Q&A: Omaha's Other Oracle

Then this June, after some earnings misses, the stock got to around $28, which was only 11 to 12 times our estimate of this year's true discretionary cash flow. So we finally started buying it heavily at the end of the second quarter. We think the ADT security business is a sleeper and with just a little growth will turn into a cash-flow machine. We believe Tyco will achieve its goal of 12% free-cash-flow growth over the next several years -- with that cash-flow growth, stock buybacks and some P/E expansion, we're confident the stock can grow 50% within two or three years. This is an example of a "fallen angel" we didn't buy immediately but got to know over time and have been lucky enough to have another chance to buy.

As the shares of traditional media companies go nowhere, are any of them appealing?

Liberty Media (L) is still one of our largest holdings. It has not been especially profitable the past few years, although that's hard to measure because they have spun out their international business and stake in Discovery Communications, so now we have three sets of shares. John Malone is both admired and criticized for his affinity for complexity, the lengths he'll go to avoid paying taxes and his desire to extract the maximum from any negotiation. We believe each of the three companies is undervalued and we'll earn good returns by waiting patiently for the values to be recognized. Incidentally, although we prefer to be buy-and-hold investors, Liberty is volatile enough that we have traded around our core position over the years -- usually buying around $8 and selling around $12 -- to earn some extra return.

Others like Time Warner (TWX), News Corp. (NWS) and Viacom (VIA) have been great companies, and we can't help but be interested. We're circling but aren't ready to buy. Each has some big unknowns. With Time Warner you have to come to grips with what AOL is worth. With News Corp. I've been leery of Rupert Murdoch. As Malone says about dealing with Liberty's stake, he has to find a solution that's good for Liberty, for News Corp. shareholders and for Rupert. That's a complication. Viacom will be two companies which need to be evaluated separately. There will be new CEOs of each, but Sumner Redstone probably won't be able to resist coaching from his chairman's seat.

The world is changing for "old media." Traditional advertising-supported businesses have been suffering, particularly as alternatives like paid search have taken off. There is competition from new forms of media and from piracy. They've struggled to find ways to be paid for their content delivered over the Internet. So these companies are not what they used to be. What they're going to be going forward may still be good, but we just haven't figured out what they will be worth.

>To order reprints of this article, click here: Reprints