Leadership- One Decision At A Time!

 

Leadership is analyzed, discussed, argued about, and increasingly dissected in any number of methods.  The reason why leadership is so important is because over time, the decisions a head of an organization makes directly affects the outcomes which ultimately become the end result.  My area of interest is obviously business and the capital markets, but certainly in politics, sports, government organizations, non profits, and personal relationships, the same idea is applicable.  Especially in business and financial markets, you have to think in 3, 5, or 10 year periods.  One year in the business world is really too short of a time to evaluate any leader.  So over a long periods, excellent leadership slowly but surely displays good decision making one transaction at a time, and these build up to enormous results which at any single point might not seem so significant. 

 

I think in the corporate world, the ability to execute small deals, medium sized deals, and large blockbusters is something which is learned over time as experience is accumulated.  Deal making matters in the corporate world because it can change the direction of a company, potentially positively and negatively. In addition, how a deal gets structured speaks to efficiency as far as what assets are acquired, the price which is paid, how they are financed, and the tax consequences for both the acquiring and selling company and their respective shareholders.  In many situations, deals are done where if they were structured very differently, more flexibility for both parties would be the end result.  Also, the tax benefits might be completely different with a different deal concept.  


A few weeks ago, I wrote about the success of John Malone.  A key feature about Malone is his track record of corporate transactions of every size imaginable, using a variety of different methods to be as tax efficient as possible.  One of his major arguments with AT&T was how they structured their deals when they acquired large cable companies after they bought Malone's TCI Cable.  The term I can recall is 'Killing the pig without using the blood and the guts.' I am seeing this a great deal in the most recent deals in the business world, especially with high tech companies.

 

For example, we have seen Yahoo buy Tumblr and pay for it using cash.  I think Marissa Meyer is really trying to change that company, and this deal is a good example of it.  However, I think she could have changed how the deal is structured and it would have been far superior from an efficiency point of view.  Ultimately, how Yahoo integrates, grows, and builds Tumblr from a revenue and profit point of view is what is most important.

 

Malone is bidding for the one of the largest cable companies in Germany, and Vodaphone is considering a all cash offer for it as well.  Malone will not offer cash, instead offering cash, debt, and stock in some combination.  Cash is a very valuable asset, and with today's cheap interest rates, from my perspective it does not make a great deal of sense to use your cash when you could easily use some cash, and finance the rest with cheap debt. 

 

The series of decisions Malone has made over the last 10 years have been made patiently and each one has led to the next result.  When he hired Greg Maffei from Oracle, people in the investment world noticed, but to most it did not mean a great deal.  For Liberty shareholders, it helped completely change the direction of the company.  Maffei has been a driving force in focusing the Liberty portfolio into situations where Liberty has a greater influence.  For example, the bridge financing Liberty used to help extend Sirius Satellite liquidity during the height of the 2009 crisis enabled Sirius to avoid bankruptcy, and Liberty is now in control of that company.  Other individual transactions would be selling out of the IAC stake, swapping News Corp stock for DirectTV (with tremendous tax benefits), and the most recent Charter Communications investment. 

 

If looked at one deal at a time, an investor might minimize their importance.  As time passes and the results accumulate, the leadership and good decision making become very clear.  The same holds true with Mr. Buffett.  Leaders like Marissa Meyer are starting to try and make their footprint in the same way.  Deal experience takes time, and the skills are acquired with practice, as is almost anything valuable and worthwhile.


The whole trend of digitization becomes more and more pertinent as technology evolves.  Here is a great story in the NY Times about 'Big Data' and how it applies to the biggest industries-
http://bits.blogs.nytimes.com/2013/06/19/sizing-up-big-data-broadening-beyond-the-internet/?ref=business&_r=0

There are many investors who believe that Google is in much better position than Apple.  Here is an article which might make them reconsider- http://allthingsd.com/20130623/is-ios-fragmenting-not-nearly-as-much-as-android/?mod=atd_homepage_carousel

Need evidence how digitization can affect a business?
http://seattletimes.com/html/businesstechnology/2020862483_starbuckssocialxml.html

Thank you for reading the blog post, and I hope you are having a great and cool summer!


Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

Father's Day, and Digitization!

 
I hope everyone has a super Father's day.  I am sure most people would agree that their father had a major influence on their lives, and that holds true for myself as well.

 

I believe the single biggest issue facing any business today is how to incorporate digital information throughout the enterprise in order to best meet it's goals.  There are some critical insights to consider when thinking about the digital age.  First, all information is capable of being shared, quickly and easily, to massive numbers of people across a multiple spectrum of platforms.  Anything related to a product, or company (like a tweet, like, video, blog, web post or article) can be shared quickly and easily with a staggering number of possibilities.  As such, the amount of information which is being generated is exploding, almost exponentially so. 

 

In the very near future, even more data is going to be collected from an ever expanding number of items.  Cars, appliances, phones, tablets, phablets, small equipment, large equipment, medical devices, watches, and maybe even glasses will all be capable of collecting and sharing information.  You might think it will be very difficult to control all of this information, however, it will probably become even easier as your phone or tablet will be able to direct the functions of an entire household.  It is already taking place, and the shift will become more pronounced as time passes. 

 

With the recent revelations regarding government monitoring and data collection by the National Security Agency (NSA), industry will have to be far more diligent in protecting consumer data as privacy concerns are sure to become a hot button issue for the general population.  Certainly, the public needs to be protected, and first amendment liberties are still part of what makes our country different and unique.  Obviously, data security is going to be critical for any operation which is involved with collecting, organizing, analyzing, and trying to make use of the massive amounts of information which are being collected on a daily basis.

 

If you try to understand why the digital age is so critical for businesses, especially public ones, it starts with the simple ideas of trying to grow revenues, cash flows, and profits as quickly as possible.  Digital information makes it possible to expand into new markets, product lines, geographies, and potentially create new businesses in a much quicker period of time.  You can see this with events like flash sales, or an app which might get downloaded 100 million times (or more) in a year.  Companies take collected information, and use the data to spot trends for growth and create products which fit those growing patterns.  As an example, Amazon.com uses algorithms to make personalized suggestions to existing users for products they might be interested in.  The company currently does almost $65 billion a year in sales, and nearly 25%, or $16 billion, comes from those emails which say 'Hello Joe, you might be interested in this book.'  Obviously, the next level of this would go something like- 'Hey, Joe, your friend read this or used that product, so maybe you might want to give it a shot?'  Applications like Shopkick or Foursquare use location based monitoring to help attract customers, and many industries are developing unique uses for existing digital technologies as well.



The use of technology is also being applied across the most complex supply chains in nearly every industry you can imagine.  The uses for digitization are only beginning to be applied but you have to believe they will grow in imaginative ways for companies to become more efficient.  The challenge for all enterprises is to distill and analyze the available data into forms which are productive across all areas of a company.  By doing so, costs come down, and the power to make informed decisions is spread to users at levels all over an organization.  



The way I see it, though, the biggest area where digital technology can help businesses is in the ability to attract customers by using all of the different connected platforms to build an ever larger customer base.  As the user numbers grow, data is then sorted to personalize communication and further develop a focused relationship with people all across the various digital properties and devices.  The best companies in the world will continue to build their digital expertise and attract ever larger and larger numbers to their brands.

 Large technology companies are being forced to help the government with data collection- http://www.bloomberg.com/news/2013-06-14/u-s-agencies-said-to-swap-data-with-thousands-of-firms.html

Iran had elections yesterday and they elected a moderate hard line fundamentalist- if there is such a thing-

Stanley Druckenmiller is a heck of a money manager and thinks markets offer less advantage for him today than ever before-

Thank you for reading the blog post and I hope you have a happy and healthy Father's day and week!



Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

John Malone- The Smartest SOB In the Room-

 
 
About one month ago, typically during the first week of May, 40-45,000 people show up to the Berkshire Hathaway annual meeting to get a chance to listen to Warren Buffett and Charlie Munger answer questions for the day.  Last year, an auction on Ebay to have lunch with Mr. Buffett ended up with a price tag of nearly $3.5 million dollars.  One does not have to be a genius to figure out that time is precious for CEO's who have created a lot of wealth for shareholders.

One of the great things about investing is you can find leaders of companies who meet your criteria for guiding a business in the future.  Very rarely, however, do you find excellence which has been sustained over a long period of time.  Even more unique is to find a leader who has proved their greatness for many years, and has also repeatedly battled back from situations where they actually had to start over.  Given that background, let me suggest the investment world should view John Malone with the same elevated status as it does Mr. Buffett.

 





 

Let's give some quick comparisons to back this idea up.  As of this moment, Buffett created a company, Berkshire Hathaway, which is currently valued at 285 billion dollars.  Malone's Liberty Media has three different equities, one of which is a tracking stock, Liberty Ventures, and combined they have a market value of around $35 billion.  Liberty also recently spun out Starz Entertainment, also controlled by Malone, and it has a market value of almost $3 billion.  He also runs Liberty Global, the largest cable company in the world, having a market value of nearly $50 billion.  In addition, Malone sold TCI cable years ago for close to $50 billion.  While he was in charge of TCI, Malone created the Discovery Channel (currently worth nearly $32 billion), and Black Entertainment Television, which was sold to Viacom for billions.  At one time, Malone was the largest shareholder of DirectTV (he still owns a big stake), which is worth nearly $50 billion as well.   Other public entities Liberty and Malone have control of, or near control, include Expedia, Live Nation, TripAdvisor, Home Shopping Network, Interval Leisure Group, Barnes and Noble, and Lending Tree.  Clearly, as a shareholder of either Buffett or Malone, you would be a very pleased owner.

Buffett is a media darling who draws attention everywhere he goes.  Malone is also followed closely by the media, and is also known for a few of his colorful quotes.  The striking similarity is from an investment point of view, both of these leaders are indeed the smartest guys in the room, and the correct adjective to describe them would be 'Opportunistic.'

 

A few days ago, at the Liberty Media Annual Meeting, approximately 40 people were in attendance, a bit of a contrast to the Berkshire Annual Meeting.  As is the case every year, it was a finance person's dream because Malone and his incredibly sharp CEO Greg Maffei displayed their complete mastery of the issues which affect the companies they own. If you wanted to hear about competitive positioning, margins, macroeconomic environment, growth rates, capital intensity, tax loss availability, tax leakage, stock performance, whatever it was, Malone and Maffei  have the answers down cold.

 

The guy who hired Malone was looking for 'The Smartest SOB I could find,' when he brought him out to Denver to run TCI Cable.  Malone and Maffei are indeed the smartest guys in the room.  Wall Street only respects success, and Malone is the epitome of it.  In fact, hedge funds and Wall Street were well represented, and naturally, they asked leading questions in a way to get responses which would give them an indication on how they should think about their positions in Liberty.  It is pretty simple boys (and ladies)- you own them.  Berkshire Hathaway is well positioned for the future, but I would argue what Malone owns and control is just as well placed.  You could even make the argument that with Charter's tax loss carry forward and Malone's ability to know how to use it and leverage, Liberty might be in a more advantageous position.  I know, I know, really rough for these two billionaires.

 

Once in a while, things can go your way when you think things through.  Fourty thousand people attend the Berkshire Hathaway Annual meeting, only about fourty were in Denver for the Liberty event.  Like a kid who gets a chance to meet a childhood idol, I was able to speak to Mr. Malone in person.  As a shareholder, I thanked him for his leadership and wisdom.  I also told him I admired his humility, and obviously the incredible returns as a shareholder (it is hard to believe how good the returns have been-take a look at this column for more information).  He was very gracious with his time and those precious few minutes will be remembered for as long as I invest.  Buffett has a quote, 'Price is what you pay, value is what you get.'  Having gone to both the Berkshire and Liberty annual meetings, it is self evident to know where the value was with respect to how to best utilize one's time.


A really nice column mentioning a great investing book-

 

Corporate America is just loaded with cash, some might argue too much so.


Here is an argument being made that labor competition and 'An Age of Anxiety' is what is keeping growth constrained.


Thank you for reading the blog and I hope you stay cool in the summer heat.  Here in Vegas it is currently a balmy 109!!!

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.