FOOL ON THE HILL: An Investment Opinion
Valuing Vision

Success takes drive, vision, and the willingness to take risks. These aren't traits corporations have. They're traits individuals have. From Lou Gerstner's reformation of IBM, through Warren Buffett's transformation of Berkshire Hathaway, to Walt Disney's invention of the modern theme park, individuals are often the driving force behind worthwhile investments.

By Rob Landley (TMF Oak)
August 28, 2000

Apple Computer's (Nadaq: AAPL) recent resurgence is due to one man. It got Steve Jobs back. He gave them the iMac, pushed for new Unix based servers (OS X), and gave the company something it hadn't had in years: a clear sense of direction. Despite the company's multibillion dollar manufacturing facilities, loyal customer base, and decades of entrenched brand name, the difference between success and failure lay in simply knowing what to do next.

I haven't personally invested in General Electric (NYSE: GE) because Jack Welch announced plans to retire about the time I started seriously looking at the company. This is THE largest company on the planet (despite the price-to-earnings ratio the market may choose to bestow upon Microsoft and Cisco), and I'm basing my decision to invest on one man? Yes.

IBM (NYSE: IBM) before Lou Gerster was stuck in an almost terminal rut. It needed someone to lead it out of darkness and had to go outside the company (to Nabisco) to find him. Similarly, Berkshire Hathaway (NYSE: BRK.A) would still be a tiny local outfit knitting socks (if it was even still in business) if Warren Buffett hadn't profoundly changed the way that company does business.

Jim Clark founded Silicon Graphics, but was ousted by its board of directors. (That company later lost focus and nearly destroyed itself.) Clark went on to co-found Netscape Communications, which he sold to America Online (NYSE: AOL) for several billion dollars, and in February his new company, Healtheon (Nasdaq: HLTH), went public and hit a billion dollar market capitalization. That's three billion dollar companies from one man.

But the best example of this kind of thing is the way Walt Disney created Disneyland. He got the idea from his animators, who were model train buffs and got Walt hooked too. In the 1940s he had a rideable miniature train built in the yard of his home, and when his guests enjoyed riding it at parties he got the idea of building a whole amusement park full of rides that vacationers coming to Hollywood would be willing to pay to visit.

Although Walt was co-founder of a successful animation studio (which had already made a name for itself with Snow White and the Seven Dwarves and other now-classic animated films), he couldn't convince the board of directors (including his own brother, Roy Disney) to fund his new idea. Back then amusement parks were the worst kind of sleazy sideshow carnival. A clean family-oriented theme park was a brand new idea, which Disney's Board of Directors just couldn't grasp.

So Walt Disney sold his house, drained his savings, and cashed in his life insurance. Not to fund the park -- that still wasn't enough money. This was just to fund the research necessary to put together a good proposal. To pay for the park itself, Walt found corporate sponsors who were willing to pay for rides and exhibits, and although he'd turned down offers to do television series before, he now made a deal with the brand-new last-place ABC television network. ABC was desperate for content to attract viewers, and Walt needed funding for his theme park idea. The new show was called "Disneyland," and ABC bought 34% of Walt's new company, Disneyland Inc. (If you're wondering why Disney (NYSE: DIS) now owns ABC, its history dates back to this deal.)

Only after all this did Walt's brother Roy Disney and the rest of the animation studio's board of directors decide to hop on board their founder's crazy project and merge the theme park project back together with the animation studio. Although his new Hollywood theme park was a great success, Walt still wasn't happy (he hadn't had nearly enough money or land to do it right), and commissioned a second park on thousands of acres of cheap land in Florida. By this time the Disney board of directors was smart enough to back him, resulting in Disney World and later Epcot Center.

This is why it's called The Walt Disney Company rather than The Roy Disney Company. Roy may have had the accounting skills we prize so highly when evaluating companies via balance sheets and cash flow statements, but Walt had the ideas and drive that made that company what it is.

Investors, like many types of corporate management, often try to treat employees as interchangeable parts. Knowing when that's not the case is an important part of understanding how businesses really work.

- Oak