A Textile Business and The Rest of the Story

I always enjoyed listening to Paul Harvey and his radio segments, The Rest of the Story.  I don’t have his voice or his patience for crafting an elaborately detailed, yet masked story, but…

It’s the early 1970s and a young man owns a textile business in the northeast.  He wants to change directions because he can see clearly that textiles are not in his future.  He buys a different business at a cheap price with some valuable assets, but one in constant need of cash infusions.  The business is fun and exciting, but far from profitable.  After a few years of cash flow negative operations, another company would like to merge.  He is hesitant because he loves the business and sees potential in the future.  He decides to sell, receiving about what he paid for the current assets, but also negotiating the right to share in certain benefits in the future combined company should these opportunities materialize.  And the kicker, this right to receive future profits on these opportunities is in perpetuity.  Over the course of the next 38 years, these opportunities slowly begin to materialize and he receives approximately $300m on his $1m investment from 1974.  In 2014, he is paid an additional $500m as a buyout for the perpetuity rights from the 1976 contract.  For the last 40 years, this investment has required zero assets, zero liabilities and probably only the services of a tax accountant.  It is know in some circles as the greatest sports deal of all time and it wasn’t done by the Oracle of Omaha.  There were actually two brothers, Ozzie and Daniel Silna. The opportunities that materialized were the television/media rights, which in the 1970s didn’t exist.  Well, the rights did, but there were no revenues.

I enjoy stories because you can take away a message applicable to your own life.  This story has a message for me.  I don’t believe the investment world rewards activity.  Failure will inevitably happen, mistakes will be made, but I believe mistakes are more common when you are required to make lots of decisions.  I prefer to make a few decisions and try to make sure failures are something that I only get to read about.  Lots of people are out there busy making experiences for me to read–my contributions are not required…

You can read about the rest of the Silnas’ story here and about the buyout here.

 

 

For further listening, here are the archives of Paul Harvey’s radio shows.

More to Explore

Returns for Great vs. Bad Businesses

Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.

Leave a Reply

JOIN THE SOVA GROUP DISTRIBUTION LIST

Close Menu