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.
Image of page 87
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.
Image of page 88
DIVIDEND DYNAST Y 71
Image of page 89
Image of page 90

You've reached the end of your free preview.

Want to read all 283 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes