William Smead
Chief Executive Officer
Chief Investment Officer 

Dear Clients and Prospective Clients:
1. We believe that over long periods of time that great wealth is accumulated by owning a diverse portfolio of premier companies purchased at a reasonable prices. We believe that wealth creation through ownership of quality common stocks is available to anyone who is willing to take the risk and a superior return comes to those owners over long stretches of time compared to the returns on any other liquid asset classes. In the process, common stock owners defend themselves against inflation.

2. We believe we are in the third and hopefully final phase of liquidation in the worst financial panic, credit crisis and business coma that we have seen since the 1930’s. The first phase of liquidation was tied to sub-prime mortgages and the financial institutions that got caught up in them. The second phase of liquidation was the de-leveraging of hedge funds, private equity funds and businesses and investors who were counter parties to failed institutions like Lehman Holdings, AIG and WAMU. The third phase, which we are in right now, is the liquidation by stock market participants (primarily mutual funds and other institutional investors) of company shares due to concerns that the temporary business coma could become a two-year coma.

3. We believe that the strength of our company’s balance sheets and the elimination of their existing and potential competitors by the business coma will cause them to not only be survivors, but to prosper. Sprint is crippled in comparison to AT&T and Verizon. Disney’s theme parks, Movie division and Cable Network gain market share from less well financed industry foes. New drug companies aren’t getting funded while Merck, Pfizer, Abbott Labs and Amgen sit on billions of cash, are gushing free cash flow and fund incredible research. WalMart and Nordstrom’s are seeing major competitors declare Chapter 11 bankruptcy. JP Morgan, Wells Fargo and the Bank of New York/Mellon appear to be the cream of the remaining banks.

4. We believe that we under-estimated the severity and length of this liquidation and over-estimated the attractiveness of our necessity businesses and how well their balance sheet strength and dividend payments would defend our capital.

5. We believe that the bull market that follows this bear market will be ten to fifteen years long and will repay those of us that make it through this current financial misery many times over. However, we don’t know how soon the “Next Great U.S. Stock Market” will begin or what the magnitude of any additional liquidation will be.

We sincerely appreciate you considering our thoughts,

William Smead



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