Sometimes listen to your old man
When someone is 90, it's hard to relate except for timelessness
Of course, this wizened old man in finance is Warren Buffett and I’m not sure if he made this investment, but news came out that they bought into Liberty Media Sirius shares. And I make a point to listen and gain insight from him, but I try to avoid anything he is investing in long term as I might as well buy Berkshire Hathaway. But for this opportunity I am changing my mind a bit.
Lately, the headline investments of Berkshire Hathaway aren’t exactly long term in nature…they are more what I would describe as catalyst driven ventures and I’m comfortable “aping” into event driven stock investments as there is clarity and an approximate time frame on a return on the money committed along with a reduced risk of disappointment.
My working definition of investment is a defined commitment of capital with a sufficient return that is double the rate a US government bond provides in a reasonable time frame with the understanding that there is a modest amount of risk involved in both the gain and the capital invested.
The reason I don’t mind investing along with Berkshire is the fact they are not the jockeys of this horse. Rather other great businesses are with a track record of being respectful to investors. Like Berkshire, we are along for the ride. What I don’t want to be is partners with Berkshire and hear the garbage they spew on valuation etc. and if things do not go their way, how they are disappointed but “hey, look at our long term record.” At the end of the day, I want to make money and I don’t want to underperform the SP500 like Berkshire Hathaway did in 2023 (click HERE)
This is not the game of “arbitrage” where you buy one stock and you short the other and split the different of the price difference. We are simply buying into a known event that didn’t occur yet with sufficient markup to make it worthwhile for us. The risk is the buyout or merger does not occur, or it does occur but takes longer than expected which creates a more volatile holding period (volatile=price going up and down).
What does catalyst mean? It means these are not stocks to hold “forever” but will move very quickly once the buyer’s intent is known or has no other way but to move forward with the transaction.
The two recent examples with Berkshire are:
Activision buyout (success)
Paramount Global (to be determined)
Activision moved up quickly when Microsoft intended to buy them, but lingered for over a year to get proper global approval by regulators. The same is occurring currently with Paramount Global as headlines are popping up about potential suitors. Maybe nothing will occur, but at least you are buying the company below the sum of its parts (meaning if they sold the business it would be worth more than what it is currently trading for).
Today, I would like you to focus on
Liberty Media Sirius merger (LSXMA, LSXMK, LSXMB)
This is not just about Berkshire Hathaway, but also about another famous investor named John Malone, who also has a great track record of making people wealthy. And our current jockey.
The article I got the idea from can be read here:
The Breakdown:
Basically, the deal is that Liberty Media Sirius tracking stock will merge with Sirius XM stock on a 1:8 basis.
So 1 share of Liberty Media Sirius will earn you 8 shares of Sirius XM radio. As an example:
LSXMA is trading at $30
SIRI is trading at $5.20
So the holder of LSXMA will receive $41 of SIRI stock while only paying $30 for it!
Whoa! what’s the catch it sounds too simple? Well, it’s not. The stock market can go down so that fat cushion you thought you had disappeared. Or the merger doesn’t go through. Or…something else, that will only be told after the fact = “The Unknown.”
In summary, I feel buyout opportunities are kind of like when good quality stocks have a larger than normal dividend. Not a catch, or a gimmick, just something is worrying the larger players and they prefer to be on the sidelines which gives smaller guys an opportunity from time to time.
Like what I’m presenting.