The David Lin Report · Sep 28, 2026 · 41m · 24m saved
With Bill Smead, Founder and Chief Investment Officer of Smead Capital Management
Twenty companies make up 45% of the S&P 500, and Bill Smead said that when borrowers run short of money, those 20 stocks are where it will come from.
Most investors read a market that keeps rising through higher yields as a sign of strength. Smead said it is a fever, and that it breaks the way it did in 1987: a sharp fall, then rate cuts.
"Most of the money in the United States is in 20 companies that make up 45% of the S&P 500."
Bill Smead, Founder and Chief Investment Officer of Smead Capital Management, on The David Lin Report, in a conversation recorded on Friday, September 25. He has been in the investment business for 40 years, starting as a broker whose first stock pitch was Coca-Cola at six times earnings in 1981. His funds own no technology or AI stocks and hold large oil and gas positions.
The full interview is covered here so you can skip it. 41 minutes of audio, 17 minutes of reading.
Here are the 15 calls that matter.
Key Takeaways
Washington and the hyperscalers are borrowing so much that the money will come out of the stock market
The 20 largest S&P 500 stocks are "what's going to get robbed"
The chance of the S&P 500 being higher in 10 years is almost zero, he said, on almost any valuation measure
The AI boom is bigger than 1999, with circular deals and depreciation schedules he called too long
When the mania breaks, rates fall, as he said they did after the 22% one-day crash of 1987
Oil will very possibly never see $55 to $60 again, and his oil companies may earn six years of income in two
A ceasefire with Iran would not take oil back to $65, because global reserves are drained
His funds own no tech and no AI, and are buying homebuilders instead
The US government is "the most indebted drunken borrower of all time", so it cannot rescue the market
1. Borrowers Crowd the Market
The host opened with the global bond selloff. He noted the Treasury's intervention since August 19 had not stopped yields rising, cited Treasury Secretary Scott Bessent's testimony that yields would have been higher without it, and showed a chart of the 10-year Treasury yield tracking the oil price more closely in recent months.
Smead said the biggest mistake investors make is forgetting the four disciplines that matter: history, economics, math and psychology.
Government and hyperscalers are borrowing heavily at once
"The economics are that the federal government of the United States is borrowing money like drunken sailors on leave." — Bill Smead
He said the hyperscalers are doing the same to fund a capital spending boom tied to AI, which crowds out other borrowers.
"So there's way more demand for money than there is money." — Bill Smead
He compared it to a story from a high school friend's father, who served in a ship's engine room in World War II and drank hot coffee to cool off by sweating. The fever breaks the same way, he said, and in past spending booms the money first came out of the stock market.
The biggest stocks are where the money is
"Most of the money in the United States is in 20 companies that make up 45% of the S&P 500." — Bill Smead
Investors aged 55 to 80 normally lend to borrowers because they want income. He said they have been trained to love stocks since the 2009 bottom, and cited Bank of America data showing its Merrill Lynch customers hold the highest share of equities in their portfolios in the firm's history. When the fever breaks, he expects selling in the 20 largest stocks, then buying of shorter bonds, from zero to five years, which will bring rates down.
"It will be fear that drives bond investments." — Bill Smead
