Preston Pysh  04:52

What Ted did is he took this letter, and he got it published in the local paper there at the school for everyone to see and I think it just shows you how colorful. It was probably the best word to describe Ted Turner.

So anyway, he got thrown out of school. So he goes and he comes back and his dad wanted him to work for him in the worst way. So Ted goes back, he starts… He was like one of the directors of one of the branches of his dad’s business.

05:16

So let’s talk about his dad’s business. So his dad owned a billboard company. So all the billboards in the south, a very large chunk of it in the Georgia area, his father owned all these billboards. And so that was their family business. So they were into advertising.

So Ted’s now 24 years old, his dad commits suicide. And Ted then becomes the president of the company, the primary shareholder of the company. And Ted just… I think a lot of people from what he described in the book, just thought that you know, “This young kid doesn’t know anything and is gonna come in and destroy the company, doesn’t know what he’s doing.” And Ted comes in and he starts making drastic changes doing these expansion efforts, taking out loans, and buying up other billboard companies and just expanding the business in a major way.

06:07

So just to give everybody an idea of the timeframe of when this is all happening, his father committed suicide in 1963. That’s when Ted was 24. And so through like the late 1960s, Ted Turner began buying Southern radio stations. And in 1969, he sold his radio station to buy a struggling TV station in Atlanta called WJRJ Channel 17. What he was doing was since they were in the advertising business, he felt like maybe he could complement that business with radio advertising that would complement the billboards, you know, as a logical progression in his mind of the expansion. He was also attracted to the TV industry and so then that’s where you could see he was slowly making this gradual progression into broadcasting and then to video media, one of the funnier things…

So he changed one of the radio stations to WTCG. And that stood for “Watch This Channel Grow.” So at this point in time, you’re probably in the early 1970s when he did this WTCG. He was making a name for himself. The company was growing. And it was to the point where he was going to Atlanta Braves games and carrying on a real young gun hotshot entrepreneur in the town. And he said at this Atlanta Braves game and he runs into the owner and they have a conversation and he’s just a charismatic Atlanta Braves fan. And they start talking with the owner and next thing you know, he wants to sell on the team. He wants to sell him the Atlanta Braves, whose record at the time was horrendous. And the ballclub was losing money as well. Do you remember the numbers that they were losing? They were losing like a million a year or something like that? Wasn’t it right, Stig?

Stig Brodersen  07:57

Yeah, something like that. It was a lot, especially for the time and thinking about how you can become a billionaire when you are buying a sports team that is losing a ton of money, even though they haven’t accumulated any wealth yet, I think that’s very impressive how that’s even possible.

Preston Pysh  08:12

You know that’s the thing that never deterred him that I found in the book was he’d buy these businesses that were losing money. And it pays a pretty high premium. I thought I think what he paid for the Atlanta Braves was $10 million. Yeah, so I believe he paid 10 million around that number for the Atlanta Braves. They were losing a million dollars a year. And then he leveraged the heck out of the deal where he just borrowed tons of money to pull it off. And it was just really, that wasn’t the only deal that he did like that. It was like, deal after deal. He was doing these ones that the cash flow wasn’t all that strong.

But you know, what he was doing is he was buying companies that complemented other businesses that he had. So he saw the Atlanta Braves is like, “Hey, I own this tTV station. I own this radio station. I own these billboards. I could turn this around because I own these complementary businesses that could make the Atlanta Braves take off.”

09:07

So one of the things that were huge for Ted Turner was in 1976, now granted 1976, this is only like 15 years, a few years after he owned the company. He now owns the Braves. He owns all these TV stations, he owns all these radio stations. And he got permission from the SEC to use a satellite to transmit the content of his local cable TV provider around the nation. So what he did is he took the Atlanta Braves and he started broadcasting the Atlanta Braves through satellite through the entire United States. So just the thing that I was going to talk about this more after we wrap everything up. But the thing with Ted Turner was he was always complimenting his businesses. He never stepped into a lane that didn’t complement something else that he already owned, or that was something that he could leverage with other assets. It already existed within his company. So moving on, he did a Time Warner merger. He didn’t talk about the merger too much. Stig, did you have any specifics that you wanted to talk about with the Time Warner merger?

Stig Brodersen  10:13

Yeah, I think both the Time Warner but also the AOL merger afterward. So think about it like this, he was teaming up with Time Warner. Obviously, his share of the company would be diluted. And then finally, AOL. The whole process for me, I didn’t get it. I mean, I did, in terms of like a business perspective. But from a personal perspective, it didn’t make any sense. It’s clear from reading the book that Turner needs to be The Man. He needs to be the one in charge. And that’s completely understandable. I completely respect that.

But since that is the case, I can’t wrap my head around why he would sell himself out of his own business. There’s an interesting story about Jack Welch. Turner would tell his side of the story and then he would have like a friend or someone else that was left to tell perhaps another side of the story of how he looked at the situation. And to Turner,  he was talking about how Jack Welch because at that time they were considering being bought up by GE, how he was not prepared for the meeting. And he didn’t know anything about what they were talking about. And for anyone that knows Jack Welch and studied what he’s doing, for me to think about him coming to a meeting of that size and have no clue what it’s about. No, that’s just outrageous. I mean, it’s not even serious to say something like that.

Preston Pysh  11:31

Yeah, he had a quote in the book where he said, you know, “What’s that Jack Welch know anyway if it wasn’t for Edison, he’d be a nobody.”

Stig Brodersen  11:38

Yeah, because it was interesting is that in Ted’s version of it, “This is my company, and I build this from the ground up.” And then what you hear from the other side of the story is he was saying, “Well, I felt like *inaudible because Ted was giving a position as Vice Chairman or he was not the one in charge anymore.”

And I think Ted Turner misunderstood the whole process. It didn’t speak about the other shareholders. It didn’t speak about the employees. It didn’t speak about anyone but himself and how he feels like he was emasculated by Jack Welch because he didn’t want to give him whatever.

Preston Pysh  12:13

I think this Time Warner deal was the death of his growth. So if you look at everything that was happening up until the Time Warner deal, Ted Turner was in charge. He was calling the shots, who was the majority shareholder. He had all the voting power with any decision that was being made.

The only reason I can think that he would want to do this is that it made him and his organization bigger. I think it was this ego thing. And maybe I’m speaking way out of turn here. But I think that maybe his ego got the best of them at this point in time because he just wanted to be able to say, “Yeah, we’re this multi-billion-dollar organization at this point.”

But when he did that, the thing that he gave up with the Time Warner deal is he started losing that voting power and that controlling element to make these decisions anymore. And so now he’s along for the ride once he got into the Time Warner deal, and then when you start talking about the real disaster, which was in 2001 when Time Warner was purchased by AOL. So he was not involved in that decision whatsoever, as far as I’m concerned based on the way he even described in his book, where the CEO for AOL, the CEO for Time Warner, which wasn’t Turner because he wasn’t the decision-maker at this point. They did this quick deal that was like over the weekend. They quickly formulated everything no one knew about the deal. And next thing, you know, AOL, who had no net income, but had a higher market cap because this was during the dot-com bubble.

Stig Brodersen  13:44

I’m surprised that someone like Turner who knows the importance of cash flow, probably because he bought so many that didn’t have any cash flow, is you aren’t more aware of that whenever he got bought up with stock.

Preston Pysh  13:56

I think for him, he was… You got to realize Ted Turner was always on the cusp of the new technology, from the time he was young until this point in time. So he saw how influential cable was to his growth as a company. So the new thing now is the internet and everything is going to be TV is going to be run over the internet and everything. And that’s how people were thinking back in 2001 when this deal was done. Everyone’s thinking, the next thing is the internet. You’ve got to be there, you’re gonna be lost. And so I think, even though Ted wasn’t intimately involved in the deal. The reason he went along with it and the reason he was fine with it was that he knew that they needed some type of internet business to complement theirs to go to the next level to stay competitive. And so he went along for this deal and didn’t really… You could tell by the way he talked about it in the book, that he just wasn’t comfortable with it, that he was asking these other people for their opinion, but yet he went along with it and voted in favor of the deal.

Stig Brodersen  14:53

What makes me sad about this book is that Ted Turner doesn’t appear to be a balanced person. I mean, he accomplished so much. I think it’s sad the way that he talks about his personal life and the personal relations like he had all the chances in the world to live a life where he’s true to his values. And I feel like he was living another person’s life, perhaps his father’s life, I don’t know. And he doesn’t seem to be happy about the outcome of his life. I think it seemed like he tried to justify a lot of the decisions that he made, but he wasn’t convinced himself.

There was this very sad story about his kids from the first marriage and live with him. They couldn’t live with the kids from the second marriage. So they’re eating in the basement. And he said that “Well, in a way that made me sad, but I was good at sailing. And here’s how much I won. And I was the only one to win this award four times.” I was like, did you say that your own kids couldn’t eat than sitting in a basement all by themselves, and then you try to justify it with winning four awards in sailing? There was just a gap there in my… at least how I perceive values in the world. But there was something missing.

Preston Pysh  16:04

Yeah, Stig, I saw it the exact same way. Like this was an interesting book from the vantage point of seeing how a person took, you know, a modest amount of money relative to what he grew it to. And just all the business decisions, all the moves were interesting from that landscape. But the part that was disturbing was what Stig addressed. It was interesting.

At the end of the book, he started talking about how important his family was to him and how he was sitting there thinking about each one of his kids and their grandkids. And you could see at the end of the book, the thing that was important, after all these moves and all this other crap, it was his family. That was the thing that was the most important thing to him. And it was probably the thing that got neglected a lot. I can’t talk personally but from what I read in the book, that was the impression I was left with was that it was just total neglect, for the most part for all those years. The most precious years of his kids. And man, what a learning point for people that would read this book, to think about things from that context, and be able to put what’s important in your life first opposed to last. A fascinating read. It was very long. Oh my gosh, this book was never-ending. I enjoyed it.

It was okay. Definitely wasn’t one that I would go around telling people to read or recommend real strongly. Some of the things that I did want to cover as far as business. So if people want to take away business points here, we briefly talked about his branding. He was very good at branding. And it wasn’t just the one example that I described with the CNN. There were others that he was very smart with his branding. We talked about this all the time, the importance of running your own business, and how much of an advantage that gives you thinking about investing. We talked about this a little bit about how he was making bold moves using lots of leverage.

17:55

He was always looking at things more from a growth standpoint, than value investing standpoint. And so a lot of the times on the show, we’re talking about things from the vantage point of a value investor: find a company that’s very stable, has good cash flow, that’s trading at a low multiple. That’s like the basics of value investing.

Ted Turner did pretty much the opposite of that. He was finding businesses that didn’t have much cash flow that would compliment an existing arm of his business that had huge growth potential, like moving the cable news. That was an interesting dynamic to see somebody pull this off successfully because usually, that’s a low probability type event. And you didn’t see him get caught up in the probabilities of this until later on when the AOL deal went, his net worth was call it $10 billion-ish at the time when that went off. And then within a year later, it was already diminished down into the what was it at? 2 billion or 3 billion or something like that? He had I don’t know if I’d call it luck or what you’d call it. But he was very successful from a young age clear up until that point, he didn’t have any major mistakes or setbacks. It pulled him off that wild ride to the top.

Stig Brodersen  19:15

Yeah, because I don’t know how to describe Ted Turner. In like a better word, I might say something like greed was driving him, probably also vision. But I want to elaborate on this because I think was when he bought CNN, he was saying it did have enough capital to get the station up and running, but it couldn’t run. Like he had enough to get it started. And then he says, then I can always raise more capital or borrow more money. But I need to show that I can get this up first before I start leveraging it even more.

So I feel like he was just climbing the ladder when he was leading. And then he always felt that because has been so successful all the time by betting everything on just one thing, he could just continue that. Then, finally, with AOL, perhaps the Time Warner deal as well, he couldn’t do it anymore. He might have gotten carried away. And he was definitely not one of those diversified investors. However, guys, he was concentrating and he was leveraging all that he could.

Preston Pysh  20:15

The last point that I want to highlight from the book, and I like this, and it was surprising to me with his personality when you’re reading that he would have this opinion, but he never wanted to get involved in businesses that didn’t have like this goodness factor for society. He never wanted to air TV shows that were violent or something, that wasn’t wholesome for people to watch.

CNN, he wanted to, if it bleeds, it leads mentality. He wanted to take that out in the news. So he had this… That’s one thing that I did admire about the businesses that he ran. And I think that a lot of people when they maybe start a business maybe might not be thinking from that context. And I think that’s an important note for people to take away from this book is that is something that I think is vital to the success of a business is that it has to be something that is a win-win for not only the business owner but also society and the people that would be taking advantage of whatever the product or services that you’re selling.

So that was the last highlight I had for the book. Okay, so our first question comes from Benjamin Tupper.

Benjamin Tupper  21:20

Hey, Preston and Stig. Thanks again for your podcast. I appreciate it. I do have a question. Jim Rickards was talking about holding physical gold. I like a lot of Americans have the majority of my savings in a 401k that is limited to just mutual funds only. Are there any mutual funds that you would recommend as that would be close to holding physical gold? appreciate it. Cheers.

Stig Brodersen  21:44

It’s a great question, Benjamin, and I love talking about gold especially after we had Jim on for those two episodes. That was awesome. I did a quick scan when I listened to your question and I didn’t find anything in terms of mutual funds that appealed to me. It’s probably also because I don’t like mutual funds in general, but one thing I thought about was that you want to hold physical gold. And you just have to be sure that even though you might find in a mutual fund or an ETF that’s saying that they’re backed by physical gold, it doesn’t mean that you can convert your shares of that fund into gold.

So to use the teachings from Jim Rickards is only the gold in nonbank custody that is physical gold. Just remember that if that’s something that you want to do, and since these two episodes we’ve gotten quite a few questions about gold, and it has been interesting because Preston and I have previously beaten up gold. I’d say I think I’ve changed my paradigm when it comes to gold.

But I would like to elaborate on that before we think I’m turning into one of those gold nuts. I don’t see gold as an investment. And the interesting thing is that Jim Rickards feels exactly the same way. Gold should not be seen as an investment because it has no yield, but rather as insurance. And I found that point interesting. So does that mean that I would put 10% of my portfolio in physical gold? Probably not.

23:13

And here’s why I think someone should and why I don’t. If you have a lot of money and you’re not super young, you don’t have a lot of *inaudible utility in terms of compounding, say, a billion dollars. It doesn’t make so much of a difference if you compound by 5% or 6%. You’re worried about if you have a billion dollars, I would assume is that you would lose them, that would be bad for you.

Now, how can you lose a billion dollars if you have them in great stocks, great bonds, how can you lose that? Well, you can lose that if the monetary system as we know it today gets completely distorted. If the dollars that we know today vanishes, if it gets hyperinflation, whatever, that would be really, bad for you. So for people like that, it would make a lot of sense for me that they were trying to ensure that portfolio.

24:03

Now, so for my perspective, and perhaps also a lot of the investors out there, besides the portfolio that I have, it doesn’t make any sense for me to invest in gold, and also given the prospects I think I have. So I looked it up, how much does it cost to store physical gold? If you have at least 5000 pounds, which is obviously a decent amount, but it might be terms on your portfolio? Is that something you should do?

Well, the annual fee insurance for doing that is between 50 and 100 basis points. So between half a percent and 1%. So basically, you’re paying to call it just to be conservative 1% to not get any return on your portfolio, that part of the portfolio. For me being relatively young, you have a lot of human capital in the face where compounding means a lot to me, gold doesn’t make any sense to me right now. And I’m curious to hear Preston because I don’t know if you have changed your opinion about gold as well after speaking to Jim

Preston Pysh  25:00

Well, to be honest with you, I liked your response. I pretty much agree with everything that you just said, Stig. I see it from a very similar vantage. I think it is an insurance policy. I think that that’s how people need to look at it. And I think it’s an insurance policy against central banks and people saying, “Hey, I don’t trust central banks, I think they’re gonna implode the financial system.” It is zero yield. I think we got to be very clear, and people need to understand that it’s not something that produces any type of yield to it. I think it’s just something that you have to look at.

I like the thing that I can say that I did like about Jim Rickards’ discussion. To me, it made a lot of sense when he started talking about the difference between nominal rates and real rates. And whenever you see the real rates start going negative, that’s whenever gold performs well. That made a lot of sense to me that discussion, where before I’d never looked at it from that context. I never had anyone explained it to me that way, but that made a lot of sense.

To me, now, whether that’s what happens in practicality, you know, time will tell. I know in the United States right now, rates are going into the negative territory for real rates. So it’ll be interesting to see how gold performs if that would persist and see if Jim’s thesis is accurate.

So do I have some gold? Yeah, I took an ETF position. small, I mean, small in my portfolio, you know, like, a couple of percents if that. So it’s not like I have a big position in it. I’m watching it. I’m learning. If you tuned in the podcast a year ago, you would have heard us destroying anything discussing gold, but we’re trying to keep an open mind. I think that Jim was an incredible guest. You’d be hard-pressed to find anybody on the planet smarter than Jim. It’s a very, very interesting discussion and I love Jim’s book on gold. It was fantastic. It was a very interesting read. And he brings up all these arguments and how he has counter-arguments for every one of them. So, if you’re wanting to get a better-balanced position, man, I’ll tell you, I would research it more.

Okay, so our next question comes from Trey.

Trey  27:09

Hey, Preston and Stig. This is Trey. I have a couple of quick questions. The first one is for Preston, especially whom I know is invested in SJB, and also gold. And my question is, if you add the expense ratio of those two positions, you’re already at about one and a half percent. I know in the Tony Robbins book, it recommends one and a quarter or less. I was curious if you take that into consideration when you’re looking at positions like these, or if you consider the expense ratio less because it might be a shorter-term play and you’re expecting your fees to average out over time.

My second question was about dollar-cost averaging. I was curious if you had any rules of thumb in regards to when to allocate more capital if the asset is dropped a certain percentage or how to effectively managed the commissions involved with getting into position over and how to be strategic with that.

All right, thanks a lot, guys.

Preston Pysh  28:02

Okay, so I want to start off by saying that this is not a pick that I recommend for people to have, because it’s a short position on high yield bonds. And it’s something that I discussed in a show probably in December, I want to say. I believe I bought this at about $28.20, somewhere around in there. And here I’m pulling up right now it’s at $27.32. So I am down in this position relative to the S&P 500. I’d say I’m losing to the S&P 500 by a couple of percents, maybe 3% or something like that.

So far, the position isn’t performing anything that’s scary, if you will, it’s not like I’ve lost a lot of money on this. I still own the position, I still have a lot of confidence in the position, to be honest with you. I think it’s going to do extremely well moving forward. I’m going to continue to hold this until… I don’t know when. But right now I’m very comfortable continuing to hold this.

The reason I did this is that I wanted to document my first time doing short positions on the show and talking about it. So I’m glad that you asked the question so that we could bring it up again. So the thing that that has caused the position to perform not as good as I was expecting right out of the gate was because oil prices have had a little bit of recovery lately. Oil right now on the 15th of April is about $40 to $42 a barrel. And when those oil prices are coming up, the expectations are there’s going to be a lot fewer defaults. And so this SJB high yield bond fund does worse because it’s doing the inverse. And I’m sure I’ve confused the heck out of everybody at this point.

But just real fast because oil is performing well and there’s not an expectation for default. When you short a high yield bond fund it’s going to do worse. So if the market conditions worsen, and things go in a bad direction, the expectation is that this fund would do very well. So I will continue to keep people updated so keep prompting me on this. And you know what, if it ends up being a bad pick, I want to definitely talk about that with people.

So this is the most important part of what I’m about to say, you have to have a lot of conviction behind any pick that you put on. If you don’t have conviction behind a selection, you will sell at the worst possible time, because you don’t understand what’s happening. So that’s why I don’t recommend this for most people because me personally, I have a lot of conviction behind this trade. It doesn’t bother me in the least bit. But that’s me. So whenever you put on whether it’s this play or any other position, you’ve got to have that conviction behind or else you’re not going to be in a good position.

30:48

The second part of your question was the position size, whether you go in more or not. I think that also has a lot to do with your conviction. So let’s just say this position here. Let’s say I had a  lot of conviction and let’s say it moves against me, I would be inclined to probably add to the position. And I think here’s another thing. I think it’s important for people to step into a position initially, slowly, like, let’s say that sSJB ticker, I had a, I thought it was a good pic. Even if I thought it was a fantastic pick, I should probably step into that slowly. And as it moves in a different direction or whatever, then you can maybe add to the position if it goes down because you have a lot of conviction and you’re just adding to your position and you’re lowering that initial entry price.

Something that I think is also important is if you don’t plan on owning something long term, which we like to own things long term, we’d like to own things literally forever because we don’t pay any capital gains tax on it. That’s the Warren Buffett model. An example of something that I wouldn’t own long term is this SJB because it’s short. I don’t plan on owning this a long time. I plan on owning this like a year from now.

So when you own something and you plan on selling it and you don’t plan on owning it forever, I think that as you start getting further and further ahead in the position you slowly take more and more money off the table. And that’s a trick that we learned from Jack Schwager. He talks at some of the best traders, people that are traders, not investors. That’s how they do it. When they get further and further ahead in the position, they’re taking more and more money off the table. So I’m not one that condones trading at all. I’m playing around with it for fun. And that’s why I don’t recommend it for people because this is an investing podcast. But it’s interesting stuff to talk about. And I think that people might get some interest in talking about some of that.

So Stig, did you have any other comments on the last part?

Stig Brodersen  32:39

Yeah. So about the dollar-cost averaging, I would like to respond is in terms of thinking about dollar-cost averaging for the market, the stock market as a whole. That’s a question that we caught a lot and how would you invest on average, when you have to say, $10,000 now, should you invest everything at once or should you gradually dive into it.

As you asked Trey, like if the market drops, how much should I put into the market? Is there any difference? So, I think if you don’t have any conviction about the stock market, but you just want to be invested, perhaps you are right now you’re invested in individual stock picks, and you think, “Hmm, that’s probably not for me, I should probably rather be in something like dollar-cost averaging, where I can relax more.” I might just roll it over into the low-cost ETF. And you can get low costs seven basis points and nine bases, really, cheap ETFs because you are fully invested, you still want to be fully invested, just roll everything over, if that is your strategy.

But if you want to do dollar-cost averaging, and also, you want to be fully invested in some point of time, but you don’t want to put everything into the market right now because what will happen tomorrow, what will happen to a half year from now, what you could do is to look at your size of the portfolio of the investable amount you have today. Then say how much do I expect to put aside the next call it 20 months? And then I would simply just say, I will pull up Shiller’s PE, we have linked to that a few times. And we will do that again. And say, if the stock market is priced above the average Shiller PE, I might just take that sum. So that would be $10,000 plus 20 times 500. And just say 5% into that if it’s above the current market price. If it’s above the historical average, and if it’s below, I just put in 10% a month.

As it looks right now, you will probably be rolling out your entire investment into a dollar-cost averaging approach and in 20 months doing like that. It is a very public question. I know a lot of people are saying, this is interesting what you’re doing on the podcast, but I’m not into the specifics or investing. I just want to focus on other things, even though I think it’s interesting and so that might be your way to gradually transition into being fully invested using dollar-cost averaging.

Preston Pysh  34:56

All right, guys, we got to wrap things up. This means so much to us to get questions like this and the participation. If you haven’t checked out our forum, all these people that are asking these intelligent questions are all contributing to our forum as well. If you haven’t stopped in there and ask some questions and talked about some of your investing picks and ideas, let me tell you, there are some smart folks there. And if you want to go to our forum, go to WarrenBuffettForum.com, or you can go to our Investor’s Podcast website, and there’s a link there on the navigation menu to get to it.

So we highly recommend that if you want to ask a question and get it played on the show like our two gentlemen today, go to asktheinvestors.com and there’s a little button there where you can record your questions. Also, we did this review of “Call MeTed.” We send out our free executive summary to all the people on our email list and we do this two times a month and we also talk about our opinions on the current market conditions. So go to our website, theinvestorspodcast.com, there’s a link in the navigation bar where you can sign up to be on our email list. We don’t send any spam or advertising so it’s all about you. It’s it truly is all about you. So if you sign up there, we’ll send those out to you. And it’s like a five-page summary of each book that we read. So that’s all we have for you guys this week. We just want to thank you for listening. And I will see you guys next week.

Outro  36:14

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