SeaWorld Entertainment Inc (SEAS)

[msmithgold]

$SEAS Thesis Wrong and Exits at a Loss

Broyhill Asset Mgmt - Was Wrong and Exited at a Loss

Theme parks are mediocre businesses; they earn low returns on capital and pile on debt to juice equity returns for investors; that being said, they have attractive characteristics such that buying at the right price can be very profitable
Thought we bought SeaWorld at the right price
Initiated a position in August 2014 at what we believed was the point of maximum pessimism (backlash from Blackfish)
Investment thesis correctly identified company’s animal rights challenges as a temporary problem likely to be solved via the passage of time
Recognized that heightened competitive environment represented bigger risk
Incorrectly assumed that the unique experience that SeaWorld has successfully offered for decades would be enough to differentiate the parks from Disney and Universal
Every investment cycle sows the seeds for its own conclusion; excess spending reaches a level which is unsustainable, and industry participants eventually figure out that if they cut back on ridiculous levels of spending, profits quickly improve
Assumed this cycle would be no different
Disney and Universal were spending like drunken sailors and new attractions at SeaWorld failed to drive the rebound in attendance we expected
Two years seemed like a sufficient time horizon for SEAS to get its house in order
Even though we bought SEAS at a bargain price, heightened competitive environment gradually eroded margin of safety
Lost money on SEAS but believe our judgment was sound; identified the primary risk before getting involved and bought with a sufficient margin of safety which limited downside risk
Over time, odds like this should shake out in our favor; a collection of investments with similar payoff profiles should result in quite satisfactory long-term gains

Great summary of Broyhill Asset Management's Letter: https://investoralmanac.com/2017/02/28/broyhill-annual-letter-trump-activepassive-investing-seaworld/