Does Mr. Buffett wiggle in his chair when he thinks of Disney?

[longterminvestor]

I have been thinking about Disney and Berkshire.  Here is an investment that came into his world not once but twice.  The first time he salivated the purchase was when DIS was selling at a "Multiple of Rides" - great line in one of his letters - getting too old to look in my files for the exact year and quote it word for word.  Then he got a second bite of the apple when CapCities merged with Disney and he was able to extract more value from the transaction with some warrants if I remember correctly.  Sold it both times!

 

I have gotten better at letting go of my errors of omission/commission and there's shred of doubt in my mind Mr. Buffett sleeps soundly but to think of what could have been....

 

Any lessons from the wise CornerCrew on why he sold or lessons learned from the Disney error?  An allegory or two would be appreciated.  

 

[bizaro86]

As a pretty big Disney fan, I have to admit I'm glad BRK never took too big a stake. 

 

I'm uncertain that capital allocation decisions that look wise in hindsight (a de novo cruise line, buying Pixar/Marvel/Lucasfilm) would have been approved.

[Brett]

Buffett bought the stock in '66. Bought $4mm, sold it for $6mm a year later. Disney compounded at around 18.9% from '67 to '95. Berkshire compounded at 24.8% during the same period. Dividends would close the gap a bit, but not much.

 

The investment in '66 had so many ways to win. Theme park business was set to explode. Monetization of the film library. The film business actually was not a good business post the Paramount consent decrees in '48. Disney had a niche in family focused films that allowed them to earn supernormal returns/margins. Animation capabilities no one really had. So cheap. ~4x EBIT. Mary Poppins just came out. But it was still going around the globe in '67. '67 earnings were actually up vs. '66. 

 

Walt passed away in '66. You lost a driving force of the film business and strategic force of the company. The 70s and 80s weren't great decades. You needed Roy Disney (Walt's nephew) to replace management and bring in Eisner to turn the company around in the 80s.

 

Look at the current company. Massive amounts of value has been created due to ABC and ESPN. ESPN in particular has driven enormous valuation creation. How can one Buffett anticipate that?

 

I don't think selling was an error at all. My view is Walt drove the film franchise when Buffett bought the stock (he had a meeting with him in California, he made a judgement on Walt). His passing was a huge blow to the upside of the company. You had film in the library you could re-release or sell to TV that was probably worth the entire market cap of the company. You had the theme parks. But underwriting the film franchise growing post Walt was very hard. Forecasting theme park growth was very hard. You knew earnings were going up, but how fast? The price gave you a huge margin of safety for most of these. But it made sense Buffett sold after the pop + Walt's death. 

[Brett]

BTW, I'm writing a book on ten of Buffett's earliest investments (50s/60s). This is one of them. Happy to send a draft if you'd like. 

[longterminvestor]

really great take.  changed my thought process on the DIS sales (twice).  thank you for sharing.  

[greenwave]

22 hours ago, Brett said:

BTW, I'm writing a book on ten of Buffett's earliest investments (50s/60s). This is one of them. Happy to send a draft if you'd like. 

Brett,

Thank you for sharing the very interesting details of the Berkshire / Disney investment history.

Please include me as being interested in receiving a draft of your book .

Thank you !

 

greenwave

 

[Morgan]

@Brett I’m interested and just PM’d you! 

[LC]

Interesting. Buffett really was/is a master at using/leveraging people. 

[Spekulatius]

If a Buffett made a mistake, it was selling Disney shares he received from the Capital Cities merger in 1998. His earlier sells were the correct decision. Buffett back then could flip assets and get higher return than pretty much any compounder could. That changed over the years due to size and a changing investment environment.

Edited October 3, 2021 by Spekulatius

[Fundmanagerthrwawy]

On 10/1/2021 at 8:26 PM, Brett said:

BTW, I'm writing a book on ten of Buffett's earliest investments (50s/60s). This is one of them. Happy to send a draft if you'd like. 

I would love to read that if you could send that out.

[rogermunibond]

On 10/1/2021 at 3:26 PM, Brett said:

BTW, I'm writing a book on ten of Buffett's earliest investments (50s/60s). This is one of them. Happy to send a draft if you'd like. 

 Brett - do you have the Costco stake that was up for sale in the 1990s?  IIRC Carrefour owned 10-20% of Costco and wanted to divest.  At the time, Munger was familiar with Costco and I think he wanted Berkshire to acquire the stake but WEB decided against it.  Probably a huge error of omission in retrospect.

 

 

[rogermunibond]

Carrefour Profits on Stock Sale

Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 21 June 1996: No Page Citation.  

 

 

PARIS -- French retailer Carrefour SA said it made a profit of 700 million francs ($135.7 million) on the sale of its 10.8% stake in Price/Costco Inc., a discount retailer based in Issaquah, Wash.

Carrefour last month announced its intention to sell its 21 million Price/Costco shares. The sale was made at $19.50 a share, Carrefour said. In Nasdaq Stock Market trading, Price/Costco's shares rose 37.5 cents to $20.75.

Edited February 27, 2023 by rogermunibond

[rogermunibond]

Charlie Munger was appointed to the Costco board shortly after the sale in Jan 1997, replacing the Carrefour CEO who previously was a Costco board member.

 

It's funny but Buffett likes to complain that he's so sick of hearing Charlie sing the merits of Costco and their retail model.  Possibly because Charlie was pushing hard for Berkshire to buy the 10.8% stake that Carrefour was selling.  Munger personally bought shares around that time and holds to this day.