Greenblatt: Opportunity Is There If You Know How to Value Business

Greenblatt discusses active versus passive investing and some of the reasons why he still believes active investing is the better option saying:

“I was asked to give a speech at Google last year and I started it this way… I said even Warren Buffett says that most people are better off just indexing and I said I agree with him… I didn’t stop my lecture there. I said… but then again Warren Buffett doesn’t index and neither do I don’t… how come? It’s because the opportunity is there if you know how to value businesses. Which most people do not… To take advantage of the fact that the market is emotional over the short term… often!

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On The Future Of Disney And ESPN

My latest article on Seeking Alpha focus on Disney and the future of the business. The full article is available on their website here.


On The Future Of Disney And ESPN

By Brian Langis

Summary

  • Focus on the long-term, 5 to 10 years.
  • Disney’s approach to streaming ESPN and Disney+ could determine the future of television.
  • Disney could be viewed as a service company in the future – that would benefit the stock.
  • The Media segment is Disney’s biggest segment and is under pressure. It will take ESPN+ to replace the losses.
  • In 2006-2007, analysts and shareholders hated Netflix for investing in the streaming platform instead of focusing on DVD rental.

The following article are some thoughts and insights on the future of Disney and ESPN. If you are looking for a DCF model of the next ten years this is not the right article.

I love Disney (DIS). I have two small children and Disney helps with me with parenting. I’m also a Disney shareholder, so is my daughter when I gave her one share at her first Christmas. As a shareholder I do need to follow the company for myself and my family.

Part of the investment thesis is based on Disney’s capacity to transform itself from a traditional TV/Media to digital streaming with ESPN+ and Disney+ (I don’t think Disney has released the name for their streaming platform, so I’m calling it Disney+). A Disney+ app set to debut in 2019 will offer on-demand viewing of Marvel, Pixar, Lucasfilm and other television and movie content. Yesterday Disney released their Q2 results. Below is the revenues break-down by division Q2:

  • Media and networks: $6.14 billion vs. $6.09 billion expected
    Parks and resorts: $4.88 billion vs. $4.69 billion expected
    Studio: $2.45 billion vs. $2.19 billion expected
    Consumer and interactive: $1.08 billion vs. $1.14 billion expected

The Media segment is Disney’s biggest segment and is under pressure (-6% net income last quarter) however the Parks and Studio division is helping absorb the subscriber loss bleeding at ESPN. “The Worldwide Leader” in sports is going through an identity crisis (what’s going on with SportsCenter?), is losing rapidly losing subscribers (peak ~100m vs ~80m today) due to cable cutting , and is hit by escalating rising cost attached to their massive sports-right contracts. To help the transition to digital and to “save” ESPN, the Company unveiled a paid streaming service as ESPN looks to combat mounting subscriber losses that have weighted on the bottom line of Disney. Disney has big plans to sell its stuff directly to consumers (Direct-To-Consumer or D2C). ESPN+ is a first step. D2C bypass intermediaries and allows Disney to control the user experience.

Read the here.

 

Red Notice

Red Notice.jpgI have a pile of things I need to read and I have a pile of things I want to read. And there’s Red Notice by Bill Browder which was on neither pile. I picked up for $20 at the book store just because it looked good. I actually heard about Bill Browder a couple years ago from his frequent TV appearances. He also had a documentary on Netflix. Here’s a little known fact: Bill Browder is the grandson of the head of the American Communist Party who ran for President a couple times.

Bill Browder has a story and it’s one hell of a story. This book has two parts. The first part, my favorite, is about his early day investments after the breakup of the Soviet-Union. Browder was where nobody else wanted to invest. This mean he bought stuff for ultra-cheap. He would invest in companies at 0.5x P/E and such. Assets where absolutely mispriced. The gap between price and value was extremely large. Capitalism wasn’t a well understood concept and they were basically just giving stuff away for free. Nobody knew how to value anything except for vodka and cigarettes. You could buy companies at a tiny fraction of its oil reserve. The book a couple examples of his investments and it’s fascinating. I kind of wish he made another book only about his investment in Eastern Europe/Russia after assets where privatized.

The second part of the book is the main reason why it was written. It’s the part where Browder goes to war against Putin. Browder was deported from Russia after trying to expose corruption in the country. He hired a lawyer named Sergei Magnitsky to be part of the team to help him out. Then in 2008 Sergei Magnitsky uncovered a massive tax fraud. He found evidence that a group of well-connected Russian officials had stolen a whopping $230m. He was arrested and tortured to make him withdraw his testimony. He didn’t. His conditions grew critical and he died. Then Browder went on a crusade to seek justice. It looked impossible and it wasn’t easy. The Russian says that Browder is the real criminal and has commited fraud. Russian issued a “Red Notice”, like the title, which refers to the extradition request served by Russia on Interpol, demanding Browder’s arrest. It was denied.

Browder is behind the The Magnitsky Act, a law named after Sergei Magnitsky, which was signed into law in 2012 by President Barack Obama. The law is intended to punish Russian officials responsible for the death of Russian lawyer Sergei Magnitsky in a Moscow prison in 2009. The bill received bipartisan support. At the moment, I believe the law has been expanded to cover the globe, not just human right abuse in Russia.

In the book, Browder has an interesting theory about Putin. At first Browder was a Putin supporter. Browder was an activist investor. He would go after corruption and exposed crook at companies and it worked…for a while until it didn’t it. Doing what he was doing as a foreigner it was surprising that nobody killed him. People die in Russia for much less. Browder believed he was protected by Putin at first. When Putin was first elected, he wasn’t the Putin of today. Putin didn’t have all the power. The Russian oligarch did. And Browder was going after the oligarch. Putin and Browder’s interest were aligned. Then the oligarch folded to Putin because he started jailing them and Putin gain the power. That’s when Putin and Browder weren’t working together anymore but it conflicted. So Putin tried to get rid of Browder and it got messy.

“This book reads like a thriller, but it’s a true, important, and inspiring real story. Bill Browder is an amazing moral crusader, and his book is a must-read for anyone who seeks to understand Russia, Putin, or the challenges of doing business in the world today.”Walter Isaacson, author of Steve Jobs and The Innovators