I once caught a bird and a fish at the exact same time while fishing. Honest! I've told this "fish story" before, but it doesn't get old more than 10 years after it happened -- and it has some important lessons for investors.
Here goes:
I felt the fish tug on my line one day while fishing in Montana, but was surprised to feel the line pull in a different direction simultaneously. It turns out that a small bird that was dive-bombing for insects got one its wings tangled in my line and was desperately trying to escape just as a trout was trying to steal my bait.
What a dilemma! I wanted the trout, but I didn't want the bird.
So, my fishing buddy and I carefully pulled on the line to free the bird before the poor thing became injured, and as it flew away, I turned my attention back to the trout. The fish was a beauty, but it wiggled free just as I was pulling it out of the water.
The moral of the story: I wanted the fish, but not the bird.
How does this relate to investing? Simple -- we as investors sometimes come across companies that operate multiple businesses or assets, but we don't necessarily want to own them all. One of these businesses or assets could be the company's "crown jewel," but others don't seem nearly as lucrative to us.
This is where you often see activist investors get involved. They might compel company management to sell peripheral assets or underperforming businesses to focus on what a firm does best (or most profitably).
Consider the case of Alexander & Baldwin (ALEX). ALEX once owned a compelling portfolio of Hawaiian real estate, but also ran a shipping business called Matson (MATX) that traded separately.
I'd taken a position in ALEX years prior primarily due to the company's real estate assets, which were the "fish" to me (i.e., what I wanted). But I didn't particularly care for the "bird," which was the shipping business.
Ultimately, ALEX and MATX split in 2012, giving investors the opportunity to focus on just one business or the other if that's what they wanted. In this case, MATX has strongly outperformed ALEX since the firms' separation, so the "bird" turned out to be more valuable than the "fish" (although I no longer own either stock).
A more recent example of this occurred last year when Tegna (TGNA), formerly known as Gannett (GCI), spun off its newspaper business (which kept the "Gannett" name and GCI ticker symbol).
Investors can now choose between Gannett -- which owns USA Today and other seemingly antiquated newspapers -- or Tegna, which owns 46 TV stations and several modern and profitable digital-media businesses. I've maintained small positions in both, but the separation of these vastly different businesses has given investors the opportunity to pick and choose which one they want.
This fish-and-bird phenomenon has created several interesting situations in the great underworld of "deep value."
Let's look at farming giant JG Boswell (BWEL), which is one of America's largest farming firms. BWEL owns 142,000 acres (222 square miles) in Southern California's Tulare Lake region, plus additional land in Australia.
The company's farming operations (primarily cotton) are profitable, but that's not the main reason that I've owned BWEL for more than a decade now. To me, Boswell's "fish" is the firm's vast water rights, which I believe could be worth many times the stock's current $650 million market cap.
Of course, whether this asset will ever be separated and/or monetized remains to be seen. But therein lies one of the great dilemmas of investing -- sometimes you have to buy the "bird" with the "fish" and simply hope for the best!
