An investor who bet $1 million in 2003 on Douglas County cable magnate John Malone and Liberty Media, his holding company, would have grown that stake to $4.6 million.
That works out to a return of 11 percent a year versus a return of 8 percent for someone who parked their money in an S&P 500 index fund, said Chris Marangi, a fund manager with Gabelli Funds.
Marangi, an analyst who got his start covering media and telecom stocks, has studied Malone for so long that he now runs Gabelli Media Mogul NextShares, an exchange-traded managed fund that tries to replicate Malone’s approach.
Malone’s magic formula, as described by Marangi, is to invest within your circle of expertise, recruit and retain top talent, use leverage as efficiently as possible and when it comes to taxes, pay less and pay later.
“He is probably the most tax-savvy of investors, rivaled only by Warren Buffett,” said Marangi in a conference call on Thursday.
Malone is also a master of financial engineering, spinning off new companies and tracking stocks left and right to unlock more value for shareholders. The original holding company and its successors have spawned 26 companies and 47 securities, with more expected in the years ahead.
The market value of those separate holdings is $487 billion, according to Marangi. That is not far behind the $495 billion in the market value of Berkshire Hathaway, Warren Buffett’s holding company.
Unlike Malone, the Oracle of Omaha prefers to keep his holdings under one tent. Berkshire Hathaway has averaged annual returns of 9.3 percent since 2003, according to Bloomberg.
If Malone and his team can maintain their relative return advantage, they should be able to surpass Buffett, although it will be hard for the public to grasp that has even happened.
Liberty Media’s holdings are concentrated in four buckets. There remains a legacy group of cable and broadband holdings that include a large stake in Charter Communications, the country’s second-largest cable provider. There are content providers like Discovery Communications and Lions Gate Entertainment, which in turn owns the cable network Starz.
There are holdings in e-commerce companies such as TripAdvisor and Lending Tree and shopping networks that are both on cable and online.
Live entertainment holdings represent perhaps the most interesting group of stocks when it comes to unlocking future gains, Marangi said. That bucket includes Formula One Group, concert promoter Live Nation, the Atlanta Braves and a stake in satellite radio provider Sirius XM.
Shares of Liberty Sirius XM Group trade at a 36-percent discount to the underlying company, meaning more gains could be unlocked there, Marangi said. And there is also more value to be had in the Atlanta Braves baseball team.
The tracking stock, Liberty Media Corp.-Braves, has a market value of $1.6 billion, with another $410 million in debt, Marangi said. But he adds the baseball team alone is worth $2.2 billion, with another $400 million in real estate holdings and $200 million in league-related assets.
That works out to a value of $2.8 billion, or the equivalent of $40 a share compared to the price tag of $26.75 a share that investors put on the tracking stock on Friday.
Some ways to unlock that value would be for Malone to spin off the Braves into their own separate company or to put the property holdings into a separate real estate investment trust.
“Liberty Media has shown a propensity to reinvent and redefine itself,” Marangi said, adding he expects it will keep doing so.
