Four decades of investing with Gordon Crawford
- Gordon Crawford
- Portfolio manager
- Based in:
- Los Angeles
- Investment experience:
WILL MCKENNA: Can you give us some examples of some of your most successful investments over that period — and then maybe some that didn’t work out as well — and what you learned from both of those kinds of experiences?
GORDON CRAWFORD: Sure. Well, probably my most successful investment involved one of the executives that I have an enormous amount of respect for, and that’s John Malone. John, for years, headed up Tele-Communications [TCI], which was the biggest cable company in the business. In the 1990s he decided to spin off Liberty Media, which was a collection of all of his programming and cable-network assets.
And he did it in typical John Malone fashion. It was a very complicated split-off really, not a spinoff. They set up a very complex process where they set an exchange ratio between Liberty and TCI, and then you had to agree to take some of your TCI shares and actually trade them at that exchange ratio for Liberty Media. And Liberty Media, again, was complicated. It was a lot of minority interest; people didn’t understand it that well. The prospectus was that thick, and most people, frankly, didn’t really do the work on it. If you dug through all the pages of the prospectus, he put very low valuations on these assets, because none of them were traded publicly, and then he put a big haircut for liquidity on them, so you were actually getting them at a very, very cheap level. So I thought it was an enormously attractive situation.
So as a group, we owned, like, 15% of TCI. We decided we still loved TCI — we didn’t want to give up our ownership there — so we went out in the open market and bought enough TCI to submit into this split-off so that we’d own 15% of Liberty Media as well.
At that time we said we’d only own 20% of a company. I got a call from John about two days before the deal closed, because he knew what I was doing, and he said, “Gordy, less than half the people are going to exercise their rights to trade into the split-off, so you’re going to own, like, 43% of Liberty Media.” And so I went back; I talked to our lawyers. We figured out that actually the rules as they’re set up internally are 20%, but it’s based on votes. And because this was an AB stock, we were only going to have 12% of the votes.
And so on Day One, we owned 43% of Liberty Media. And I don’t think for a couple of months it ever had a down day, because everybody that owned it had jumped through hoops to get there, so there were no sellers. People finally figured out how valuable these assets were and how undervalued they were. And over the next few years, the stock went up — I think 20 times. So it was an enormously successful investment.
WILL MCKENNA: In the interest of being fair and balanced, [were there] any that didn’t work out so well? And what did you take away--?
GORDON CRAWFORD: I’ve had a lot of disasters in my career. We owned over 10% of Time Warner, which at the time was the greatest media-and-entertainment company on Earth. And we had done very well on it. And then they announced the merger with AOL. And I did not foresee the collapse of AOL. A lot of it was just my fault in not recognizing that AOL, which was based on a dial-up service, was about to get seriously hurt by the advent of broadband, which was controlled by the cable companies. And so we ended up losing a lot of money on that, from that period: the top of Time Warner to when it bottomed.
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