The ESPN Mobile Phone (not clickbait, it’s a real thing)

I don’t know how I missed that colossal flop but in 2006 ESPN released a black-and-red Sanyo flip phone with an ESPN logo above a 1-inch screen. It was called Mobile ESPN, the company’s ill-fated attempt at launching a sports-centric mobile service. Remember this was 1 year before the launch of the iPhone and Blackberry’s handsets were dominating the smartphone landscape. You’re probably scratching your head at how something this ridiculous can happened. I’m being polite here but someone wasn’t: “Your phone is the dumbest fucking idea I have ever heard.” That, according to the book These Guys Have All The Fun,  was how Steve Jobs introduced himself to George Bodenheimer, then-President of ESPN, during a 2006 Disney board meeting (Jobs was on the Disney board).

For the special privileged of receiving score updates, launch GameCast, browse ESPN.com content, and a host of other features on the limited capability phone, customers had to fork over as much as $300 for the phone itself, and between $65 and $225 per month for content. It’s small change when you need your Sunday game score update in a couple minutes on a phone with basic functions (3G network or worse I assume).

Source: PCMag

According to this Bloomberg article, the project cost $150 million to develop, including a $30 million Super Bowl ad (see below), and attracted a grand total of 30,000 customers. ESPN scrapped it after seven months. As I don’t need to explain, it turned out to be a massive commercial failure. From the Wall-Street Journal:

Mobile ESPN’s model doesn’t appear to be winning over consumers. The start-up, which was launched in February, had signed up fewer than 10,000 customers through May, according to people familiar with the situation. Robert Iger, Disney’s chief executive, said on the company’s first-quarter earnings conference call that initial sales from Mobile ESPN were “lower than hoped.”

I’m glad ESPN quickly turned the page instead of throwing money at it. Still $150m is a lot of money. I understand a company needs to be innovative and sometimes has to experiment with different things, but this was simply not a good idea. I wonder if the person that came up with this great idea is still employed. For some reason, I have a feeling the phone is worth a lot of money today. It’s probably one of those collectibles. I searched on Ebay and I couldn’t find one.

ESPN Promo:

Here’s ESPN’s 2006 Superbowl ad.

Interview: Investing With A Margin Of Safety

I was honored when the Editors of Seeking Alpha asked me if I would like to be interviewed for their PRO Weekly Digest. PRO is Seeking Alpha’s research platform for serious investors looking to get better ideas. The interview was far ranging and discussed such topics as: business valuation and the CBV, my investment approach, past mistakes, and a review of old and new stock ideas.

To read the interview at its original source, please click here.

It’s also up on the blog, here.

Below is a copy of the interview:

PRO Weekly Digest: Investing With A Margin Of Safety With Brian Langis

Summary

• Being a Chartered Business Valuator, why having a high IQ is not enough and how to find underfollowed foreign companies are topics discussed, and he makes the bullish case for ECN Capital.

Welcome to the latest issue of the PRO Weekly Digest. Every Saturday for Seeking Alpha PRO subscribers and Sunday for all other Seeking Alpha users, we publish highlights from our PRO coverage as well as feature interviews and other notable goings-on with SA PRO. Comment below or email us at pro-editors@seekingalpha.com to let us know what you think. Find past editions here.

Feature interview

Brian Langis, a long-time Seeking Alpha contributor, manages a private investment company and is a Chartered Business Valuator (CBV). He employs a contrarian/value strategy with notable calls including Moleskine, NTELOS (NASDAQ:NTLS) and Dollarama (OTC:DLMAF). We emailed with Brian about the extra work (and reward) of international investing, the first place he looks when researching a company and how losing money can be the best education.

Seeking Alpha: Can you discuss your work as a Chartered Business Valuator (CBV), the designation itself and how this expertise applies to your personal investing?

Brian Langis: I was always interested in business and how the world functions. I like history, psychology, economics, science and so on. These interests led me to investing. And in investing, it’s all about figuring out the intrinsic value of an asset and its relation to price. So I had to learn how to value different businesses and assets. I like Warren Buffett’s style of valuation. That’s played into the idea of completing the CBV.

As you mentioned I’m a CBV and a lot of readers are probably unfamiliar with this three letter designation. The CBV designation is the premier credential for professional business valuators in Canada. There’s a national body (the CICBV), a code of ethics and professional standards to follow. It’s been around since the 1970s, when the capital gain tax was introduced in Canada. As a CBV, I have the knowledge to quantify the value of a business or assets. I’m trained to put a value not only on business tangibles, but also the intangibles such as intellectual property and key patents, which is taking more and more space on the balance sheet. With publicly traded equities, it’s much easier to determine the value of a company, but in the private-equity sector it’s more complicated. I worked in the investment business, but most CBVs find themselves working in corporate finance, taxation, valuation for financial reporting, or litigation. Also a CBV is very practical if you are involved in M&A.

Everybody can learn business valuation, but for me having credibility is important. It can take 3-4 years of studying on top of a four-year degree to get it done. The CBV is very specialized and very useful. The CBV is more about learning valuation procedures than finance theory. If you want to get very deep into equity valuation, the CBV is a good designation. If people are interested in completing the CBV, having some background in accounting would definitely make life easier. Some work experience would also help.

In Canada the CBV is well respected. However the CBV lacks recognition outside of Canada. Unlike the CFA, the CBV is not well known outside of Canada. The business valuation practice is fragmented by countries. The U.S., U.K., and Australia each have their own designation, governing body and practice standards vary widely. But there’s currently a process to harmonize and to implement universally accepted standards for the valuation of assets across the world.

SA: To follow up, which valuation methodologies do you find most/least useful or is the usefulness determined by the type of asset you are valuing?

BL: Unfortunately, there’s no “best” method of valuing a business. There’s no secret formula. There’s no one-size-fits-all investment strategy that I can give you. Trying to come up with a satisfactory formula that would identify undervalued shares in the stock market with a reasonable degree of safety and consistency will lead you down a series of blind alleys. Knowing what an asset is worth and what determines that value is more an art than science. It’s not supposed to be easy. If it was easy everybody would be rich doing it, right? I made and lost money buying companies trading at 6x P/E and 25x P/E. It turns out that stocks trading at 6x P/E can go down to 4x P/E.

The Wall On The Canadian Side Is Now Complete

The wall on the Canadian side is now complete.

On Market Valuation

Below are my comments in an email on recent market valuation:

Are stocks expensive, yes. Is it a bubble no. Will there be a correction? Of course. When? Who knows. We are in the 8th year of a bull market rally. In the past there was a correction every 18 months on average. Look where we are today. Nobody predicted that. No one. The stock market reached a new high yesterday, again making a mockery of what savvy economic commentators though they know about the world. It’s absolutely ridiculous. Consider how things looked one year ago. The world economy seemed hopelessly trapped in a cycle of low growth and inflation. Markets recoiled at the mere possibility that the Fed would raise interest rates. Now, interest rates and inflation forecasts have risen substantially from last year; financial markets are shrugging off — or even rallying at the possibility of — imminent Fed rate increases; and it is all taking place during the Trump’s presidency. Now there are signs that the “new normal” will become the “old normal”. Good luck trying to make sense of all that.

Now back to market valuation. The famous Shiller CAPE ratio chart is often brought up to explain the next crash. Bears like to cited this chart when predicting the next big crash. The last two times CAPE ratio was this high was 1929 and 2000. You know how that ended. It’s true and it’s a powerful chart that really sinks in. Well there’s a few things that are not mentioned.

1) The Shiller ratio has been a record high for a few years now. It’s been brought up to predict the next crash but still waiting. There’s a popular saying in the business: “I predicted 9 of the last 5 recessions”.

2)Back in 1929 and 2000 the the risk free ratio was at least 5%. That mean a treasury bond, the safest investment of all, would guarantee you least 5%. Today you are getting nothing, or negative return because of inflation. The reason why the stocks are persistently expensive is that there’s no other option to park your money. Where else are you going to put your saving? Bonds are  on the block to get slaughtered if interest rate ever normalized. Why would I loan money at somebody for less than 1% or even negative rates? Then you have gold. Very speculative and how to you value gold? It looks good on your wife what else are you going to do with? The return on gold since 1800 is 0.5%, on stocks 6.7%, and 3.5% for bonds. These numbers are from Professor Jeremy Siegel are Wharton. Because of persistently low interest rate, people are stuck with stocks.

3) The CAPE is backward looking. It divides the S&P with the last 10 years of earnings. It would be more accurate if you divide it with the expected earnings. I know it’s predicting but you can have a range. It would come down a bit.

4) Professor Robert Shiller said he would still buy stocks because interest rates are super low. He also said that you are not looking at the chart correctly. It wasn’t met to be a marking timing mechanism. You have to look at it like its continual.The lesson there is that if you combine that with a good market diversification, the important thing is that you never get completely in or completely out of stocks.

But to hell with all that, too much explanation, let’s just tell people that it’s doom time again. If you are managing money, I think you need to explain a little bit more. You owe that to your clientele.

Charts has the tendency to over simplifying things. You can’t just wait there until it comes down to PE 6x or something. Stocks just don’t drop because the chart said so. You need a catalyst. A recession would do it but it looks like the U.S. is doing well and that should help Canada. My money is on rising interest rates. Rates will need to go above 2% or more for people to get out of stocks. People are sitting on dividend yield of 3% for now, so why get out. My worried is how are we going to pay all that debt back once interest rate rise? We have taken on a lot of debt but its costing nothing. But that can’t last forever. All that need will need to be renewed one day and it might be a much higher rate. Budgets are already strained and nobody is asking how are we going to pay it back. But again, what do I know.

Right now stocks are on fire because of Trump. Which has me worried. It seems like the market only listened to the good stuff Trump had to say and ignore the bad stuff. The good stuff: tax cuts, regulation cut, and massive infrastructure spending. The bad stuff: possible trade war, protectionism policy, disrupting diplomacy etc…. And Trump’s personality is very volatile. But he has a good business team in board so that’s reassuring.

Stocks could be high for a while.The last couple major dips (5-10% drop), like in August 2016, Jan-Feb 2016, Brexit…was only a blip on the radar. The stocks came roaring back. there are too many specialized funds that take advantage of the dips. While you are trying to make sense of what’s happening stocks are back up. The best move was doing nothing.

The market anticipates very big things from the Trump administration. However market anticipations are often wrong. Trump will not get everything he wants and the market could take it the wrong way. But there is also some real improvement in the economic data underneath the shifts, reflecting economic forces that have been underway for years. And this resetting of expectations is evident in market data beyond the always erratic stock market.

Every decade or so there’s a massive storm like in 2000 and 2008. This is the key to real returns. It’s to buy when nobody wants everybody is selling. When there’s “blood on the street”. That’s easy to say (or write). You need nerve of steel to do that. It wasn’t evident in 2008-2009, after stocks were down 50% that the smart thing to do was to buy stocks. After weren’t we on the brink of a financial collapse? There will be another downturn one day to profit from.