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Circle of Competence Issue #36

Quote of the week: "Laughter is America's most important export." - Walt Disney


The life of Walt Disney

This past weekend I visited Disney World in Orlando, FL with my in-laws. As a curious investor looking from the outside in at this marvelous creation of Walt Disney's, I wanted to write some thoughts about Disney's creative genius and the development of his massive media empire. It was hard not to notice the signs at Disney World of Walt Disney's creative restlessness, always wishing to be doing more, driving the future forward, and imagining what was possible. I also took note in the Hall of Presidents, the Carousel of Progress, and the Liberty Show how apparent it was that Walt loved America and her ideals of liberty and freedom. I began to have one overarching question form in my mind: "how did one man accomplish all of this?"

Walt was very creative and entrepreneurial from an early age, learning to draw cartoon drawings by his early teenage years and working a paper route as a young boy through high school (sounds familiar - Warren Buffett?). As he came into his late teenage years, he lied about his age and joined the WWI fight in 1918 as an ambulance driver for the Red Cross. As fate would have it, another one of his close compatriots in the company was Ray Kroc, founder of McDonald's. They would remain close friends until Disney's death in 1966.

If you can dream it, you can do it

After the war, Disney hopped around from job to job, making ends meet, when he finally found his break and signed a contract with Margaret Winkler to create six episodes of Alice's Wonderland. The Disney Brothers' Studios - later to become The Walt Disney Company - was born. In 1928, after negotiations with Universal Pictures went sideways (Disney wanted a larger share of the profits for creating Oswald the Lucky Rabbit's character) and most of his staff left for Universal, he had his first stroke of true brilliance - the creation of Mickey Mouse.Within 5 years he had won an Academy Award and his illustrious career began to take off. His studio began churning out award winning movies one after another:

1933 The Three Little Pigs

1937 Snow White

1938 Pinocchio

1940 Fantasia

1941 Dumbo

1950 Cinderella

1950 Treasure Island

1951 Alice in Wonderland

1952 Robin Hood

1953 Peter Pan

and the list continues.

Disney was never afraid to bet big. In 1941 his company was deep in debt and had lost money due to declining revenues in Europe (40% of revenues at the time) during WWII. Disney had bet the farm several times on various films and had succeeded, but this time the bill was coming due. To keep the studio afloat, he decided to issue the company's first public stock and cut salaries. This caused significant rifts with his animators in the studio which would strain relations permanently. While producing animated movies was his business's bread and butter, he began dreaming of his next big splash - parks themed around his animated films' characters.

Using intellectual property as currency

Disney had been thinking of and dreaming about a theme park that would support his studio's films and character's intellectual property. The project, however, required significant capital. In order to begin attracting the necessary capital, Disney self funded the designs of the park and obtained some bank financing before taking the plans to outside partners and investors. In order to attract one of the larger equity partners, ABC, he promised that the equity investment in the park was contingent on a Walt Disney cartoon show being aired on ABC networks. This was an interesting joint venture that showed Disney's creative ability to structure a deal that 1) helped obtain the financing he needed as well as 2) expanded his media reach - all at other people's expense. Construction began in 1954 on Disney Land and was finished in July 1955, when it opened for the public.

He began to develop plans for another theme park, Disney World, in 1965 and began courting sponsors for the futuristic Experimental Prototype Community Of Tomorrow (EPCOT). He had the plans drawn for both developments, but unfortunately he developed severe lung cancer that cut his life short in 1966. EPCOT was eventually developed into a theme park of Disney World under the leadership of his brother Roy Disney, and Disney World was opened to the public in 1971. Roy dedicated the park's opening to his brother and his legacy.

From humble beginnings, Walt Disney used his creative genius to recognize the current technological trends and take full advantage of them (animated media) and structure financing deals that would allow him to use his intellectual property as collateral (theme parks and media). Today, The Walt Disney Company (DIS) sports a $170 billion market cap, netted $9.3 billion in profit in 2017, and paid almost $2.5 billion in dividends to shareholders in 2017. Just recently in July of 2018, Disney shareholders approved the Fox media merger for $71 billion. A media empire, indeed.

Walt Disney was one of the preeminent creative geniuses of the last 100 years, creating scores of animated film classics, massive theme parks, world class resorts and setting the foundation for what has become the Walt Disney Company's media empire today. His beautifully positive outlook on life can be succinctly summed up by the lyrics of the song he commissioned for the Carousel of Progress in 1964 - There's a Great Big Beautiful Tomorrow:

There's a great, big, beautiful tomorrow Shining at the end of every day, There's a great, big, beautiful tomorrow And tomorrow's just a dream away.

The Walt Disney Story (Documentary)


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- Deep dive - sources of capital in real estate private equity (Adventures in CRE)

- The surprising power of the long game (Farnam Street)

- What investors can learn from gamblers (Jason Zweig, WSJ)

- Humble exits (Morgan Housel)

- The story of John Mackay, the bonanza king (Intelligent Fanatics)


- The future of interest rates & more with David Stockman on the real estate guys radio show

- Jim Millstein discusses the FED & AIG's restructuring on Masters in Business

- The next subprime and more on Ben Carlson & Michael Batnick's Animal Spirits

- Lessons from Richard Branson with Preston Pysh & Stig Brodersen


- Excellent investment mental model - creating consumer surplus (Fred Wilson)

- Why everyone was wrong about Tesla's cash flow situation (ArsTechnica)

- With more DNA potentially everyone will be identifiable (Bloomberg)

- Tim Cook warns of 'Data Industrial Complex' in Brussels speech (The Verge)

- How blockchain could transform real estate (NAREIT)

- Why IBM paid $34B for a company that gives software away for free (Popular Mechanics)

- Waymo is granted permit for totally driverless cars in California (TechCrunch)

- GM says they are on track to roll out autonomous vehicles next year (NYT)

- Lyft just started a monthly ride hailing subscription service


- has raised funding to bring AI to real time data in the insurance field

- Coinbase raised another $300M to help the 'acceleration of crypto assets' and jumps from $1.6B to $8B valuation in one year - bubble yet? (TechCrunch)

- Astroscale raises funding to remove space debris for satellites and other space vehicles

- DeepMap raises at least $60M to expand its service of HD maps for self driving cars (TechCrunch)

- VICIS raises $28.5M to launch its youth football helmet aimed at reducing brain damage

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