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Better Than Buffett

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  • What could be better than Buffett?
  • 3 prior examples.
  • 3 potential examples.

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Warren Buffett

I hugely admire Warren Buffett, but I also have misgivings about hero worship. Yes to hero. No to worship. I have invested in his Berkshire Hathaway (BRK.A) (BRK.B) for a very very long time, but started to find worthy successors starting over half a decade ago.

Better Than Buffett: Danaher

Danaher (DHR) has made over four times Berkshire’s returns since I first disclosed our position to StW.

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A complex series of deals hid its intrinsic value but expert asset allocation has caused that value to be both increased and increasingly revealed over time. I was bullish at the time I first publicly revealed my stake and I remain bullish today.

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Very few management teams have demonstrated any statistically significant skills at asset allocation. Danaher’s has.

Better Than Buffett: FRG

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Franchise Group (FRG) has made over six times Berkshire’s returns since I first disclosed our position to StW. It is run by a management team I know well and have invested alongside many times in the past. Their record is outstanding. I’ve maintained my very bullish view since first publicly disclosing my position in a series of posts on the company.

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Better Than Buffett: IDT

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IDT (IDT) has made over six times Berkshire’s returns since I first disclosed our position to StW. It is run by a brilliant billionaire asset allocator with a large stake in the company.

Better Than Buffett? Greg Maffei

My three prospective candidates include Greg Maffei, Craig McCaw, and Niccolo De Masi. Investments in various Liberty entities are among our largest and oldest investments and Maffei has been instrumental in their successes.

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But my stake in Liberty goes back much further than that. In 7 Fat Years Of Event-Driven Investing, I described my biggest equity exposure in November 2008,

High hedge fund concentration in a given security can be worth understanding. It is not always positive or negative, but is worth knowing because hedge funds are a large part of the market's trading volume, and are especially large in the kind of event-driven opportunities that I tend to invest in. Hedge fund redemptions can force funds to sell such positions, driving down prices in such positions regardless of their underlying merits. It is important to know that can happen, and to either avoid such concentrated hedge fund bets or to buy them after forced selling has taken its toll.

One such investment that was a big holding of many hedge funds was Liberty Entertainment (LMDIA), a stock spun off from Liberty Capital (LCAPA) in March 2008. This proved to be too rough a time for the equity market to sort through how to value a new and complicated structure. By November 2008, it cost just over $10 per share, despite owning more than $10 per share of DirecTV (NYSE:DTV) and a number of other assets, including Starz (later ticker: STRZA). Liberty's stock was cheap relative to its assets, and its assets were cheap too. Due to this double discount, it was probably worth between four or five times what it cost. It was a perfect investment for Rangeley - cheap, event-driven, and sold without sensitivity to its price by hedge funds that needed liquidity. One of my goals became to find at least one such investment each year.

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What happened to Liberty Media?  The security and its components have been perpetually event-driven opportunities, and they have been values the entire time. As described in The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, Liberty CEO John Malone held monthly meetings with his tax committee. At such meetings, he frequently came up with new and complex structures. Through buybacks and various combinations of his assets, he has been able to capture much of the very discounts that he created.

A picture containing sky, person, outdoor, person Description automatically generatedIn May of 2009, a deal was announced in which Liberty Starz (LSTZA) was spun off to LMDIA owners, before a fixed-ratio stock merger in which LMDIA would ultimately be exchanged for DirecTV shares. Liberty Starz was made up of Starz Entertainment, 37% of satellite broadband service provider WildBlue, PicksPal, Fanball and about $650 million in cash and cash-equivalent securities. In 2010, ViaSat (VSAT) purchased WildBlue for $568 million.

Today, you can invest alongside Liberty’s Maffei (the world’s #1 #2) in his SPAC. $500 million Liberty Media Acquisition Corporation (LMACU) trades on the NASDAQ (QQQ). When you buy a unit, you get a share of equity, free upside in the form of a fifth of a warrant that you can exercise later for $11.50 and free downside protection in the form of $10 of trust value. Bet your life they find a deal within their allotted two year window; bet someone else's that you moderately but not passionately care for that they find one much quicker. They are looking for a target in TMT especially digital media. Duh.

Who are those guys? Are you kidding? Greg Maffei is the TMT GOAT. Actually, the SGOAT. Greg Maffei, second greatest of all time (left) and John Malone, greatest of all time (right):

Police: 4 people charged after 2 goats found killed | WHPThis is my favorite pre-deal SPAC. I subscribed for a million and a half units. Weighing in at a half billion dollars, it is one of the largest current pre-deal SPACs. No one - no one - knows these sectors better. CEO Greg Maffei (left above) is a business genius but perpetually the second brightest guy in the room since he keeps working with John Malone (right above). Greg runs Liberty Broadband (LBRDK) for Dr. Malone and is also in charge of various other Liberty entities. So his operational skills are without equal. Also, he is the best Peloton (PTON) rider among men over 60. Think carefully before friending him; the constant "high fives" get annoying.

What have you done for me lately? What did this fellow do last time he was let loose with a half billion dollars? He closed the best deal ever, Liberty's half billion investment in Sirius XM (SIRI). Not a teen girl "best ever"; literally (in the literal sense of literally) the best deal ever. The timing was good and it turned out well.

Chart, line chart Description automatically generatedI am an investor via Liberty SiriusXM (LSXMK) which remains a top five holding of mine. What is my confidence level in the Liberty SPAC? Higher than it was in Trine. In that case, I was over 99% sure that Hindery, another John Malone lieutenant, would find a deal and I expected the announcement to pop between 18-25% (I underestimated). Liberty is bigger and better on both counts. Buy units for right around $10, risk nothing, and make at least 25% when Maffei announces his deal.

How much could this hurt? If they fail to find a deal, it will cost the sponsors $13.5 million. Outside passive minority investors will recover our $10 capital from the trust value. Warrants would be worthless. What's in it for me? Ideally another 4.65k% return like Sirius (SIRI). They could do it again. Who cares? If you buy it today as close to $10 as possible, you'll get a great risk:reward and probably a solid IRR between now and a deal announcement. If you are in the secondary market, use patience and limit orders, here and always.

Better Than Buffett? Craig McCaw

When you buy a unit of $275 million Colicity Inc. (COLIU), you get a share of equity, upside in the form of a fifth of a warrant that you can exercise later for $11.50 and downside protection in the form of $10 of trust value. Their intended sector is technology, media, and telecommunications.

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Chairman Craig McCaw is a TMT industry pioneer. He was one of the key people behind cellular and PCS networks as well as 4G. He has an extremely successful M&A history. Today, he is chairman and co-CEO of Pendrell (OTC:PCOA). If you bought Colicity units in the IPO, you can’t lose. If you buy them in the open market, you can’t lose much. I’ve long thought that speculation would be more fun if there were do overs; this structure offers just that. Colicity could be Craig McCaw’s next SPAC to double. I like the team and their backgrounds. They will probably find a good deal.

Pendrell (OTC:PCOA) owns 6,726,350 Colicity (COLI) shares which is 18% of outstanding common stock after the IPO offering. This SPAC affiliate was an StW odd lot idea when shares cost $669 and were getting cashed out for $689.19. At the time, the company had $758 per share in cash and $804 per share in book value, making the reverse split quite accretive to book value. I like buying $758 of cash for $689.19 and apparently Craig McCaw does too. If you buy COLIU units in the secondary market, you will pay almost $10 per unit. But if you buy it via buying Pendrell (OTC:PCOA) you will own the sponsor, which is paying $0.003 per share for their founder’s shares. Pendrell’s SPAC equities and warrants are worth over $200k per PCOA. They have another $200k of cash and other securities per share. They also have $2.5 billion of NOLs that protect them from federal income taxes.

Better Than Buffett? Niccolo De Masi

Niccolo DeMasi’s dMY Technology is the top performing SPAC sponsor.

Chart Description automatically generatedI have invested alongside him several times in the past and have always been glad that I did. Most recently, I invested in a big stake in dMY Technology Group, Inc. III (DMYI) which is on track to deSPAC next quarter.

TL;DR - Too long; didn't read?

Buy LMACU and anything else Greg Maffei touches then wait at least a decade. Buy a share of PCOA (using limit orders and patience) – spend under $400k to pay for cash and securities worth more than that and own the upside of publicly filed SPACs. Paying $10 for a promising SPAC is okay, but paying $0.003 is sublime. Buy dMY’s DMYIU; risk nothing between now and their redemption deadline and potentially make a substantial return ($15 StW price alert).

Analyst's Disclosure: I/we have a beneficial long position in the shares of DHR, BRK.A, BRK.B, IDT, FRG, LBRDA, LMACA, LSXMA, DMYI, PCOA, COLI either through stock ownership, options, or other derivatives.


Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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