Yet the executive team is packed with loads of talent They have been with the

Yet the executive team is packed with loads of talent

This preview shows page 87 - 90 out of 283 pages.

Yet the executive team is packed with loads of talent. They have been with the company for years and have a specifi c vision of where they are going. Additionally, they are determined to re- turn cash to shareholders through dividends and billions of dol- lars worth of share repurchases. Cheers, mate. Entercom—Radio Killed the Portfolio Star? We’re certainly not immune to mistakes. While we’ve had more successes than failures, Entercom stands out as one we wish we could take back. Entercom is one of the largest radio station owners in the country, with more than 100 stations spread across 23 U.S. mar- kets. The big miss here was that we overestimated the company’s competitive position. We thought it was stronger not only in the local radio space, but also against the plethora of substitute forces like satellite radio, iPods, and Internet radio. Now, in a world where advertisers have many ways to reach potential buy- ers, local radio no longer mea sures up as it once did. The lack of a deep and growing competitive moat was our fi rst oversight.
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70 THE MOTLEY FOOL MILLION DOLLAR PORTFOLIO Our second mistake was overlooking the company’s weak fi - nancial picture, consisting of more debt than cash. It also was a rookie dividend payer, having started distributing cash to its shareholders just a few months before we recommended it. Add- ing some salt to the wound was the dual- class share structure that put voting control in the hands of the founding family. While their economic interest aligned well with shareholders, their lock on voting control quieted outside voices. In retrospect, it was obviously a mistake to recommend Entercom—what were we thinking? But this is how you become a great investor—by revisiting your winners and losers with equal intellectual vigor. In this case, we underestimated the competitive forces facing Entercom and its radio cousins. Earnings dried up, debt levels grew, and a once- cheap stock got cheaper. Ultimately we decided to sign off at a near 50% loss. That’s very painful—made less so, though, by our commitment to diversification. We’ve learned the lesson: Stick to growing businesses that have defensible competi- tive advantages. THE PIECE OF YOUR PORTFOLIO As an investor, you should build a diversifi ed portfolio including all kinds of stocks—stable dividend payers, small- cap unknowns, fast-growing rockets, and large- cap value plays. There is a place for all of them in your holdings. This is a driving principle of our book. Think carefully about how much volatility your brain can stomach. Well-regarded portfolio management author William Bernstein labels this fi nding your “sleeping point.” That’s the point at which you start worrying about your stock exposure. If you’re the type who will be pacing the living room in a bathrobe at 2 a.m. at the thought of a 15% single- day drop, you’ll probably want to skimp on the small- cap portion of your portfolio and load up on large- cap dividend stalwarts that you know, under- stand, and can follow.
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