In 2009 with the All Ordinaries at about 3,700 I bought a number of parcels of Australian shares. I used to be an avid ‘stock-picker’. I would read the paper and listen to the news. I would follow particular commentators and economists and even subscribed to a stock-picking service.
One of the quality stocks I purchased at that time was Channel Ten. I purchased the stock at the same time Lachlan Murdoch acquired a significant interest in the company. “If it’s good enough for Lachlan, it’s good enough for me” I thought.
I don’t own the stock any more, having cut my losses some years ago and evolved past the folly of individual stock picking, but there is still an ‘in joke’ with some of my friends that ends in “Don’t start me on Channel Ten!”. A few factors have contributed to the poor performance and eventual administration of Channel Ten over the last eight years. Some are obvious, some are not so obvious.
It’s a tough time for all media right now; at Fairfax, another round of reporters have taken redundancies as private equity circles. News Corp have been bleeding money and laying off photographers and subeditors, while remaining staff were reportedly told the company “is in a fight for its life”.
Most recently, Channel Ten went into administration when the major shareholders Lachlan Murdoch and Bruce Gordon refused to guarantee a new loan for the company. This likely won’t spell curtains for Ten as a whole but it will likely spell curtains for Ten’s smaller shareholders. And those smaller shareholders could be a little cynical given those larger shareholders have since made a bid to acquire the company themselves.
After the share price tumbled 82% this year. After they refused to guarantee Ten’s debt. After they watched Ten go into administration. To be fair, these are business decisions. My only interest in Channel Ten was to make money and it would be hypocritical for me to think others shouldn't view the company the same way. We would all rather acquire assets at a serious discount verses paying top dollar.
The lesson? The interests of large shareholders don’t always align with smaller individual shareholders. Sometimes our hard-earned capital is considered expendable because we have little else we can bring to the table – being significantly more capital to invest or political weight to influence outcomes for the business.
Ten itself hasn’t been the most stable of companies through the years, even before the recent difficulties for media companies. The internet has disrupted the flow of advertising dollars to traditional media companies and delivery methods, such as streaming, have more recently eaten away at traditional TV audience figures.
Competition and technological change have pressured companies to be better, get bigger or simply fail for hundreds of years. Investors don’t always see these changes coming and the right management may not be on hand to ensure companies respond adequately.
The lesson? Being a shareholder of any company means full exposure to the ongoing market disruptions and challenges that company faces. This means higher levels of risk and most certainly higher volatility than you would experience owning one of our diversified portfolios that contain small pieces of thousands of companies.