Beat the S&P 500 by Investing Alongside John Malone

A simple portfolio of companies that are majority-owned by the cable pioneer would have more than doubled the return of the index over the past 10 years.
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John Malone still visits Liberty Media Corp.’s office in Englewood, Colo., during at least half the year. But the Cable Cowboy, now 76, is less engaged in his sprawling media empire these days. The billionaire cable pioneer prefers to spend much of his time in Ireland, Maine, and Florida and leave many of Liberty’s decisions to his trusted lieutenant, Greg Maffei.

“John is certainly involved in all the major decisions,” Maffei says. “But mostly we go to John and say, ‘This is what we think we ought to do,’ and John says, ‘Yeah, that makes sense.’ He’s more of the philosopher king.”

He may be a philosopher now, but if you’d invested in stocks Malone owned over the past decade, you’d have been richly rewarded. A simple portfolio of companies in which Malone has a controlling interest would have more than doubled the return of the S&P 500 index. Some investors have so much faith in Malone’s companies, there’s even an exchange-traded fund—the Gabelli Media Mogul Nextshares ETF—that invests in stocks associated with him.

To build a custom portfolio of Malone-controlled companies on the Bloomberg terminal, start by running {HLDR <GO>}. Enter “John C Malone” in the Search field, and click on the top match to see positions he holds. To identify companies that Malone owns more than 50 percent of, click on the % Out column heading to sort the list. As of late July, there were 12 such companies, according to data compiled by Bloomberg.

Run {HLDR <GO>} for the Holder Ownership function.

To create the portfolio, go to {PRTU <GO>} on another terminal screen. Click on the Create button, enter a name, specify characteristics, and click on the Create button. Make sure to set the date in the upper left-hand corner to when you want to start tracking the portfolio: For example, for 10 years of data, enter Jan. 1, 2007. Then drag and drop tickers from HLDR and enter positions. (For the sake of simplicity, we used 100 shares of each of the stocks from HLDR and ignored a number of ­complications such as which share classes are easily available to outside investors.) Once you’ve saved the portfolio, click on the Analyze button on the red toolbar to load it in the Portfolio & Risk Analytics (PORT) function. Click on the Performance tab and then on the Total Return subtab, and you can see that the portfolio of Malone-controlled companies more than doubled the return of the S&P 500 over the 10 years through July 26.

A simple portfolio of Malone-controlled companies doubled the return of the S&P 500 index over the past 10 years.

 
Malone has a reputation for shrewd instincts, but Liberty’s success has been fueled by more than just that. Through its various holdings and board seats, Liberty’s management team is able to look across the technology, media, and telecom industries and react to changes reshaping the landscape. “The whole space is being massively disrupted by the movement to digital and the movement to mobile,” says Maffei, who’s been Liberty Media’s chief executive officer since 2005. “A lot of what we’ve tried to do is recognize what that might mean for opportunities.”

Malone created Liberty Media in 1991 as a spinoff of ­Tele-Communications Inc., which he sold to AT&T Corp. in 1999 for $48 billion. Liberty started with several of TCI’s former assets, including stakes in cable programmers such as BET and QVC.

Over the past decade, Liberty Media has expanded through a series of big investments, particularly bets on satellite radio company Sirius XM Holdings Inc., cable giant Charter Communications Inc., and Formula One. Malone is also chairman of Liberty Global Plc, a pay-TV provider in Europe. His Liberty Media has a stake in concert promoter Live Nation Entertainment Inc. and owns the Atlanta Braves baseball team. The dealmaking continues. Discovery Communications Inc., a key Malone holding, agreed to buy Scripps Networks Interactive Inc. for $11.9 billion on July 31, and, as of early August, SoftBank Group Corp. and Altice were said to be considering bids for Charter.

As a long-term investor, Liberty is able to find ­opportunities to buy when other investors want to get out, Maffei says. “A lot of private equity firms have time frames, and when they get to the end of those life cycles, that’s a good time to talk to them,” he says. “A great example is Formula One.” Last September, Liberty Media bought the racing series from CVC Capital Partners Ltd. for $4.4 billion.

One thing Liberty is known for is complex deals aimed at avoiding taxes. “They’ve been among the best in creative dealmaking, in particular managing taxes,” says Chris Marangi, a portfolio manager at Gamco Investors Inc., which manages the Gabelli Media Mogul ETF. “Their motto is ‘Pay less, pay later.’ ”

Maffei cops to a few regrets. Among them: turning away Netflix Inc. five years ago when the streaming video company approached Liberty about an investment. Liberty decided not to invest because it owned Starz LLC at the time and didn’t want to upset Starz’s cable partners, who perceived Netflix as a threat. “Boy, did we miss an opportunity with Netflix,” he says.

Many investors bet on Liberty companies because of Malone, but he won’t be around forever. Maffei, meanwhile, has a 12-year track record as Liberty’s CEO. “People in the market­place can make a judgment about whether I’ve been a good steward of their capital,” he says.
 
Smith covers media and Kochkodin is a managing editor at Bloomberg News in New York. 

This story appears in the forthcoming issue of Bloomberg Markets.

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