Don’t Speculate and Wait for the Facts


Sometimes it will be too late, but better be late than sorry…

Last week, I experienced another premiere as a financial author; I got my first live interview on a Cheddar TV, a live streaming financial news  network. All I can say is wow… this moves fast! I recently started to do live webinars (you can register to my newsletter if you want to know when I do them), but being interviewed is a whole different ball game. The difference? You don’t control where the discussion goes. At least, not when you are a newbie!

My topic was to discuss how Disney (DIS) is great company and why it is on my pick list for 2018. This segment of the show is called the “Seeking Alpha Idea of the Month”. A few days before the interview, I was asked to send my notes and I expected to discus Disney the way I lined up my points. Surprise! The production (or the interviewer, I have no idea) thought it would make better TV if we discuss the imminent Fox acquisition (which was officially announced that day after the interview). Then, instead of talking about Disney’s strengths and dividend growth potential, I had to fall in the rabbit hole of speculation and discuss the potential impact of Fox assets on Disney… I honestly got thrown out of my game. I hate speculating, I keep that for my hockey fan discussion!

Why I hate speculating

What would possibly happen if Disney buys Fox assets? Seriously? An honest answer should be: a million things. In fact, now that Disney bought Fox, we can continue to extrapolate on the future of this transaction:

  • Will Disney become the largest entertainment streaming company by 2025?
  • Will Disney create a Super Heroes theme park with Captain America and Wolverine hand in hand (haha!) together?
  • Will Disney buy back the rest of Hulu (which it will own 60% of) to use this platform for its streaming services?
  • Will there be an antitrust law for movies as Disney will clearly dominate the top 10 blockbuster year after year?
  • etc. etc.

The problem with these kind of statements is that they are built from thin air. This is not an investment theory, it’s just pure fan speculation. I can argue all day about the possibility of the Habs trading Paccioretty to finally get the #1 center we need, this is not going to do anything good in the real world.

While I like discussing potential trades in the hockey world, I don’t find it fit for a financial discussion. Why? Because I have no power whatsoever on my favorite hockey team, but I have full power on the money I invest. Therefore, the more I speculate on possibilities, the further I get from a serious investment thesis that could be useful for my portfolio.

Speculating on what is going to happen between Disney and Fox was useless at this point. The whole world knew about this possible transaction 2 months ago. Moves from investors have been made toward both companies. As a proof, DIS stock was -0.21% after 2 hours of trading the day it announced the transaction. No surprise here, no fluctuation on the stock market either.

There is a difference between speculation and getting perspectives

We could discuss a million possibilities of mergers & acquisitions for several companies. I don’t think investing my money in regards to those kinds of speculations is a good idea. I’d rather focus on getting perspectives of what is going to happen. In fact, when we invest, we take a bet on the future. A bet that the future of the stocks we hold will perform well. This is a form of speculation.

But when I determine my investment thesis, I don’t do it based on possible transactions that could happen in the future. For example, the reason why I think Disney is such a great company is the fact that it owns an infinite content universe through Pixar, Marvel and Lucas Film. Combined with its unique ability to transform one idea into multiple income streams, you get a company that will generate robust cash flow for decades. In order to spice things up, I expected other acquisitions in the upcoming years. Regardless if it is Fox, Lego (have you thought of this one?) or a move in the video game industry, I know that Disney is good at integrating new characters in their business model. I don’t need to speculate on which one will be chosen, I just need to know that Disney can use potential acquisitions as a growth vector. This is exactly what happened in this situation.

Focus on effectiveness

There are too many data and too many stories to read, analyze and digest each day. Instead of going from one “hit story” to another, I’d rather keep my focus on effectiveness. I use my 7 dividend growth investing principles to determine potential candidates for my portfolio. I leave speculations to my hockey talks!

The post Don’t Speculate and Wait for the Facts appeared first on The Dividend Guy Blog.

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