moment)
- Equities: "Value’s Lifeblood is Performance Chasers"
And on their flight from the West Coast:
