A Book with Legs: The Smead Book List - Spring 2025

Released on March 31, 2025

Introduction

In the Spring 2025 episode of A Book with Legs, hosted by Cole Smead and Bill Smead of Smead Capital Management, the hosts delve into their quarterly book list, exploring a diverse array of titles that have influenced their investment strategies and perspectives. This episode offers listeners a rich tapestry of discussions ranging from historical financial trends and moral philosophy to modern-day economic policies and market dynamics.

Books Discussed

1. "A Short History of Financial Euphoria" by John Kenneth Galbraith

   Bill Smead revisits Galbraith's exploration of market behaviors that lead to financial bubbles and subsequent crashes. He emphasizes the recurring nature of economic exuberance and its often irrational underpinnings.

   "I reread A Short History of Financial Euphoria just to be reminded, refreshed on the behaviors that have contributed to the senselessness of inflating relatively useless items or excitement about economics." (01:18)

2. "Bubble in the Sun" by Christopher Knowlton

   This book chronicles the Florida land boom of the 1920s, highlighting how widespread participation in speculative land purchases significantly contributed to the onset of the Great Depression, arguably more so than the infamous stock market crash.

   "He does a pretty good job in this book of arguing that that was as big a contributor to the Depression as the stock market crash, which was only participated in by about 1% of the population." (02:26)

3. "Bonhoeffer" by Metaxas

   Bill praises this intense biography of Dietrich Bonhoeffer, focusing on his moral courage and steadfastness against the Nazi regime. The discussion underscores Bonhoeffer's commitment to his principles, even in the face of immense personal risk.

   "It's almost like you need to go to someplace secluded and heal for a while after you realized what a great man this was, what a courageous man this was." (06:26)

4. "Love Does" by Bob Goff

   Bill shares insights from Bob Goff's inspirational narratives, particularly the power of simple acts of love and encouragement in shaping human interactions.

   "Love does... the love you give to the human beings you interact with, regardless of what their background is, regardless of what their beliefs are, have a powerful force." (22:11)

5. "Chain Reactions" by Lucy Jean Santos

   Cole reflects on this book's examination of uranium's history, drawing parallels to modern-day corporate transparency and the importance of scrutinizing investment opportunities.

   "It's like you go and look at a corporate issuers, you know, IR deck and if you didn't have a I in your, your, your corporate information or in your risk disclosures, it means you probably didn't have a pulse." (11:39)

6. "Caesar's Palace Coup" by Sajit and Max

   This title explores the strategic disaggregation of property and operating companies in the hospitality industry, offering a case study on capital allocation and business structuring.

   "It's like any real estate asset we've talked a lot about, say U Haul who has real estate assets but sits in a C corp versus all their peers sit in a REIT structure." (14:57)

7. "Fortune's Bazaar"

   Cole discusses historical insights into Hong Kong's business families and their influence, particularly in the context of changing political landscapes and economic policies.

   "It says something that the strength of those families in Hong Kong are really the core of Hong Kong. And if they are not in strength, neither will Hong Kong ultimately." (16:21)

8. "Inside Money"

   Bill delves into the multi-generational investment firm Alex Brown and Sons, highlighting its pivotal role in funding significant American infrastructure like the Baltimore and Ohio Railroad.

   "They funded the Baltimore and Ohio Railroad, which is really the first significant railroad in the United States." (18:15)

9. "Grit and Grace" by Eric Speer

   Bill touches upon this motivational work, drawing parallels to the themes of resilience and purposeful action found in other titles discussed.

   "More designed to inspire... it's a great book." (27:14)

10. Additional Titles

    • "Rot" by Podrick Scanlon: A historical account of the Irish Potato Famine, Cole connects its themes to market monopolies and the dangers of lack of diversity.
    • "Meltdown" by Duncan Maven: An insider perspective on the Credit Suisse collapse, examining the intricacies of financial institutions in crisis.
    • "Uncertainty and Enterprise" by Amar Bide: Explores Knightian uncertainty and its implications for modern business strategies.
    • "Life of St. Patrick" by J.B. Burry: Provides cultural and historical insights, aligning with the episode's focus on enduring legacies and societal impacts.

Insights and Discussions

1. Historical Financial Bubbles and Economic Downturns

   The Smeads draw parallels between the Florida land boom's contribution to the Great Depression and modern financial euphoria, emphasizing the cyclical nature of market exuberance. They caution against getting swept up in momentum, a recurring theme in investment strategy.

   "There was so much momentum in the price of, you know, they'd take a bunch of raw land and they'd plot it out in lots and they'd start selling the lots... It's just crazy." (04:53)

2. Moral Courage in the Face of Adversity

   Bonhoeffer's unwavering stance against the Nazi regime serves as a testament to personal integrity and the importance of standing by one's principles, even when faced with dire consequences.

   "He never appeared to think in terms of the cost benefit analysis of him. Doing what he'd need to do to go on with his ministry for another 30 years versus take the punishment that everybody else was taking." (10:11)

3. Energy Markets and Capital Allocation

   Discussions on the oil and gas industry's dynamics highlight the shift towards more disciplined capital allocation and the importance of understanding the structural components of businesses. The Smeads critique companies like Weyerhaeuser for poor capital utilization and emphasize the strategic advantages of firms that efficiently manage their assets.

   "What single company has been the most unproductive user of the capital of common stock owners? In my career, it's been Weyerhaeuser." (34:59)

4. Political Influences on Economic Policies

   The episode delves into the impact of political rhetoric and policy decisions on market behavior, particularly in the context of Trump's administration. The Smeads discuss how political maneuvers can lead to market volatility and influence sectors like energy through tariffs and regulatory changes.

   "We know that labor unions are getting 8.5% wage increases regularly... That's all inflation." (42:10)

5. Bond Market Analysis Compared to the 1970s

   Drawing parallels to the high inflation and interest rates of the 1970s, Bill expresses skepticism about the Federal Reserve's ability to control persistent inflation without breaching economic stability, suggesting that we might be facing similar challenges today.

   "We're in the 1970s is where we are. And if the Fed capitulates and cut rates, they're going to run into the same phenomena they ran into the last time." (50:35)

6. Stock Market Vulnerabilities: The Magnificent Seven

   The discussion highlights potential vulnerabilities in major tech stocks, referred to as the "Magnificent Seven." The Smeads express concerns about their long-term profitability and resilience in the face of market corrections and economic uncertainties.

   "From the week after the election of Donald J. TRUMP To 10 years later, the S&P 500 is highly likely to not make any money." (58:15)

7. Human Behavior in Financial Euphoria

   Emphasizing the psychological aspects of investing, the Smeads reference John Kenneth Galbraith's observations on financial euphoria, underscoring the human tendency to chase trends and the subsequent risks when the market corrects.

   "What single company has been the most unproductive user of the capital of common stock owners? In my career, it's been Weyerhaeuser." (59:03)

Conclusions and Takeaways

Cole and Bill Smead conclude the episode by reinforcing the importance of disciplined investing, understanding historical contexts, and recognizing the interplay between political decisions and market dynamics. They advocate for a cautious approach, advising investors to be wary of market exuberance and to seek opportunities where others may fear to tread.

Notable Quotes

• Bill Smead: "Great to be here, Willie." (00:58)

• Cole Smead: "At Smead Capital Management, we are readers and we believe in the power of books to help shape informed investors." (00:21)

• Bill Smead: "You have to resist the urge to get caught up in momentum. That's really the moral of the story." (04:53)

• Cole Smead: "You find out who's swimming naked." (59:25)

• Bill Smead: "We have no personal leverage and our business uses no leverage. Therefore we don't have to worry about the main problem that occurs to make your way through these difficult circumstances is always leverage." (56:34)

Final Thoughts

This Spring 2025 episode of A Book with Legs offers a comprehensive examination of various books that inform and shape the investment philosophies of Smead Capital Management. Through in-depth discussions and poignant quotes, Cole and Bill Smead provide listeners with valuable insights into historical financial behaviors, moral decision-making, and current economic challenges, all while emphasizing the importance of informed and disciplined investing.

For more information or to explore Smead Capital Management's offerings, visit smeedcap.com or consult your financial advisor.