Knowing when to exit

One might be tempted to think that the decision by two of Australia's greatest entrepreneurs, Frank Lowy and Rupert Murdoch, to dispose of key holdings in the same week was motivated by the same force – now is the time to get out.

There is no doubt that when people with large amounts of wealth get older, they are more inclined to preserve that wealth rather than aggressively chase a new fortune. (I know that from experience).

There is no doubt that conservative forces played a role in the decisions of Lowy and Murdoch, but there is much more to those decisions than a simple ageing message.

Accordingly, the more complex motivations behind each of the decisions are important to understand. And, fascinatingly, they come at a time when the US tax package is set to go to Presidential approval. With that will come a revival of some magnitude in the US economy, plus higher interest rates.

Why the Lowys are selling

There is no doubt that, in the case of the Lowy decision to sell, the fact that interest rates are likely to rise and therefore reduce the value of investment property will have been at least a small factor in their decision making.

But both the Westfield shopping centre group and the News Corp's 21^st Century Fox operation are both enmeshed in enormous change.

In the case of Westfield, the group has some of the best international shopping centres in the world (the Westfield Australian shopping centres are held by the listed company Scentre).

While Westfield's international centres have so far been insulated from the worst of the online onslaught, the task ahead of them is not easy. Westfield, both in Australia and internationally, has tried very hard to be a significant online player. But, the fact that it has tenants with so many conflicting interests makes Westfield no match for Amazon. And a large number of the retail giants in Westfield centres are way behind in their online developments, which adds a further complexity.

So, the Lowys were offered the chance to sell for cash and shares to the Paris-based global shopping centre owner, Unibail-Rodamco group, with the same offer being extended to all shareholders. They took it.

My guess is that, longer term, the Lowys will lighten their exposure to Unibail-Rodamco. They are an entrepreneurial family, and no doubt Frank Lowy's sons will relish the freedom to use some of their cash to start new businesses outside of the shopping centre space.

I have often used the term ‘follow the money', and I think the Lowy's actions are telling us that shopping centres have a much greater degree of risk than they did 10 years ago and that the institutions have not fully rated that risk.

As you know, I have been urging readers to be very careful with their exposures to shopping centres, and I now double that advice, especially as the Lowy sale is being made at about 10 per cent below the peak of the market, which was reached earlier this year.

Why the Murdochs are selling

In the case of 21st Century Fox, the film market is also undergoing an enormous change and there was clear danger that the Murdoch operation would not be in the position to take advantage of the new developments.

The latest Disney Star Wars production is every bit a big film as 20^th Century Fox's Titanic. Titanic was brilliantly marketed as a conventional film. The latest Star Wars movie, which is produced by Disney, is being promoted by social media, exhibitions in railway stations, theme parks and a whole range of other activities. The power of this promotion enables Disney to force theatres to pay greater sums every time they show the film. And they have no choice but to pay, because the Star Wars brand has been made so strong.

In other words, a whole range of new marketing techniques, both conventional and electronic, are now being mobilised to move behind films, which requires new skills and changes the dynamic . At the other end of the scale an array of small-budget films are coming, so there are attacks from both ends. There is a risk that 21^st Century Fox will be caught in the middle of these two movements.

Rupert Murdoch is selling, but will emerge as the major stakeholder in Disney. James Murdoch will have an important executive role.

Rupert Murdoch will not be able to control Disney in the same way he controls the empires that he has built up, but he will have influence. But, importantly, James will get the opportunity to gain much greater exposure to the myriad of techniques being used to promote films. And no one is better at this than Disney.

Murdoch senior's great love is, of course, news media . The myriad of marketing systems being used to support films takes him well out of his expertise. Nevertheless, entrepreneurs who build up businesses usually try and create a career for their children.

Indeed, going back a few decades, Frank Lowy actually bought Channel Ten so his younger son could manage it and not get in the way of the succession that saw the elder children manage the shopping centres.

The whole process went wrong, and Frank Lowy lost a large sum, but it shows just how important that can be. Rupert Murdoch is clearly looking to give his next generation opportunities. Of course, the news business is undergoing no less a revolution than shopping centres and films. But, it is a revolution that Murdoch understands and feels familiar with.

He was the architect of the major drive by Australian news print publications to go for online subscriptions, believing that the days of free material had to end. It worked, so that gives him confidence about the future.

The shift to higher growth

To the overall investment scene. The market is still nervous, but I believe America is set for a considerable upturn and this will be followed by Europe. This is good for our commodities, but it does mean we are ending the era of lower interest rates, and that does affect those stocks and bonds that are closely related to the level of interest rates.

I think we are headed into an era where we are going to ask companies to grow – and that is a question we have not asked for a long time. Our big institutions will be slow to understand the new environment, but smaller investors including self-managed funds will cotton on quickly.

That is why I can't see the Lowys holding a passive shopping centre investment for the longer term. They like the action.

And, we should not forget that the US tax package is much more than a simple reduction in corporate tax, but includes a write-off of new investment, a very low tax for IP profits, and incentives for American companies to bring back the $US2.5 trillion they have overseas.