Getting Tangled on Disney
Reflecting on a Missed Opportunity
My daughter is now on her third round of watching the Disney (NYSE: DIS) show Tangled, also known as Rapunzel’s Tangled Adventure. It is a Disney channel show that is a spinoff from the Tangled movie. Airing on Disney+, my daughter cannot get enough of the show.
Tangled is just one small example of the breadth of the Disney IP (Intellectual Property) that is built on iconic characters and great story telling. Despite observing my daughter’s obsession with this and other Disney+ shows, I decided not to invest in Disney as I worried about Netflix (NASDAQ: NFLX) pumping out animated movies and China worries for Disney.
To say that I was wrong is an understatement. Disney is up 50% in the six months since I wrote that column. Now to give me a break, I will note that I wrote the post before the results of the Pfizer vaccine came out and it became clear COVID would end sooner, rather than later. But let’s face it, I was wrong.
The simple explanation is that Disney+ is proving to be a runaway success thanks to Disney’s amazing IP like Tangled, and I should have known this by simply observing my daughter’s latest obsession.
What is a shame is that I was bullish on Disney pre-COVID. Disney’s theme park business is an irreplaceable business, and their IP is bar none the best around. I was able to sell Disney at around $140 before its collapse ahead of COVID, but never got back in. Why not? What held me back?
I think my mistake was threefold:
1. I placed too much emphasis on parks revenue and short-term repercussions from COVID
2. I ignored the success and management focus on Disney+
3. I ignored that legendary investor Dan Loeb with Third Point took a position in Disney
While points #1 and #2 are important and show that I was anchoring on the wrong data, I instead want to look at #3. Dan Loeb not only has a great track record, but when he takes public positions it is worth noting why. Dan specifically called on management to spend more money not less and to be more aggressive with Disney+.
This should have rung alarm bells in my head that investors were looking way past any near-term losses for Disney+ to succeed in the long term. Instead, I ignored it.
In reflecting on this, I should have been reminded of a time many years ago (maybe 15 years?) when I was bullish on Canadian Oil Sands (I’m pretty sure it was this stock, but it could have been another oil name I owned at the time) and something spooked me, and I decided to sell my stock and emailed Dan Loeb about it.
Later that night, I got a phone call from him and the very first thing he asked was, “When was the last time you had sex?” Dan told me that it was obvious that it had been too long, because I wasn’t thinking clearly. He then proceeded to tell me exactly why I was wrong to sell the stock. I was single at the time and he was right on two counts that day.
What Dan was trying to communicate in his unique way is the same lesson I am re-learning from Disney, which is that when you have a long-term thesis, stick with the long-term thesis. There are always reasons to be scared and there will always be short-term concerns, but it’s important to think clearly and focus on the long-term fundamentals.
Of course, even a great investor like Dan Loeb doesn’t always get it 100% right. For years, he was a bull on Sony (NYSE: SNE) and rode the stock off and on higher from $20 to $60 per share. Then he sold all of his shares. And what has Sony done since? It is up 100% from the levels Dan sold out in less than a year. Sony is benefiting from long term tailwinds just like Disney.
The ultimate lesson may be that while at times investing looks easy, often it is incredibly hard to stick to a long-term investment. It requires clear insight and remembering even the great investors have trouble with sticking with a great company.