Ya gotta have faith. But I don't believe in faith-based investing. I don't want to own a portfolio of do-gooders, because I tried that years ago at my hedge fund and a lot of do-gooders became no-good-nicks pretty much every quarter.
What I am talking about is having faith in certain CEOs simply because they have gotten it right in the past and deserve to get the benefit of the doubt for the good work they have done for many years on the job and many good quarters, if not years.
Prime example? Bob Iger at The Walt Disney Co. (DIS). Last time Iger reported, he delivered a good-looking quarter, not perfect, and didn't provide the blueprint that people were looking for with the purchase of Lucasfilm for $4 billion. Plus, there were worries when it came to the future of ESPN, even as he told you not to worry about it. He said that ESPN -- one of the most amazing properties in the world because it simply can't be DVR'd effectively -- would do fine in 2013. Given how ESPN has been responsible for so much of the earnings power at Disney for many years, this lack of clarity stunned investors and traders alike.
Consequently, the stock, which had traded as high as $53 before the call, plummeted to $47 as analysts, traders and investors showed a remarkable lack of faith in Iger's assurances. I thought the whole sell-off was insulting to Iger and assured people that this would be a tempest in a teapot, and an investible one at that. I told Iger that too, simply because I was astonished that this man, who has done so much good at Disney, didn't get the benefit of the doubt.
Fast forward to last night. Iger delivered a quarter that literally answered every objection and then some. First, he laid out a multiyear vision for Lucasfilm, including multiple Star Wars iterations, plus other Star Wars-derived movie and entertainment properties that nobody had really counted on.
You could tell that this acquisition is sounding more and more like Marvel II, a repeat of the amazing success of that acquisition. Oh, and don't forget that the Marvel-derived Iron Man 3 (sans my cameo in the first Iron Man) will be out soon to what I suspect will be blockbuster success.
Second, ESPN, instead of being soft, actually looks incredibly well set-up for terrific growth in 2013, running 7% ahead and maybe better as the year goes on. It is true that Monday Night Football was a bit of a downer in the last quarter of the year, in part because of the luck of the draw. They had some real dud contests. Alas, you have to take that risk in sports programming.
Finally, Disney has terrific upside in theme parks courtesy of new rides that always attract repeat customers.
While I am a total numbers guy, I still believe there is a CEO quotient that has to be applied to that price-to-earnings multiple to get through the tougher times and the disappointments. Iger has about the highest faith-to-stock-price ratio that I know of.
Oh, and he has good taste in birthdays. We share Feb. 10 as our date of birth -- a worthless factoid that I point out only because we are on the eve of the big event and gifts are always welcome.