Latest news with #Munger
Yahoo
2 days ago
- Business
- Yahoo
Billionaire Charlie Munger Said Only Married Couples Need To Buy Homes — 'Single People, I Don't Care If They Ever Get A House'
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. Charlie Munger didn't have much patience for home-buying hype—especially if you were single. At the 1998 Berkshire Hathaway (NYSE:BRK, BRK.B)) annual shareholder meeting, the late vice chairman and real estate attorney-turned-investor made his position clear when asked about buying a home: "The single people, I don't care if they ever get a house." The moment came when an audience member from Southern California stood up to ask a very practical—and very personal—question. "I'm still quite young, I don't have a house yet and I'm thinking about buying a house someday soon," the man said. "And in order to do that I'm going to have to put a down payment, which means I might have to sell my shares." He wanted advice: When is the best time to buy a house, and how should that decision factor in interest rates, cash on hand, and investment opportunities? Don't Miss: Accredited investors can —with up to 120% bonus shares—before this Uber-style disruption hits the public markets This Jeff Bezos-backed startup will allow you to . Warren Buffett took the first swing at it, sharing how he handled the same decision when he was just starting out. "We did have about $10,000 starting off," he said of his early days with his wife, Susie. "And I told Susie, I said, 'Now, you know, there's two choices, it's up to you. We can either buy a house, which will use up all my capital and clean me out, and it'll be like a carpenter who's had his tools taken away from him. Or you can let me work on this and someday, who knows, maybe I'll even buy a little bit larger house than would otherwise be the case.'" They didn't buy a house right away. Buffett waited four years, purchasing their first home in 1956, once the down payment represented just about 10% of his net worth. "I really felt I wanted to use the capital for other purposes," he said. And while he acknowledged that buying a home can be a good choice—especially if it's the house you want—he added that it's essentially a low-return move: "You're probably making something in the area of a 7 or 8% investment, implicitly, when you do it." Then it was Charlie Munger's turn. "I think the time to buy a house is when you need one," Munger said, with perfect timing. Trending: With Point, you can Buffett followed up: "And when do you need one?" Munger didn't hesitate: "Well, I have very old-fashioned ideas on that, too. The single people, I don't care if they ever get a house." The crowd burst into laughter—but Munger wasn't done. Buffett prodded again, asking, "When do you need one if you're married, Charlie?" Munger's answer: "You need one when your wife wants one." "Yes," he added dryly, "I think you've got that exactly right." It was vintage Munger: short, blunt, and sharper than it first sounds. While Buffett looked at the question through the lens of capital allocation, Munger zeroed in on utility. If you don't need a house—because you're not settling down, don't have a family, or don't plan to stay put—it might not be worth the money or the commitment. That view likely stems from Munger's early background. Before joining forces with Buffett and building Berkshire Hathaway into a global powerhouse, Munger was a real estate attorney. He often had more interest in property than Buffett did, and in his own career, real estate played a foundational role. But even with that background, he saw homeownership as a lifestyle decision—not a default one. Buffett's logic tracks similarly: if you've got limited capital, tying it up in a home might slow down your ability to invest in higher-yield opportunities. That doesn't mean never buying—but it does mean thinking twice before draining your account for a down payment just because it seems like the "adult" thing to when is the right time to buy a house? For Buffett, it was when the down payment didn't derail his plans. For Munger, it was when you actually needed one. And if you're single? According to Charlie: maybe never. Of course, that was a long time ago—and both men were speaking from a time and income bracket far removed from today's median first-time buyer. But here in 2025, their advice hits harder than ever. Home prices keep climbing, interest rates are holding steady around 7%, and an entire generation is stuck in limbo—unsure whether to buy, rent, or just keep throwing money into the market and hoping for the best. According to Bankrate's latest Housing Affordability Study, the income needed to afford a typical home has skyrocketed to $116,986 a year. Meanwhile, the median U.S. household income is just $78,171. In other words, the numbers don't add up—and for a lot of young adults, homeownership feels less like a milestone and more like a pipe dream. Munger may be gone, but his take is still hanging in the air for anyone scrolling Zillow out of boredom: You don't buy a house to prove you're an adult. You buy one when your life says you need it. Read Next: Named a TIME Best Invention and Backed by 5,000+ Users, Kara's Air-to-Water Pod Cuts Plastic and Costs — Image: Shutterstock This article Billionaire Charlie Munger Said Only Married Couples Need To Buy Homes — 'Single People, I Don't Care If They Ever Get A House' originally appeared on
Los Angeles Times
3 days ago
- Business
- Los Angeles Times
Is AI a Career Threat or a Competitive Edge for Attorneys?
Why Lawyers and Firms are Racing to Become Tech Experts As artificial intelligence promises to reshape the legal profession, much of the conversation centers on which jobs will disappear. But attorneys looking to secure their future may need to flip the script: Rather than viewing AI as a threat, successful lawyers are becoming subject matter experts in the technology itself. 'To be effective counselors, attorneys working at the forefront of innovation need to understand the relevant technology at a deep level,' said Zachary M. Briers, a partner at Munger, Tolles & Olson LLP focusing on complex technology and intellectual property issues. 'When it comes to technology companies, almost all difficult legal issues turn on granular distinctions in technological advancements. This is particularly true with new platform technologies, such as AI, which defy conventional legal analyses,' Briers added. This need will only increase as litigation around artificial intelligence becomes more complex, according to Nathaniel L. Bach, a partner at Manatt, Phelps & Phillips, LLP. 'The more a lawsuit or advice implicates the inner workings of an AI model, the more attorneys will need to know to properly advise clients, ask the right questions of adversaries, and explain the technology to courts in both accurate and persuasive ways,' said Bach. Having more than 'a surface-level understanding' of AI may even be a matter of professional competence, said Daniel B. Garrie, a mediator, arbitrator and special master with JAMS, an alternative dispute resolution provider. He is also a founder and partner of Law & Forensics, a legal engineering firm. 'Lawyers are ethically obligated to stay abreast of technological advancements under the ABA's Model Rule 1.1, Comment 8,' said Garrie. 'A deeper comprehension of how AI systems function, including their design, data dependencies, and operational limitations, is crucial for providing competent advice, particularly in areas like eDiscovery, data privacy and intellectual property disputes,' he continued. Beyond helping to win cases and complying with ethical obligations, understanding AI could be a major career booster. David Lisson, the head of Davis Polk & Wardwell LLP's GenAI litigation initiative, said that the AI space represented a big opportunity for attorneys at the start of their career - a way to stand out from the pack. 'I always think the key to a successful junior associate is being an expert in something. And this is an area that you can really dig into,' he said. 'If you come and figure out what this model is doing and how it's doing it, you'll be the one that the senior attorney comes to, right? And you'll be the one that the client comes to because you're the one that understands what's actually going on.' From a branding perspective, at least, firms appear to understand the value in highlighting the AI credentials of their attorneys. Over the past two years, a flurry of AI practice groups has emerged in California and elsewhere. But experts, including those who head up these groups, acknowledge that this strategy will need to evolve. 'This trend has begun and will continue, but these groups will almost certainly evolve to be increasingly specialized over time, as it becomes clear that 'AI' is far too broad a category to usefully define a practice,' Keith Enright, cochair of Gibson, Dunn & Crutcher LLP's Artificial Intelligence Practice Group said. Bach said that AI practice groups were both 'a necessity and a calling card' for many firms. To be effective, these groups would need to encompass practice areas spanning intellectual property, privacy and technology. 'The AI space is too big and moves too fast for any one lawyer to know everything,' he said. That's a sentiment shared by Peter H. Werner, co-chair of Cooley LLP's global emerging companies and venture capital practice group. He said that the recent emergence of AI practice groups was 'similar to having an 'internet' practice group in the 1990s.' 'Some firms are forming 'AI practice groups' to signal to the market that they're focused on AI-related things. But the ubiquity of AI and related technologies will mean that the work that is done in every practice will be impacted by AI,' he said. He added that Cooley instead has 'an interdisciplinary, interdepartmental internal task force that's intended to be a clearinghouse to coordinate our work on AI-related matters, many of which implicate multiple practices.' Briers said that while 'most major firms now have a practice group that is dedicated to AI-related issues,' it was 'not enough that a few attorneys at each firm become familiar with this disruptive technology. It needs to be a firm-wide initiative.' Attorneys who wish to become AI-literate have options. Law schools appear attuned to the fact that there will be an increasing demand for such knowledge. A 2024 survey from the American Bar Association found that more than half of respondent schools now offer classes on AI. Many of these initial efforts focus on introducing students to the appropriate and ethical use of AI tools in their practice. However, some go further: UC Berkeley, for example, will begin offering a specialization in AI law and regulation this summer as part of its executive track LLM program, including a unit on the fundamentals of AI technology. The curriculum for the new certificate was designed in consultation with an advisory group of industry leaders, including representatives from Anthropic and Meta. Other schools are offering shorter standalone graduate certificates or programs in artificial intelligence for legal practitioners, including USC Gould School of Law and Harvard Law School. Beyond these programs, attorneys with an existing science, technology, engineering or mathematics (STEM) background might be at an advantage to their colleagues in an AI world, though legal experts disagree on the significance of this. 'The shift to AI is indeed an opportunity for attorneys with a background in computer science, data science, or engineering areas to gain a distinct advantage in understanding the nuances of AI-related legal challenges,' Garrie said. 'As AI legal work often intersects with technical fields like cybersecurity, data analytics and software licensing, firms may increasingly value and recruit legal talent with such dual credentials. This intersectional expertise enhances both client trust and legal efficacy,' he added. Clinton Ehrlich, a partner at Trial Lawyers for Justice who is a member of the U.S. 9th Circuit Court of Appeals Artificial Intelligence Committee and has a computer science background, said lawyers working on AI cases or issues was analogous to lawyers working in the patent space, where many attorneys have a STEM background. 'This is an area of the law where skills are required beyond those that most generalists have,' Ehrlich said. 'It doesn't mean that a generalist couldn't be involved on a team that's litigating a case involving questions about AI, but I think it's very important to have at least one team member with really deep domain knowledge of how these systems work, so that you aren't just translating everything through the medium of popular science,' he said. Others were more circumspect, emphasizing that a willingness to learn and engage was far more important than prior education experience. Werner said that attorneys 'don't necessarily need a technical degree for most things, but you need curiosity. The best lawyers are quick studies. We work with cutting edge technology and life sciences companies, using complex methodologies to do complicated things.' He predicted that as the law and technology become increasingly intertwined, we could witness 'hybrid teams of people at firms that include lawyers and technologists that collectively pitch for and deliver service to clients – think e-discovery on steroids.' According to Enright, 'Intellectual fluidity and the ability to frame questions effectively will be vastly more valuable than a STEM background.' Vivek Mohan, the other co-chair of Gibson Dunn's artificial intelligence practice, said that whenever he talks to law students and recent graduates interested in the practice area, he tells them, 'I look for ongoing, demonstrated interest. Certainly, an undergraduate degree in a related area is a strong signal of interest.' But he cautioned that an attorney's role is 'not to substitute ourselves for the engineers or AI researchers at our companies. It is to listen carefully, ask probing questions and then provide the best legal advice we can.' He added that attorneys interested in AI should get comfortable with occasionally not knowing what is going on with AI models, given even their engineers are not always able to explain how a model reached a particular answer. 'Learn what you can, but you have to be able to get comfortable with operating in an environment that carries a certain degree of uncertainty,' he advised. The other risk of overemphasizing prior education? Instilling a sense that technological stasis is acceptable, said Briers. 'An engineering background might be helpful in understanding these new technologies, but it's not necessary. In my experience, too many attorneys who lack a STEM background use it as an excuse to not learn new technological skills. They do so to the detriment of their clients' interests,' he said. The Los Angeles/San Francisco Daily Journal is a publication for lawyers practicing in California, featuring updates on the courts, regulatory changes, the State Bar and the legal community at large.
Indian Express
5 days ago
- Business
- Indian Express
How Charlie Munger changed Warren Buffett, and what investors can learn
If you look closely at Warren Buffett's career, there is a clear shift. The early Buffett bought companies that were cheap on paper. He followed Benjamin Graham's teachings closely. He looked for low price-to-book stocks, companies trading below liquidation value, and businesses others had given up on. He called them 'cigar butts' but still good for one last puff of value. From 1956 to 1969, Buffett Partnership Ltd. compounded at 29.5 per cent per year. But this approach required constant effort. He had to keep searching, selling, and reallocating. The businesses were often average. There was no real peace of mind. Then something changed. Buffett stopped looking only for cheap stocks. He started looking for quality. Businesses with pricing power. Brands people trusted. Owners who allocated capital well. Companies that could grow steadily without needing too much of his time. That shift came from Charlie Munger. Munger influenced Buffett, who believed it was better to buy a great business at a fair price than to buy a fair business at a great price. And Buffett listened. The result? Berkshire Hathaway compounded wealth at nearly 20 per cent per year over the next five decades. Figure 1: Berkshire Hathaway vs S&P 500 Returns. Source: Letter to Shareholders 2025 For context: if you had invested just one dollar with Buffett sixty years ago, and it compounded at 20 per cent per year, that single dollar would be worth over $55,000 today. Now, coming back to the core point. Take Coca-Cola. Buffett started buying it in 1988. It was a dominant brand with high margins and global scale. Over 35 years, that investment delivered more than 16 times the returns, not counting dividends. Apple, which Berkshire started buying in 2016, is now worth more than $150 billion on their books. That one holding alone makes up over 40 per cent of their listed portfolio. Now, Buffett did not find these ideas by screening for the lowest P/E ratio. He found them by asking: Is this business strong enough to hold forever? That is the Munger influence. Munger influenced Buffett on how to think in decades, not quarters. In this article, we explore the core stock-picking ideas that Buffett now follows and how Munger's thinking shaped each of them. 1. Great businesses create more wealth than cheap stocks ever will What Munger Believed: A truly great business, even if not cheap, would outperform a merely good business bought at a discount because time would work for you, not against you. Most cheap businesses either stay cheap or deteriorate. But a high-quality business with strong fundamentals can reinvest profits, defend its market, and grow over decades with very little friction. Munger saw that as the ideal compounding machine. How it changed Buffett's thinking: Early Buffett, under Graham's influence, focused on 'net-nets', that is, stocks trading below the value of their assets. He made money in them, but the process required frequent buying, selling, and constant vigilance. Munger influenced him to stop thinking in terms of discounts and start thinking in terms of durability. See's Candies was the turning point for which Buffett paid three times the book value, something he would never have done before. But the brand, pricing power, and customer loyalty made it a predictable cash flow engine. That one business generated over $1 billion in profit and taught Buffett that great businesses bought once could outperform dozens of cheap trades. 2. Few bets, big conviction What Munger told Buffett: 'Diversification is protection against ignorance,' Munger once said. 'If you know what you are doing, it makes very little sense.' He pushed Buffett to stop spreading capital across dozens of average ideas and instead concentrate on a few high-quality businesses. How it shaped Buffett: Berkshire Hathaway's portfolio has always been focused. Buffett often holds just 10 to 15 large positions, and his biggest winners, such as Coca-Cola, American Express, and Apple, often make up a large chunk of total value. He does not dilute conviction just to feel safe. 3. Sit quietly: The power of inactivity What Munger thought: Munger was of the opinion that the best investors are not always doing something. They are sitting, thinking, and waiting. Activity for the sake of it usually destroys returns. 'The big money is not in the buying or the selling,' he said. 'It is in the waiting.' How it shaped Buffett: Buffett became famously patient. He rarely trades. His portfolio turnover is extremely low. He once held American Express for over 25 years, See's for over 40, and now Apple for more than a decade. He lets the business do the work, not constant reshuffling. 4. Avoid complexity. Stay within your circle of competence What Munger thought: Munger made this very clear: 'Knowing what you do not know is more useful than being brilliant.' He encouraged Buffett to avoid sectors he did not understand, and to focus on businesses he could explain in one paragraph. Complexity is not a badge of honour in investing. How it shaped Buffett: Buffett famously skipped tech stocks in the 1990s. He admitted he did not understand them then. He has always preferred consumer products, insurance, banking – sectors he could analyse and predict with some confidence. Buffett would have been a great investor even without Munger. But Munger possibly made him pause, reflect, and rewire his thinking. That shift made them sustainable. A closer look at Munger's ideas reveals that many retail investors tend to follow a similar journey, often starting with stock screens, news, and market tips. But the real breakthrough comes when investors simplify and do not chase market signals. Munger possibly gave Buffett that filter. And if investors learn to build their own, they may not outperform every cycle, but they will likely avoid the costly mistakes (like a drain on capital) and stick around long enough to let compounding do its job. Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions. Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.
Business Insider
7 days ago
- Business
- Business Insider
Europe suffers from Egypt's panic buying as it records a new diesel-import high
Egypt is increasing diesel imports to new highs in July, as it races to secure adequate backup fuel for power generation in the face of increased energy demand. Egypt significantly increased diesel imports in July 2023 to meet rising energy demands. The country sourced diesel primarily from the Middle East and Russia, impacting European supplies. Egypt's diesel consumption aligns with reduced domestic natural gas production and summer energy needs. Egypt's unrestrained diesel purchase is said to be heavily influencing the global markets, notably in Europe, where supplies are becoming tighter. According to Bloomberg statistics from energy analytics firm Vortexa Ltd., Egypt imported more than 370,000 barrels of diesel and gasoil per day during the first 15 days of July. This is a 65% rise over the same period last year and 35% higher than June's intake, making it the biggest volume since at least 2016. As territorial hostilities prompted Israel to stop pipeline natural gas deliveries, Egypt has substantially boosted its imports of diesel in recent weeks. Diesel is used in power plants in the Northern African country. As a result, to alleviate summertime power shortages, diesel alongside fuel oil now serve as less expensive alternatives in Egypt, seeing as its domestic gas output has decreased dramatically and its infrastructure for importing LNG is still rather restricted. The diesel imports are primarily sourced from the Middle East and Russia, diverting supplies away from other traditional markets. According to Pamela Munger, senior market analyst at Vortexa, barrels are being diverted from northwest Europe to the Mediterranean, heightening competition and straining European diesel stockpiles. While preliminary estimates for the rest of July indicate that import levels may remain near current highs, Munger warned that shifting market dynamics and changes in shipping routes might still affect final delivery numbers. 'As we head toward the winter months, diesel could remain tight due to the seasonal refinery maintenance in September, however mitigated somewhat by the declining needs for power generation,' Munger stated. A report by Bloomberg highlights that the crack, or the price of diesel relative to crude oil, is significantly higher than its usual seasonal levels, which makes diesel refining margins in Europe unusually good.
Yahoo
05-07-2025
- Business
- Yahoo
Disney: a "Value" Story Waiting to Be Heard
Disney's financials were able to tell me a fascinating story, just like many of its movies and TV series. The story begins in 2019 with a deterioration that seemed not only drastically degenerative but also unfixable; then, with a surprise twist, it suddenly changed course over the past two years. The protagonist? The entertainment segment, specifically, DTC. Initially seen by the market as the villain of the story, precisely due to the unpredictability of its results; a factor that had previously scared off major investors like Buffett himself. Specifically, I wonder: how will Disney succeed in integrating its MOATs into the new entertainment vehicles? Well, in my view, there is one that gives it an incredible advantage here too. But first... Warning! GuruFocus has detected 7 Warning Sign with DIS. I immediately bring Buffett into play, and the stories shared by the Oracle of Omaha, always a cornerstone in my investment style. First, I'd like to mention that Disney has some of thoseunique and diverse qualitiesrequired to clear the first filter of a value investor, you will grin when I tell you that, at that point, Buffett himself had decided tosell out from DIS ... with regret. The reasons? The usual ones: unpredictable returns. And in this, his lifelong colleague Munger also finds justification, whose reasoning will help enrich the risk section of this article (we'll see that soon). Similar to Gayner, known as the mini Buffett, with Markel Gayner Asset Management Corp. Same uncertainties, but two different periods. The first ones, the uncertainty lay in the transition to cable TV with a volatile model. And for today's investors, From cable TV to the new DTC services. Since 1997, when Buffett was deciding whether to sell or hold DIS, Disney has changed. It is no longer just an entertainment vehicle, but a legacy conglomerate. From the 10-K we know that about 46% comes from the main segment: entertainment. Then the second source of income is experience (38%), followed by sports (ESPN and similar) at 19.7%. This is net of intersegment eliminations. 50% of the entertainment segment's revenue comes from DTC, which includes the streaming service. Here, it competes through Disney+, and partly also with Hulu, with around 186 million subscribers, behind the giant Netflix in this regard, which has over 260 million subscribers, not to mention it is also the most expensive platform. Disney holds a 4.6% share of the DCT segment, Netflix 8.5%, YouTube (11.1%). DIS's financials tell a story, and it's a pleasure to listen to it. You can feel a rising climate of tension from the statement that started in 2019; you wouldn't want to be in the shoes of the CEOs from that period. If you followed the events, both Bob Iger and Bob Chapek were criticized in turn: First for the acquisition of 21st Century Fox, then for the pandemic, dragged down by closed parks, empty theaters, and Disney+ running at a loss., empty theaters, and Disney+ running at a loss. And if it's true that numbers speak, at the time a value investor would indeed have had reason to be afraid. But let's bring some order to it. Here's a TLDR: from 2019 to 2023, revenue and EPS collapsed, and total debt doubled with the FOX acquisition; cash burn increased steadily, and no new cash was being generated. ROIC fell below WACC, weighed down by macro conditions. The market fled from DIS stock. Now it's worth taking a look at these indicators: Net income grew by 111% in 2024 year-over-year, and TTM results already show a 411% increase. The CFO is breathing again, up 41% YoY, confirming a significant upward trend also in FCF, both levered and unlevered grew by nearly 30%. All three business segments are recovering, but what I liked the most was the strong rebound in the entertainment segment, with income up 171%. A major contributor to this was the reduced loss in the DTC segment. The DTC segment has reached breakeven; and if it were to maintain its current margins, there would be a potential operating margin of 5.5% (considering $336 million in operating income on $6.118 billion in revenue), even though this projection is not confirmed by the guidance. Considering the negative role it has played in DIS's financials over the past years, in my view a new scenario is opening up for Disney, one that the market may begin to price in. The operating margin of the DTC segment in the 10-K was 142/22,776, approximately 0.63%; while in the FY2024 10-Q, it stands at 5.5%. And I ask myself: if we extend the time horizon to 10 years, is it really unreasonable to assume that DIS could maintain the FY24 Q1 operating margin? In my view, not at all, especially considering that Netflix operating margin is around 20%. And this is feasible given that Disney has one of the strongest MOATs in the entertainment landscape: the Disney Characters. Animated characters don't age and don't renegotiate contracts, leveraging a cross-generational appeal that remains valid for decades (natural loyalty), which other platforms don't have. And with the expansion of its IP base through Pixar, Marvel, Lucasfilm, and 20th Century Fox, Disney will be able to keep its MOAT alive over the years, while also reducing competition in other sub-markets (like live-action). And this translates into the numbers through improved pricing power: it's no coincidence that the increase in prices (ARPU) and advertising revenues have driven the recovery of the DTC segment. So, what would a 5.5% operating margin contribute to DIS's overall EPS? Projecting the $6,118 million from the 10-Q across four quarters gives $24,472 million in annual revenue. At a 5.5% margin, that's about $1,346 million in operating income. Assuming only 26% of that becomes net income (as per total estimates), we get $350 million in incremental net profit. Considering that $4,972 million was reported in 2024, the DTC segment alone would generate a 7% increase in total net income. And this doesn't even factor in potential positive impacts on the other two segments, Experience and ESPN. But we can take it a step further: the FCF/Net Income ratio is about 1.5x. So the EPS increase generated by the DTC segment would translate into an incremental FCF of 7% 1.5 = 10.5%. This is the real reason why it might become attractive again to value investors. Over the past 10 years, FCF growth has been around 5%, but if that's the case, it wouldn't be so far-fetched to imagine it rising to at least 1015%, especially considering that entertainment is Disney's least capex-heavy segment (only 18% of the entertainment segment's FCO went into CAPEX, according to the latest 10-K). We now have the data to build a solid valuation section: If we assume that the DTC segment continues to contribute positively to FCF, and we apply an FCF/Net Income ratio of 1.5x, the EPS growth rate would reach 10% (i.e., 15% FCF growth 1.5). With a 10-year time horizon, that results in EPS10Y = 3.06 (1 + 0.10)? = 7.94 dollars. So, the forward P/E at 10 years would be 14x. Attractive. Using a simple DCF calculator from GuruFocus, I get a margin of safety of 33% with an 8% WACC, based on 10-year adjusted assumptions and an optimistic FCF growth rate of 15% over the next decade. Keeping the WACC fixed at 8%, which I consider reasonable, but lowering the FCF growth rate to a more conservative 10%, the model still yields a margin of safety of 5.78%. Would Buffett and Munger see more clarity in today's Disney? And would the mini Buffett be justified in holding it? In my opinion, Munger would disagree. To prove it, I refer to the Discovery case, appreciated by Munger because it lacked live-action content; a component that in theory represents Disney's MOAT. And that's a problem because it would erode the compounding effect generated by cash flows from the DTC segment, the very engine that supports my thesis. To quantify the risk, I follow an unorthodox but practical method, the Star Wars method: compared to Star Wars: Episode VII, the average budget for the following two films increased by +29%, while ROI dropped from 8x to 4x (from the reading of box office data). Film Budget WW Box Office ROI Episode VII (2015) $245M $2.07B 8.4x Episode VIII (2017) $317M $1.33B 4.2x Episode IX (2019) $275M $1.08B 3.9x This is a pattern not seen in other animated series, like the classic Toy Story, which maintained a ROI close to 5x with more linear budgets. While I recognize this doesn't depend solely on actor costs, on average, live-action films tend to see production costs increase progressively by around 20% (in line with these figures), and this directly impacts ROI. What if this cancels out the incremental EPS growth estimated for the DTC segment? In that case, EPS would grow by only +4.18% over the next 10 years. As a result, the forward P/E at 10 years would be 25x,which would be excessive, even compared to today's forward P/E distribution. In essence, the price would become congested. And that's a risk. I find it fascinating to see how Disney's management has been able to navigate the complications that emerged after 2019. And although the market hasn't fully caught on yet, the financials clearly reflect this recovery, and between the lines, a segment emerges: DTC. This could become the engine for a new level of cash generation and profit. With the right time horizon, Disney's unmistakable MOAT, which I identify in the Disney Characters, will once again play a decisive role, and in my view, DIS stock prices will have to adjust to these new prospects. This article first appeared on GuruFocus.
