Disney hit the lowest price in a year – down 59% since March ’21


Disney hit the lowest price in a year – down 59% since March ’21


Isn’t it a “great business” with “excellent management”?

I thought “great businesses” meant “great share prices”


But their parks & ships must be pumping with post-COVID vacations,
Disney+ has over 100m subs and they own the best sports content in ESPN

But we already KNOW that

The flip side is streaming competition is rife, parks have high labour costs & sports rights will cost more in the future with Amazon joining the party

Things change

And that’s precisely why we’re not in the “buy a great business and hold forever” camp

Do you really think it’s that easy?

I know it SEEMs easy because we look at Apple & think, “Grrr, I love my iPhone, all I had to do was buy the shares & hold them forever”

But we’d be fooling ourselves because we only see survivors

Wouldn’t have worked if you’d applied that strategy to Nokia – the early smartphone leader

Or to Intel, the semiconductor heavyweight champ pre-Nvidia
Or Xerox
Or Kmart
Or Avon Products

They were all considered “great businesses” once upon a time

But things change

New competitors come along, economies change, management change and valuations change

And we need to be alive to those changes – that’s why active management makes sense

And why “low turnover” may be the reddest of all herrings

Maybe the “buy and never sell” teams are secretly hoping their clients apply that strategy to their funds and never sell

a good way to afford that Chateau in the French countryside..

Speaking of castles,

When the entire world knows it’s a great business with a wide moat, it’s often already in the price

How much do you think the landed gentry would have paid for a castle on a hill with a wide moat back in time?

Probably any price – their lives were at stake

But castles still got stormed because enemies would

fill in the moats or
drain them or
launch fireballs over the walls or
do a stakeout & wait until the castle inhabitants were starving to death and surrendered

Sure, moats slowed down the speed of attack, but they were all stormed sooner or later

Disney’s peak free cash flow was $8.3bn in 2017 back when “we” all wanted superhero movies

other than Value managers who don’t like “fantasy”

But Disney has only managed free cash flow of $3bn over the past yr

Netflix has generated $4bn
Comcast $12bn

So how much would you pay for peak FCF of $8bn?

Assuming you received it all in cash dividends & management keeps a lid on Share-Based Comp?

I know, more fantasy … but have a heart, it was “only” $1bn last year, doubling in 2yrs

If only profits grew as fast..

Would you pay $200bn = a 4% yield on their EV?

Considering they’re nowhere near generating $8bn..

Me neither

So I think I’ll sit this one out & and watch the battle from the sidelines

Although it might take some time, $1bn in annual comp means the inhabitants won’t be starving anytime soon 😉