We’re on the trail of one of the most disruptive forces in the market. For some investors, it spells immense opportunity. For others... trouble.
We got a real-time glimpse at what’s happening earlier this week as we dug through Warren Buffett’s latest quarterly filing. We researched the Oracle’s latest moves in a column for Oxford Insight, the newsletter we send to all Members of The Oxford Club (the publisher of Investment U).
While the Insight piece focused tightly on what Buffett and his Berkshire Hathaway (N:BRKa) are buying and selling, it’s one peculiar set of sales that caught our attention.
Prior to the last three months, Buffett had a tight hold on his stake in Media General Inc (N:MEG) - the operator of more than 70 local TV stations. But now, he’s selling. Berkshire unloaded about a million shares of the business, or about 25% of its stake.
Even more eye-catching, Buffett pulled the plug entirely on his 8-million-share stake in Viacom Inc (O:VIA) - a major hitter in the media world.
It’s clear Buffett wants out of the topsy-turvy media game.
It makes sense. The Oracle (N:ORCL) of Omaha has long touted the idea of owning what you know. He wants reliable brands... like Coca-Cola Company (N:KO) and Johnson & Johnson (NYSE: N:JNJ).
He doesn’t want disruptors... or companies at the mercy of disruptors.
But John Malone does.
While he doesn’t have Buffett’s money, Malone - the country’s largest landowner (his land stake is twice the size of Delaware) - isn’t all that far behind.
Their individual investing styles provide an interesting contrast - especially when it comes to their take on disruptors.
While Buffett is bowing out of the ever-changing, highly disruptive media game, Malone is jumping in. His Liberty Global PLC (O:LBTYA) just snagged one of Britain’s oldest companies, Cable & Wireless, in a deal worth a healthy $5.3 billion.
It’s a gutsy move - almost completely on the other end of the spectrum from Buffett’s philosophy. Even corporate insiders admit that Cable & Wireless has dealt with one crisis after the other during the last few decades.
But it’s a risk Malone is willing to take.
Folks who know Malone (I’ve fished with him on a couple of occasions) know he understands the media business intimately. He helped launch the Discovery Channel, and he made tremendous money in his stake of Sirius XM Holding Inc (O:SIRI). This week’s deal ensures he has a conduit to get his media to millions of viewers.
But he’s a hands-on investor. In fact, he’s often the disruptor. Buffett, on the other hand, is more about the numbers. He rarely waves a heavy hand.
One makes the deal happen. The other waits for Father Time to make it happen.
Malone doesn’t shun risk (this week’s big move proves it), because he knows the return is often worth the risk. Buffett, though, prefers the steady, reliable approach. To wit, after owning a stake in Coca-Cola for decades, his cost basis is virtually nil.
Which brings us to what we told Oxford Insight readers this week...
It all has to do with controlling risk and reward. If you truly know a company, its business model and the environment it’s working in, your risk is low. You know exactly what you face. But if the company is evolving or there’s fresh competition, there are many unknowns... risk is high.
As Buffett attests, it is boneheaded to invest in something you don’t understand, when there are plenty of equal opportunities with less risk.
We can certainly argue that Malone knows his industry like few others. But even he admits there’s plenty of risk. Surely, he’ll be adequately compensated if things go his way.
But we argue Buffett’s on the straighter path... the path that all but the most sophisticated of investors should take.
He invests alongside the most reliable partner on the planet - numbers.
Buffett is the epitome of a fundamental, value-focused investor. His philosophy should form the backbone of your investment strategy.
But there is room for disruptors - especially disruptors with the sort of power we’re seeing emerge in the media/cable business. So next Sunday, I’ll show you exactly how to use a Buffett-like approach to take advantage of the market’s leading disruptors.