mercredi 23 août 2017

John Malone and Liberty Media (FWONK)

My 14 months daughter eats hair. That's true. She crawls everywhere in the house and when she finds some hair (my girlfriend has long dark hair), she takes it and then she puts it in her mouth.

My girlfriend told me that my daughter also eats grass and that she once tried to eat a spiderweb.

These fucking babies are so crazy and stupid!

Us, investors, are much more rationnal and wise. That's why we eat transformed food flavored with cancer and we invest in Valeant.

For some people, the ultimate level of intelligence and wisdom is John Malone. Let's precise that these people are investors because if you go on the street and ask who John Malone is, I bet you a handful of dark hair that nobody will answer correctly.

Personnaly, I don't know the guy. That's why I made a little research about him and his creature, Liberty Media, which is a stock I wrote about recently (it's a new position of Sequoia and Giverny Capital).

Who is John Malone? 

Age: 76 (born in 1941)
Citizenship: American
Personnal wealth: 7,8 billion US$
Nickname: Cable cowboy
Chairman of the board of Liberty Media

What is Liberty Media?

Liberty Media owns interests in a broad range of media, communication and entertainment businesses. Below is a list of most known entities that are part of Liberty Media and the ownership percentage of Liberty Media in these positions.

Atlanta Braves: 100%
Formula One: 100%
Sirius XM: 68%
Live Nation Entertainment: 34%

These 4 businesses are great. A sport team, a huge car's race festival, a satellite radio company and the largest live entertainment company in the world (many famous bands and artists are associated with Live Nation, such as Shakira, Katy Perry, Roger Waters, Bruno Mars, etc).

Entertainment is, in my opinion, a great sector to invest, as long as it could resist to technology evolution. Which is the case here, at least for the next few years. 

Some sources on Internet are relating that John Malone has achieved to compound capital at an annual rate of 30% for about 25 years. I'll say they're right because agreeing with any Internet source is the easiest way to live your life.

Malone has the reputation of being a low cost operator focusing on long-term after-tax cash flow instead of short-term accounting profits. If you take a look at FWONK numbers, you'll see it's not that easy to understand. Personnally, I think that the accounting is a little bit complex. Malone likes depreciation and spin-offs a lot. That's what he uses to create value. That's super great to read, but harder to analyze.

Three years ago, many people said that Michael Pearson was an unbelievable manager with lots of skills for value creation... although Valeant accounting practices were complex. I'm not saying here that Malone is similar to Pearson. But I like to see clearly into numbers, which isn't the case with Liberty Media.

Nonetheless, I believe that this stock is a conglomerate of great businesses and that we should look deeper into it.

6 commentaires:

  1. I'd like to find one of these masters of allocating capital BEFORE they have ~ $10 billion or more market cap behind them. If you could just invest in one of these money masters when their company is at $1B or $2B in market cap then you would retire rich. For example, I think Mark Leonard and Constellation software are good for 15% per year compounding going forward (a very good rate of return) but nothing compared to what the guys who invested in constellation software even 5 or 6 years ago made. I wonder whose skills at allocating capital we will be bragging about 5 or 10 years from today. My focus is small caps with strong balance sheets and a high r.o.e. (but who knows if they will continue to grow or hit a wall).

    1. What are your thoughts on Photon Control Inc?

    2. I bought photon control at 66 cents. The financial stats looked amazing at the time. I quickly sold the stock for around the same price when I found out the ceo had a separate company and charged photon millions for the research and development. I feared the risk of the ceo using the company as his piggy bank and over-charging us shareholders for r&d. I guess it's my loss. They also bragged of their stock option heavy compensation (meaning they pay less in salary because they dilute more with extra generous stock options) LOL
      The funny thing is that my biggest winner this year (FIZZ) is 75% owned by the CEO and not very transparent either. At the current p/e and price, I see photon as more of a hold than a buy or a sell. When I bought, the p/e was below ten.

    3. Considering the short reports, poor transparency & odd press releases of FIZZ, why are you comfortable with it as an investment?

    4. FIZZ gets blasted for poor transparency and odd press releases...but then turns around and gives you fat special dividends. I bought around $50 at the beginning of the year, have received $3 in dividends so far this year (and we may get another $1.50 special dividend by the end of the year). That's a lot of dividends. They have no debt and make mountains of cash. People ask: why is the price so high? Did they find a cure for cancer? No. Even better. They sell water for about $5 per gallon. LOL. We now have major cities taxing sodas / sugar water. More and more women and millennials are switching from coke and pepsi to FIZZ's leading LACROIX brand of flavoured carbonated water. We've been debating in various forums whether this is a fad or a long term trend. People have to make up their own minds. Coke has been losing about $2 billion in revenues per year lately. I joke that when they start losing $3 billion per year they will make an offer to buy out FIZZ.
      I'm just joking but every other beverage stock seems to be going sideways or slightly declining and FIZZ is growing like crazy lately. No guarantee from me that the growth continues. People should come to their own conclusion after doing their due diligence. It's easy to argue yourself out of owning FIZZ. I sold half my position when it got to $80. Even I think it's a bit expensive at this point but if I had to guess...this small float / high r.o.e. stock will get more expensive in due time.
      Bottom line: The CEO owns 75% of the company, so if he does anything to harm the company, he will feel it more than anybody. He does not intend to sell a share until he sells the whole company. The way he gets money out without selling a share is by issuing fat special dividends (whenever he feels like it). Like I said, we've had two special dividends of $1.50 so far this year.

  2. There is way more way to invest with John Malone, see the details here :

    He likes to spin-off the spin-off, sometimes is gets confusing.

    I personnaly bought Liberty MEdia about two years ago, so now after the spin-off I own Liberty Media Formula One (FWONK), Liberty braves (BATRK) (added to position after the spin off) and Liberty Sirius XM (LSXMK).

    I also have a small piece of Liberty Global latin america (LILAK)