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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Mark Marcellus who wrote (1704)7/24/1999 1:54:00 PM
From: Michael Burry  Read Replies (1) | Respond to of 4661
I guess I would also add that the thrust behind the "run by morons concept" is that the business should still be thriving while it is being run by morons. The idea is that it will be an even greater business under geniuses. So the troughs will still be palatable and the peaks will be ecstasy. Just buying a business in trouble because it is being run by morons doesn't make sense to me. The trough then becomes unpalatable, and the peak may be just average or worse.

As well, we must always be wary of the latter situation, since it is not entirely certain that a genius will be able to turn the business around at all. The qualitative judgements become quite important.

I happen to like Disney a lot. I agree with those that say the ESPN franchise is worth the ABC price. I think that they are making the right net moves, but with poor execution and without regard to creating shareholder value through correct pricing. In the 21ish range, I'd buy some. I've already bought a tiny itty bit for a family member who thought she should own some (she also had to have GAP), but that's just in a portfolio I manage, not one of my own.

Now I've just been asked to manage a couple custodial counts for a couple just-born nieces. They'll need the money in 18 years. And you can bet Disney will be going in those too, at the right price.


To: Mark Marcellus who wrote (1704)7/24/1999 6:26:00 PM
From: Michael Burry  Respond to of 4661
Actually, Buffett did buy Disney, twice. Once, in 1966, and the other at the time of the Cap Cities transaction. Buffett had an option of cash or stock, or a combination. He chose all stock, and additionally bought shares of Disney in the market. From his 1995 letter:

We have also recently bought Disney stock in the market.

One more bit of history: I first became interested in Disney in 1966, when its market valuation was less than $90 million, even though the company had earned around $21 million pre-tax in 1965 and was
sitting with more cash than debt. At Disneyland, the $17 million Pirates of the Caribbean ride would soon open. Imagine my excitement a company selling at only five times rides!

Duly impressed, Buffett Partnership Ltd. bought a significant amount of Disney stock at a split-adjusted price of 31› per share. That decision may appear brilliant, given that the stock now sells for
$66. But your Chairman was up to the task of nullifying it: In 1967 I sold out at 48› per share.

Oh well, we're happy to be once again a large owner of a business with both unique assets and outstanding management.

Judging purely from these descriptions, I would say that Disney today is much different than at the times he bought the stock. As well, it fails the "moron" test. But I'll always be looking for the right entry.