DreamWorks had hired some of Eisner's top guys producing TV animation and had a deal lined up to produce a slate of shows for ABC's Saturday morning lineup, which was a big deal in the mid-90s for a just-starting studio like DreamWorks. Of course, when Disney bought ABC, that deal quietly came to a end, and eventually so did DreamWorks' TV animation department.
Jeffrey Katzenberg was asked by one of his staff why he thought Disney bought ABC. He was convinced that what Eisner most wanted was to take the ABC Saturday morning lineup away from DreamWorks -- to torpedo one of Jeffrey's first deals at his new company.
The staff member said, "But come on, this is business, this is a nineteen billion dollar deal! Nobody pays billions of dollars in order to personally screw someone over." Jeffrey laughed and replied, "No, when it's that much money, it's always personal."
The power of the broadcast networks went downhill pretty soon after that deal, so it seems curious that Disney (then mostly a theme park operator and movie studio) would buy the whole shebang in order to get a sports network.
Maybe Eisner would understand that by buying ESPN, in ten years he would have the greatest leverage against cable operators in carriage deal negotiations.
Maybe. He also bought Fox Family for $3 billion six years later. I wonder what he's saying about that deal now.
Early years (during the hedge fund):
1) The "cigar butt" value-investor -- looking for companies which held more book value (assets like cash on hand, factories, etc.) than capitalization (stock price times shares outstanding). Arguably Sun Microsystems (right before Oracle bought them) and Yahoo now are pretty close to this in big tech companies, but back in early/mid 20th century, there were LOTS of these.
2) Value investing -- looking for brands which have growth potential but are undervalued by the market. Apple right after Steve Jobs returned would be a tech example.
3) Special case situations, like arbitrage -- for instance, right before a merger, buying one or the other stock, and if you have someone like Apple releasing a product which has a component from one vendor, buying that vendor's stock.
WB largely ended this strategy for two reasons: it was successful enough to use up most of the available opportunities (as well as attract copycats), and it was very labor/research intensive for the returns you could get -- good percentage returns, but it was difficult to employ large amounts of money. Sort of like angel investment vs. mezzanine IPO financing.
Mid years (70s and 80s): insurance
WB discovered the insurance industry (through GEICO), and basically had "free money" to invest (which is what an insurance company does with premiums). He went from value investing to buying entire companies (or large shares) which he thought would grow and remain good companies.
Late years: (1990s to now): top-quality
He basically has the problem of having too much money to invest, and thus can only go after the largest opportunities; a 10x return on $1m is not enough to move the needle. Thus, WB and BH buy entire top-quality companies, with a focus on sustained performance, vs. making a lot of speculative bets.
The old-school WB (and even better, Ben Graham, his early role model), is the only interesting one to me -- once he had established his track record doing something well, he was in a position to make reasonable investments no matter what. Getting to that point was the interesting part.
Sanborn Map company sold maps, but they also had an investment portfolio that dwarfed their market cap. So he had them sell it off. He did a lot of cigar butts like that. Back then, Buffett was pretty pushy. He would do whatever it took to acquire all the stock of companies and would sack the management teams and replace them with others. At one point an entire town in Dempster protested against him.
Then he met Charlie Munger and Munger got him to start focusing on acquiring good businesses that had franchise values. See's Candy is the best example. So he looked for companies with sustainable competitive advantages and high returns on invested capital. So he started to buy your good businesses run by great entrepreneurs with little actual control. The only thing he would ask is if they could not meet an internal hurdle for ROIC (return on invested capital) that they give excess capital for him to redeploy.
Now, if you look at what Buffett has been doing, he's continued to evolve a bit. He seems much more focused on buying utility-like businesses. MidAmerican and Burlington Northern exemplify this. They don't throw off cash that can be redeployed elsewhere like the previous Berkshire deals. At the same time though, they potentially can be around for the next 50 years and increase prices to make up for inflation.
These deals are probably going to continue. Buffett must realize that his 3 replacements wont be as good at allocating capital, so he will need to find businesses that are great but also utilize a lot of cash. That would reduce the burden on his CIO replacements.
PS: He once said, I can find plenty of people that can consistently turn 1 million$ into 2million$ in a year, I can't find people that can consistently turn 1 billion$ into 2 billion$ in a year.
Goizueta did a lot of great things. He separated out the bottler business and got them to focus on returns on invested capital with every investment they made. He made a ton of money for shareholders. Buffett has remarked that he held KO stock too long but now I believe he keeps it mainly to collect the dividends, his cost basis is low.
He also has unprecedented access to financial data of companies he may be sniffing around - not the garbage you and I see in SEC documents. (although 10q documents are treasure chests of company info for research).
Is that a reference to his puts on S&P and other indexes?
So when that time rolls around, we'll see if his big bet on derivatives was a mistake or not.
So I was wondering if he was alluding to that in particular.
I was able to navigate to the news from there, but it's still odd (now the link here at HN works for me).