BLOCKBUSTER: GOOD LESSON FOR TRUSTEES

Yesterday’s Wall Street Journal, www.wsj.com, reported on the status of Blockbuster Video, since it was acquired by Dish Network. “Bye-Bye for Blockbuster” reveals that its parent company will close the last Blockbuster stores, reports Wall Street Journal reporters Martin Peers and Shalini Ramachadran. Blockbuster’s demise is a great lesson for trustees, who invest and re-invest billions of dollars of family wealth for trust beneficiaries. While investing for the long term is a hallmark of such legendary investors as Sam Zell and Warren Buffet, don’t take your eye off the ball. Investing for the long term does not mean that you ignore megatrends and what’s going on in the industries where you have chosen to invest trust assets. Blockbuster was in every neighborhood strip mall in the 90’s, packed with customers, offering tapes and popcorn, candy, and access to all sorts of great movies and entertainment.

I remember walking the aisles of a Blockbuster, seeing what was in, and on the shelves, and what great films were coming soon. Blockbuster had amazing cash flow. In the early 90’s, I remember the number of movies I rented not only from the neighborhood video rental store, but also from the local supermarket that then had a video rental department right in the store. Block Buster put the local video rental store out of business and also shut down the video counter at the supermarket. We preferred to go to a specialist: that chain with the neat name and bright blue and yellow logo where I could walk down an aisle and see recent releases and old classics. Then came the DVD. And Netflix. And home delivery. And satellite downloads. Now we don’t have to leave our living room to get what we want. We grab our remote and see what film we may want to download without ever getting into our car and visiting a strip mall or supermarket. Everything is different now. Investing for the long term is fine and often preferred for many. But trustees have a duty to monitor their investments on an ongoing basis. This duty of constant vigilance also requires a trustee to have the discipline to exit an investment when the horizon looks stormy. After all, we don’t invest in buggy whip companies anymore, nor do we look at railroads today as we did at the turn of 19th century. No ostrich investing. Just because something looked good and has performed well for many years does not guarantee that things will remain the same. In our VHS, Block Buster, DVD and Netflix example, the winds of change blew quickly, not rewarding the investor for patience or “stay the course” mentality. No, trustees, like individual investors, need to look around and do more than just see how things are going: if you invest in an individual stock, you need to understand what’s happening and why. What that particular company is doing in that particular industry at that particular time. While you can’t predict the future and see what lies ahead you do need to comprehend how your competitors and technology are affecting you. Predict that Netflix would rock the movie world? No. Understand that your cash flow is declining, rentals are decreasing and customer visits to stores are falling? Yes. Avoid investing trust funds in companies or investments just because they have a famous investor or CEO. Many trustees make the mistake of investing alongside a brilliant business person, believing that he or she should know what they are doing. Fair enough. But that’s not an investment strategy. If you don’t have the time to develop a strategy or research what to invest in , you need to resign as trustee or hire an investment agent. We don’t want a trustee’s fortunes to turn like Blockbuster’s did.