Jan 202011

Warren Buffett announced today that he will not be seeking re-election to the Washington Post  Board of Directors at its annual meeting in May.  Buffett  has served on the Post’s board for 26 of the past 37 years.   His company, Berkshire Hathaway, is the largest outside shareholder, holding  1.73 million shares which represent approximately 21% of the Post’s class B shares.  The shares closed today on the New York Stock Exchange at $433.25, valuing Berkshire’s stake at $750 million.  Over time , Buffett has served on the Boards of Directors of 19 firms.  After he steps down from the Post’s board, Buffett will be on the board of only Berkshire Hathaway, where he is the chairman and chief executive officer.   Buffett was quoted by the Wall Street Journal as saying:  ‘We’re going to keep every share of stock we have.  I would never sell a share of the Post”.

As a guest speaker at the Robert H. Smith School of Business at the University of Maryland on October 20, 2009,  Don Graham, Chairman of the Board and CEO of the Washington Post Company reminisced about the long and extremely fruitful relationship both he and his mother, Katharine Graham, have had with Warren Buffett dating back to 1974.

Don Graham’s comments included the following:

In 1974, when the stock market was at a once in a generation low (“similar to March 2009”), Warren Buffett bought 11% of the Post’s shares because the value of the Post’s assets far exceeded its market value. Buffett then sent a letter to Katharine Graham informing her of his purchase.  Since she had not heard of Warren Buffett, she immediately tried to find anything she could about him. Ms. Graham then flew out to Omaha to meet with Buffett and his associate Charlie Munger.  When she returned, she said they were the two smartest people she had ever met and wanted Buffett on the Post board of directors.  Buffett has been on the Post board from 1974 to 1986 and from May 1996 to now.

 Whenever Katharine Graham or Don Graham have needed advice on difficult decisions, they have reached out to their board of directors and have contacted them prior to regularly scheduled board meetings.  Buffett is the “lead director” and is contacted first and more often than the other directors. Buffett over the years has given invaluable advice to both Katharine and Don Graham, which has included:

 (1) The primary responsibility of a CEO is to allocate capital.

 (2)  When the Post was substantially undervalued in the mid-1970’s, Buffett recommended the Post buy back its stock, which it did.  (The number of outstanding shares was reduced substantially such that Buffett’s original 11% investment today represents 21% of the Post.)

 (3)  Buffett  recommended that the Post’s defined benefit pension plan be invested with one or two outstanding investment managers instead of with another manager where a majority of corporate pension funds were being invested and earning average market returns in the 1970’s.  The Grahams accepted Buffett’s advice. Don Graham mentioned that the Post has not had to make any additional contributions to its pension plan since then, and he estimated that the Post has saved over $1 billion as a result.  According to Buffett, a strong pension plan where you do not have to inject capital every year is like having another strong business within the company.

Buffett also taught the Grahams the importance of patience with respect to mergers and acquisitions.  Most mergers do not work out.  It is important  to wait for the right opportunity.  For example, Don Graham mentioned that in the fall of 2008 Buffett invested $5 billion in Goldman Sachs 10% perpetual preferred and warrants.  He receives $500 million per year in dividends and has created $2.5 billion in value for Berkshire shareholders (based on the value of Goldman Sachs warrants at that time).  “Warren Buffett was sitting on $30 billion of cash waiting for the right opportunity.”

 Posted by at 5:21 pm

  2 Responses to “Warren Buffett and The Washington Post Company”

  1. I have a web site where I research stocks under five dollars I have many years of experience with type of stocks. I am a astute value investor. I am a buy and hold investor but not a buy and hold forever investor like warren buffett I would like to comment about warren buffet. and berkshire hathaway stake in the washington post. I remember an interview that warren buffett gave years ago about a position that berkshire hathaway had in a newspaper I cannot remember what the name of the company was what I do remember is warren buffett commenting we buy to keep referring to berkshire hathaways position in the stock. warren buffett was aware that the newspaper business was in a long term decline but would not consider reducing or eliminating the stock from the porfolio. another thing that I would like to comment about is warren buffetts decision to take a significant stake in goldman sachs perpetual preferred and warrants when we were in the middle of the greatest potential financial collapse in the history of the world. to concentrate a large amount of money in a single security in one single financial company at this time I don’t think this was a very wise decision when their were dozens of high yield closed end funds trading at large discounts to their net asset values yielding over twenty percent. you could get double the yield buying these high yield securities spread the risk across hundreds of high yield securities that you would get purchasing the goldman sachs securities. why concentrate a large amount of money in the securities of one single financial services company and expose berkshire hathaway to the possiblity of a large loss if goldmann sachs were to fail and their were financial services companies that no one ever thought could fail that were on the verge of doing so or would have to be bailed out by the government to survive. one other thing if you had bought the high yield closed end bond funds at the same time that warren buffetts berkshire hathaway bought the goldman sachs securities the high yield bond funds would have doubled in value the goldman sachs securites would have only increased by fifty percent.

    • Warren Buffett may not have reduced his stake in the newspaper company you are referring to because he may have thought the other assets of that company, or additional diversification, were sufficiently promising to justify his decison.

      Berkshire’s return on its $5 billion Goldman Sachs investment has so far equalled over $1 billion in dividends and approximately $2.5 – 3.0 billion value from his warrants. This return of 70 – 80% in a little over two years is excellent.

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