“Change is the only constant” is hardly a new sentiment, but it occurred to me after my rantlet (small-scale rant) on Monday that there might actually be something useful to learn from the situation. “Learn” might not be the best word; maybe the phrase “develop a deeper understanding of” or “get a new appreciation for” might be more suitable. Semantics aside, considering the decline of newspapers can lend some valuable investing insight. Simply put, don’t get too comfortable with any of your investment strategies or any of the companies you invest in. Eventually, change will come and if you’re not ready for it, it’ll knock you off your feet.
Because they’re so clever with oblique references, investors refer to companies that produce out-dated products as “buggy whip makers”. The metaphor is apt. As the world changes, the quality and price of a particular item becomes irrelevant if there is no more demand for it. Since the introduction of the new-fangled “horseless carriage” the buggy whip market just hasn’t been the same. So it is with VCR, typewriter, and slide rule makers. The lesson here for all long-term investors: There is no such thing as a future-proof company.
Change is the only constant
To bring you up to speed with regards to Monday’s post, following the example set by several other major North American newspapers, as well as many of their own editions earlier, Postmedia put up paywalls on all of its remaining papers last Tuesday.
The paywall follows two earlier actions within the past twelve months that also upset a lot of people. First, rural door-to-door delivery was cancelled. Second, the Sunday edition, a big part of many people’s Sunday ritual, was axed.
Of course – and this is the key – these changes were not welcomed by anyone, least of all Postmedia itself. As more and more people live their lives online instead of on paper, advertising revenue has migrated away from print media, and subscription rates have plummeted. All of these changes were forced on the industry by a changing world.
This is hardly the only example of a formerly formidable company falling on hard times. I remember pointing out to my wife a few years ago the decline of the Yellow Pages. I held up three editions that had been dropped off at our door over the past few years. Each one showed an obvious reduction in size from the previous year. (Unfortunately, after I waved the phone books around in the air, I threw them out, so I can’t take a picture to prove my point. Rats.) These days, if I’m not mistaken, if I want a copy of the Yellow Pages, I have to request it, and when it shows up, it’s a very pale shadow of its former self.
And now we come to the point
Yellow Pages (YLO.UN) and Canwest (CWM.UN) used to be two stalwarts of the income trust industry. As short a time as ten years ago, many people would have scoffed at the idea of either of these two companies running into financial problems. Don’t try to look up either of these ticker symbols, by the way. After an epic fall in share price and revenue, and slashing and eventually eliminating the dividend, YLO.UN re-organized itself, and now trades as Y. Canwest, after spinning off what it could, including what is now Postmedia, renamed itself “2737469 Canada Inc.” and entered bankruptcy proceedings in late 2010 or early 2011. Even two of the big three American auto companies would have gone under recently if Canadian and American governments hadn’t poured billions of dollars into them. Prior to that happening, it would have seemed impossible for those companies to have gotten themselves into such dire straits.
There are many lessons to be learned from watching these formerly mighty companies. The one that is resonating most strongly with me right now is that nothing – no company, at any rate – can be counted on to last forever, so don’t put your head in the sand and deny the inevitability of change. If you do, you run the risk of being taught this potentially very expensive lesson again and again.