In this episode of Excess Returns, we welcome back Cole Smead of Smead Capital for a wide-ranging conversation on markets, history, and the principles of value investing. Cole shares his perspectives on fiscal largesse, inflation, passive flows, energy markets, U.S. exceptionalism, and the timeless lessons of Buffett and Munger. His insights bridge economic history with today’s market realities, giving investors a framework to think about risk, capital allocation, and opportunity costs.

Deficits, monetary policy, and why recessions are hard to find today
Inflation dynamics and lessons from the 1960s and 1970s
The U.S. government’s role in markets (Intel stake, big government policies)
American exceptionalism vs. global capital allocation improvements
Earnings quality and the divergence between accounting and economic profits
Passive investing flows, weak competition, and investor behavior
Energy investing: from fracking bust to efficiency and capital discipline
Comparing the AI boom with past manias and capital cycles
Smead Capital’s investment process and evaluating “wonderful companies”
Buffett, Munger, and the lessons of asset-light vs. capital-intensive businesses
Closing insights: why returns on capital matter more than EPS or revenue

00:00 – Opening quote and fiscal deficits
02:00 – Debt, inflation, and recession risks
08:50 – Government stake in Intel & big government era
12:15 – U.S. exceptionalism and arrogance
17:30 – Earnings quality erosion in U.S. businesses
24:00 – Passive flows and human behavior
27:30 – Opportunities in energy investing
34:00 – Energy buildout vs. AI boom
38:00 – Smead Capital’s investment process
44:00 – Lessons from Buffett and Munger
51:00 – Standard closing question

Cole Smead on Deficits, Inflation, and the Erosion of Earnings Quality in Technology Stocks

Excess Returns