Don't Follow Wealthy Investors, Part 14

by: Barry Ritholtz

We have counseled readers time and again not to follow in the footsteps of various billionaires, like Warren Buffett, Michael Dell, Wilbur Ross, or Bill Gates. The ultra wealthy have different motivations and goals when they are "deploying capital" -- what you and I call investing. Capital deployment may not necessarily have as its goal straight up return maximization.

When Michael Dell buys his own stock, it is as much a PR move as it is an investment. He gets benefits from that purchase (Media coverage, analyst approval, retails sales promotion) that does not accrue to you.

Remember Kerkorian's bid for GM (NYSE:GM)? The old man was trying to wrest control of one of the most storied names in American industry. That's an enormous ego stroke that you don't get for your 1,000 or even 10,000 GM shares. I suspect the short term returns were inconsequential to him.

How about Joseph Lewis' 7% stake in Bear Stearns (NYSE:BSC)? Taking a big stake in Bear made him a bold player in the high stakes game of Wall Street control. The loss of $500 million to Lewis is inconsequential; how'd that trade work out for those people who tagged along?

My point isn't that these guys are dumb (they are not) or bad investors -- history shows otherwise. No, the point is that they have different motivations, tools, and terms than you, and blindly following them into any investment is simply foolishness (when Warren Buffett makes a deal, you can rest assured he gets slightly better terms than you).

I was reminded of this issue again Saturday, thanks to an article about the newspaper business in Editor & Publisher.

I recall wondering in these pages why a bright guy like Bruce Sherman would ever want to get involved in a dying transitional industry like newspapers. The nasty emails and comments from his acolytes were both amusing, while being astonishingly naive. According to these folks, Bruce could do no wrong. Thus, I was an idiot for even thinking about criticizing this investment. Clearly, only a moron doubts anything about Mr. Sherman. Only Sherman -- and Chuck Norris -- never buys any stock that goes down. Oh, and on top of that, newspapers were cheap on a P/E basis, thus providing additional proof of my cluelessness.

Well, it seems Mr. Sherman has thrown in the towel. According to Editor & Publisher, recent SEC filings reveal Mr. Sherman's current newspaper holdings to be 0.0%.

Here's an excerpt from E&P:

"Bruce Sherman, whose Private Capital Management [PCM] investment firm nearly single-handedly forced the sale of Knight Ridder -- ushering in the era of Wall Street antipathy toward newspaper stocks -- formally bid the sector goodbye in a series of regulatory filings Thursday.

In documents filed with the Securities and Exchange Commission [SEC], PCM said it no longer owned any stock in The New York Times Co. (NYSE:NYT), Lee Enterprises (NYSE:LEE) or Belo (NYSE:BLC), and that it was effectively done as an investor in The McClatchy Co. (NYSEMKT:MNI)...

It was remarkable to see all those 0.0% ownerships of class in filing after filing because PCM not long ago had serious stakes in the nation's biggest publishers. In September of 2005, for instance, PCM owned a gigantic 37.61% of McClatchy common stock. Thursday, the firm reported that it directly owned no shares at all, and was simply managing on behalf of an investor a tiny portfolio of 9,164 shares. In that same period, PCM owned a 15.07% stake in the Times Co., an 18.96% stake in Lee, and a 22.31% stake in Belo. It also had substantial positions in Gannett (NYSE:GCI) and a small amount of Tribune Co. (TXA) stock."

Some of the emails about Mr. Sherman bordered on myopic hysteria over criticisizing any of his investments. These folks definitely have the first half of Strong Opinions, Weakly Held down pat. For their sake, I hope they are intellectually flexible enough to understand the second half. Perhaps the dittoheads who aped Sherman's march into media were at least smart enough to follow his retreat out of them...

I emphasize this again and again, but we might as well say it once more for the record: LEARN TO THINK FOR YOURSELF. The importance of this cannot be stated enough.

Source:Sherman's March: Man Who Forced Knight Ridder Sale, Says Goodbye to Newspapers Mark Fitzgerald February 15, 2008 5:40 PM ET updated Friday