William Smead set off for Whitman College in Walla Walla, Wash., with aspirations to study law. A boring political-science class made him rethink that career choice. “It took the professor three weeks to define democracy,” says Smead, 56 years old. “I didn’t have that kind of patience.”
It was the law of supply and demand that captured his interest. “I was completely fascinated with how it affects everything in the marketplace,” says Smead, who instead graduated with a degree in economics. Supply and demand still form the basis of his relatively simple investing philosophy: Buy the companies customers can’t live without, when investors hate them. “It’s remarkable how profitable a company can be when it has an addicted customer base,” says Smead, whose $736 million Smead Value fund (ticker: SMVLX) is up 23% a year over the past five years, better than 97% of its large-blend peers.
To illustrate the power of “sticky” demand, Smead points to Cabela’s (CAB). He began buying shares in the outdoor-goods retailer in January 2008, at $12 a share. Though the company wasn’t unscathed by the recession, it held up much better and bounced back faster, he says, thanks to its über-loyal customer base. “They can put the Cabela’s logo on a jacket and charge 15% more for it,” he says. “It’s Walt Disney for adults who like to hunt and fish.”
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There are many ways to define risk. Warren Buffett has said that "risk comes from not knowing what you're doing." Q3 2020 hedge fund letters, conferences and more His mentor, Benjamin Graham, believed that risk should be measured as the chance of a permanent capital impairment of an investment. Seth Klarman also holds this view. Read More