What investors can learn from “The Lion King”

There’s an argument to be made that the greatest movie of all time was released in the summer of 1994.

No, I’m not talking about Forrest Gump. That one came out on July 6 and went on to win six Academy Awards and three Golden Globes. So, yes, it was a very big deal.

But as iconic as Tom Hanks’ character was in that flick, another feature film – released about a week prior – not only beat Forrest Gump in the global box office that year but has probably had a bigger impact on the American zeitgeist since.

By that, I mean Disney animation classic The Lion King.

Now, with two little kids, I’m an admitted sucker for Disney. And truth be told, Beauty and the Beast is my personal pick for the best Disney renaissance-era film of the 1990s.

I also have to note that it’s been a while since I’ve sat down to watch one of these masterpieces since my kids have been on a Pokémon binge recently. However, I recently came across a post on social media that brought The Lion King back to mind…

Ultimately inspiring this Wide Moat Daily essay.

I’ll correct you now if you think I’m touting Disney’s (DIS) stock today. That’s an understandable conclusion, but it’s actually behind-the-scenes details I’m more interested in addressing right now.

Interested in and, I’ll admit, a bit saddened by as well.

The Lion King was Jonathan Taylor Thomas’ first major film role. Prior to the summer of 1994, he was most famous for his role on the hit TV show, Home Improvement.

Thomas was the perfect casting though, as it turned out. He brought an honest, playful, and rambunctious energy to the young Simba character that caused audiences everywhere to fall in love with the little lion – thereby making the film’s central conflict all the more heartbreaking.

Yet as great as Thomas was in that regard, The Lion King, like all Disney renaissance films, was a musical. And JTT, as it turned out, wasn’t a great singer.

So Disney hired Jason Weaver to take over young Simba’s songs instead. And like Thomas, Weaver hit the ball out of the park.

His two singles, “I Just Can’t Wait To Be King” and “Hakuna Matata,” are still playing rent-free in Disney fans’ heads 32 years later.

Apparently, Weaver is still making money from them today. That’s what I learned the other day thanks to a viral post highlighting how Weaver’s mom – who was his manager at the time – turned down an upfront payment of $2 million dollars for his voice work.

She wanted (and got) backend royalties for him instead. And a recent Fortune article stated that he’s made a lot more money as a result, with an estimated net worth of $4 million to $7 million today.

Naturally, the comments on the article were overwhelmingly positive. They lauded a mother’s love and her long-term thinking. And they marveled at the wonderful financial position she put her son in all those years ago by not taking the quick riches, instead setting him up for life with these residual payments.

Yet despite my love of passive income – or rather, because of it – I can’t join in with the joyous chorus. When I read those details, I wasn’t happy for Weaver at all.

With all due respect to his mom, who I have no doubt meant the best, she actually made a classic mistake that left her son in a position to make less.

It might not seem so at first – hence the glowing article and responses – but the Weaver family left a lot on the table by making this royalty deal. They essentially cheated themselves out of the opportunity to benefit from the power of compounding interest.

Yup. That’s right. I’m going on about that subject again.

But that’s only because it’s so critically important. And we have here yet another example of how much you can make utilizing it…

Or how much you can lose out on when you don’t.

Don’t get me wrong. It’s great that Weaver has a perpetual stream of passive income that will likely support him for the rest of his life. He’s hardly a pauper based on his mom’s move.

But if he accepted that $2 million check back in 1994 and invested it into the index-wide State Street SPDR S&P 500 ETF Trust (SPY), his net worth wouldn’t be 2x–3x larger today.

It would be much, much, much higher considering how the S&P 500 closed at 460 on June 15 of that year. And today, it’s trading at 7,660.

That’s more than 1,500% higher.

A $2 million investment into SPY – governed by a buy-and-hold mindset – over the last three decades would therefore be worth approximately $32 million today. And it would be even higher if the resulting dividends had been reinvested.

Speaking of such, $32 million invested in the SPY would generate about $313,000 annually in dividends today.

This is just one more example the power of compounding.

Sometimes it amazes me how few people understand the power of long-term investing in the U.S. stock market. It isn’t a secret today; nor was it a secret in 1994.

At least it’s not supposed to be. So let me take another shot at breaking it down.

From 1900–1994, the S&P 500 generated an average nominal annual return of about 10%. And since then, the SPY’s pace of growth has been even faster, at 10.9%.

When you’re compounding money at that clip, it doubles every seven years or so. So even if your starting point isn’t a $2 million check from Disney, this kind of snowball effect can turn a meager amount of money into a truly significant sum over time.

For the record, and if I haven’t already made myself clear, I’m not trying to bash Weaver’s mom. I know she had her son’s best interests at heart. And he does now have lifelong financial security.

So kudos to her in that regard.

Moreover, no one can change the past. So there isn’t any use stressing about what could have been.

But that doesn’t mean we can’t grow from it.

Ultimately, my article today is meant to educate all those positive commenters who thought it was so great that $2 million 32 years ago turned into $4 million to $7 million today… when that’s a mere 4% annual return.

In market terms, that’s pretty poor. And I want us all to have much greater long-term expectations than that – expectations that are still grounded in reality, of course.

All it takes is staying consistent and disciplined in living below our means so we have extra money to put into something as simple as the S&P 500 ETF… and then holding those investments over the long-term.

As the song goes, Hakuna Matata: It means “no worries for the rest of your days.”

That’s what buying and holding worthwhile stocks is supposed to be all about.

Best wishes,

Nick Ward
Analyst, Wide Moat Research