Not all companies receiving media adulation are worth your praise.
There are two distinct types of ways to generate market-beating returns as a long-term buy and hold investor:
Identify companies that have either have a track record of generating market beating returns (or speculate on ones that can), buy them at reasonable valuations, and hold them for extremely long periods.
Find unique moments in time to buy companies that, historically, have produced market returns or below-market returns, but will likely outperform benchmarks over finite holding periods. You can call these special situations or the more likely culprit.
Intuitively, most investors should mostly stick to option one and rarely dip their toes into option two. It takes less skill and luck to buy the great wealth compounders and sit on one’s hands than it does to hunt special situations in hopes of finding the right time to buy a mediocre stock. The challenge, though, is that many recognizable and iconic businesses tend to fall into the latter category rather than the former.
Case in point: The Walt Disney Company (NYSE: DIS).
There are few companies out there that are as recognizable as The Walt Disney Company. Its movies, shows, theme parks, TV channels, and so many other forms of media have been integral parts of our lives. Beyond the content it provides, it is arguably one of the most covered and discussed American businesses of all time.
Disney is a company that has been the subject of many Harvard Business School case studies. It’s the only business I know where I can name all the CEOs it has had since I was born. It is a frequent topic of discussion on CNBC and among the multitude of financial publications out there.
Any analyst will tell you that Disney has one of the most impenetrable economic moats and is a consensus buy. Morningstar analysts give it a four-star rating and evaluate it as a wide moat business. Of the 30 analyst recommendations compiled by Yahoo Finance, 27 of them say Disney is a hold or better.
And yet, despite all this media adulation, it hasn’t been the incredible wealth-compounding investment one might expect.
(DISCLAIMER: I AM NOT LONG OR SHORT THE WALT DISNEY COMPANY. THIS IS NOT A RECOMMENDATION. DON’T CONSIDER MY WRITINGS AS A REASON TO BUY OR SELL STOCKS. DO YOUR OWN DUE DILLIGENCE.)
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