Harry DeMott left a lucrative eight-year post as a director and media and communications equity analyst at Credit Suisse First Boston a year ago to launch his own investment firm, Gothic Capital Management, just days after the NASDAQ peaked.
Although his timing couldn’t have been worse, his new fund is making money in a down market.
Mr. DeMott and his co-founding partner, Brendan Maher-a former senior associate at Fidelity Management and Research and onetime First Boston analyst-call themselves “long-term, contrarian value investors.”
The company portfolio so far has been dominated by public and private media-related, domestic, small and midsize capitalization companies. Gothic’s brochure says it has realized its biggest gains from SBA Communications (41.5 percent) and Getty Images (55 percent) and made its biggest mistakes with Imax (down 70.8 percent) and Daisytek International Corp. (down 41.6 percent).
EM: What are your thoughts on juggernauts such as AOL Time Warner and Viacom?
Mr. DeMott: We’ve gone from a situation in the broadcasting world and, in fact, in the entire advertising world, of having years of increasing visibility as companies consolidated and as the dot-coms rose. And all of a sudden, starting the second half of last year, you’ve got zero visibility.
Viacom has more dependence on advertising-and national advertising-than any other media company.
AOL Time Warner has a much tougher row to hoe. Selling across traditional media is easier and more powerful than selling across new and old media, like going to cable and broadcast television to the Internet.
But the chance of them hitting their $11 billion target earnings this year without huge amounts of cost cutting is zero.
EM: Where did you get the name for your company?
Mr. DeMott: I had been in Europe and saw a lot of these Gothic cathedrals and studied them in art classes. Gothic architecture always pushed the envelope. These were structures that in some cases took three or four generations to build. So the guy who started it never lived to see it finished. How many people can think that long-term? My view on life is long-term. I want to build something that lasts a long time.
EM: Why did you leave?
Mr. DeMott: I like working for myself. I get to do exactly what I want to do every day of the year. The parts of the job I don’t like to do, I don’t have to do. I never liked writing reports. I didn’t like marketing to clients around the country. But I did like the investment banking work mainly because it was talking to companies and CEOs about what they were doing, what they wanted to do and how they were going to get there. I liked to kick the tires and get to know the people. That’s what I get to do every day.
EM: Describe your portfolio.
Mr. DeMott: We have a primary focus on media. We also own a few other things like Tricon, which owns Kentucky Fried Chicken, Taco Bell and Pizza Hut. We’re value-focused. We’ve owned American Tower, Clear Channel and Viacom. We’re very big on EchoStar, Metromedia Group, Pegasus and GMH.
We don’t feel like we have much of an edge in some of the larger media companies with 40 analysts covering them; we’re spending a lot of time with advertising agencies and newspaper stocks. We’ve been spending time figuring out the ramifications of deregulation for all forms of media. It sounds like the [station ownership cap is] going to 50 percent, newspaper cross-ownership is going away, the one-network rule is going away. Ultimately, it’s just going to be a free-for-all.
EM: How hard is it to raise funds in this market?
Mr. DeMott: It’s hard. But the good news is that our returns have been good. Last year we were up about 131/2 percent, and this year to date our public investments in about 20 companies is also up about 13 percent. Even with stocks down this year, we’ve made money.