Disney (DIS), Berkshire Hathaway (BRK) and the discounting mechanism


This is Wall Street jargon for the investor process of factoring into today’s prices the effects of anticipated future events.

old school

Pre-2009, legions of experienced securities analysts and portfolio managers pored over company SEC filings and put that information together with their industry and business cycle knowledge to make reasoned projections of future company profits–and of possible stock performance if their guesses were right.

In bear markets, investors paid little attention to the future.  In bull markets, this is the time of year investors would begin to adjust their thinking not only for this year’s possible profit gains but next year’s as well.


in the AI world

I don’t know yet.  But I think this is a crucial thing to try to figure out.

recent data points

BRK had its annual investor event last Sunday.  When I entered the stock market in 1978, CEO Warren Buffett, professional investor and disciple of Benjamin Graham, was already an investing legend.  This was based on his earlier-than-everyone-else understanding of the value of intangible assets like brand names and distribution networks.  The last fifteen years or so have not been especially kind to Mr. Buffett, but he remains a legend nonetheless.  Anyway, at the meeting Buffett announced that BRK had sold its entire $6 billion stake in major domestic airlines.

Those stocks fell by about 10% on Monday.  Why did he sell?  My simple answer is that airlines need to sell an average of 70% of their available seats to break even on a financial reporting basis.  That’s impossible to achieve while social distancing protocols are in effect–and unlikely, I think, even when those are lifted.

But who didn’t know that before Sunday?  Monday’s price action indicates there certainly was someone.


DIS reported March-quarter results after the close yesterday.  Y-ear-to-date, DIS has underperformed the S&P, although wildly outperforming other leisure and entertainment companies (softer fall, more muted rebound).  This is partly, I think, (justified, in my view) admiration of the company’s transformation under CEO Bob Iger, partly the possibility that the DIS streaming service will be a success.  While investors haven’t been particularly positive, press coverage has been uniformly upbeat.

In yesterday’s conference call, the financial press”learned” that the company’s theme parks are closed, movie theaters are shut and ESPN is showing reruns of old spelling bees and writing about Korean baseball because there’s no live domestic sports.  the company also decided to halt the dividend for now.  Financial press coverage has turned sharply negative.

in early trading today, DIS is flattish.  It will be interesting to see how it finishes out the day.

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