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Intelligent Speculator
Intelligent Speculator

Is Buffett Way Off Base On Newspapers?

May 31, 2012 | About:

I’m a big believer in Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) and in Mr Buffett as I have written many times in the past months on this blog. I like the way he manages his fund, his long term, fundamental based investment method and I admire how patient he has been in holding on to cash when no great investing opportunities were available. Those and many other things are what I’m trying to learn from Buffett.

Clearly, he is not a technology geared person or investor. He has said himself that he spends most of his time looking into piles of papers, financial statements and other documents. You could certainly argue that is is much easier to access this information online but I guess it’s the same info so it doesn’t quite matter. Anyway, it’s not like Mr Buffett is going to be buying shares of Google (NASDAQ:GOOG), Facebook (NASDAQ:FB) or other tech stocks. He likes to buy businesses that are simple and that he can easily understand which has worked incredibly well over the decades. Who could blame him?

Newspapers = Dead?

In recent months, Buffett has agreed to buy many different publications including Virginia’s Richmond Times and almost 100 other newspapers. He said that he saw tremendous value in these stocks. That is certainly a contrarian view in this era where the New York Times (NYSE:NYT), clearly the gem of the newspaper industry, is worth fractions of what it once was despite a solid publication and brand. Why? Newspapers are going through difficult times as they try to adapt to this new digital era. These times where classified ads and many other types of advertising are moving online where they can be done more efficiently and at a lesser price (often free in fact). In short, they compete with free online publications.

“This is an unsustainable model and certain of our papers are already making progress in moving to something that makes more sense” – Warren Buffett

Who am I to argue with Mr. Buffett? But to me, that seems very difficult to determine frm the perspective of someone who uses the internet and new technology so little. Publications such as the Huffington Post and others are clearly able to compete to some extent. The industry will change in the next few years but I’m not quite ready to say that it is unsustainable. Other publications such as Clusterstock have also been operating under a free model making profits. I’m not saying that newspapers will die, I don’t believe so. Clearly they add some value. But I’m not sure that Mr. Buffett knows exactly what he is getting himself into. It’s true that he paid very little and in that sense has little to lose.

Rating: 3.4/5 (12 votes)


Balajisridharan - 5 years ago    Report SPAM
I think the key is whether the future is priced in or has the market even been over pessimistic about the future prospects? It is possible that the declining business was underpriced (with a sufficient margin of safety) While I do not profess the ability to value newspaper in a declining mode, a cash flow analysis of the future with a decline and discounts to show that Buffett is way off base with newspaper will bolster the argument in the article...
PHILCIR - 5 years ago    Report SPAM
isn't this a cigar butt? the man should retire and rest it for a while. oh i forgot he loves to see himself on tv and get close to young pretty female reporters.
LwC - 5 years ago    Report SPAM
Welcome back PHILCIR. Never miss an opportunity to bash Buffett, even if some of your assumptions for doing so in the past are based on proven misconceptions. What do your derogatory comments about Buffett have to do with the subject of the article, which is about BRK's recent investments in newspapers? (never mind; that's just a rhetorical question.)

Why not focus instead on things for which Buffett may in fairness be criticized? For example, BRK's investment in BYD. We learned a year or more afterwards that the investment was driven by Munger, whose family investment trust had a large stake in BYD. AFIAK this fact was never officially disclosed on a timely basis by BRK, Munger, or Buffett (or Sokol, who was Munger's instrument for causing BRK to make the investment.)

After BRK invested in BYD the shares' price increased greatly, delivering tens of millions of dollars of profits to Munger et. al., if not hundreds of millions in profits. DId the BRK BOD know about Munger's stake in BYD? Did Munger recuse himself from the BOD deliberations about the decision to invest in BYD? What did Buffett know about his partner's economic interest in the BYD deal, and when did he know it? AFAIK Buffett has never acknowledged that Munger's stake in BYD and the role he played in BRK's investment in BYD may have been something less than the ethical standards which Munger and Buffett seem to hold up to judge others with.

PHILCIR - 5 years ago    Report SPAM
Well said indeed. I didn't know any of that re: BYD. But then again I don't follow w/ bated breath the activities of the Buffett group and BRK. Good points. Are the people here still so infatuated with their hero?

My comments (might be interpreted as derogatory to some and not to others) do accurately reflect, in my belief, factual behavioral characteristics of a man who goes to great PR lengths to portray himself as the regular guy next door, and America's favorite Uncle. Shareholders entrusting their money to a man advancing in years and exhibiting this sort of behavior might consider this information important. On a personal note, not as one who is evaluating a fiduciary, i don't blame the old geezer for digging the way some of those gals look in their tight mini skirts.

The Sokol matter and the rating agency matters clearly demonstrate what a hypocrite the guy truly is. Not exactly stellar marks on the succession issue either. where are those doberman's now? Looks like the BRK board has chiwawas as wellAlso don't forget that without the bail outs he was in the process of blowing a gigantic hole into berk's balance sheet similar to AIG. But not as severe as that fiasco.

The Science of Hitting
The Science of Hitting - 5 years ago    Report SPAM
The stake was from a $50 million investment Charlie had made in Li Lu's fund in 2004, meaning that their investment in BYD was in place nearly half a decade before Berkshire started looking at BYD; on the other hand, Sokol bought his shares on the basis on insider info weeks before an acquisition.

Your talking about 5 weeks and saying it's equivalent to 5 years (assuming that we accept your premise, as implied, that this is a grand scheme by Charlie to boost his net worth); simply put, your comparison between the two events is laughable.

LwC - 5 years ago    Report SPAM
The Science of Hitting:

Is it possible that you missed the point of my comments?

"Your [sic] talking about 5 weeks and saying it's equivalent to 5 years (assuming that we accept your premise, as implied, that this is a grand scheme by Charlie to boost his net worth); simply put, your comparison between the two events is laughable."

My reference to Sokol was about the role he played in causing BRK to invest in BYD, not Lubrizol as you insinuated. Simply put I never mentioned Lubrizol, I wasn't making any comparison between the two events as you assert, and I resent you putting words into my mouth. Who's laughing now?

My assertion about what IMO was a lack of transparency to the public investors as to Munger's financial interest in BYD at the time that BRK made it's investment (and for a substantial period thereafter) appears to be undisputed by you. Your response "that their [Munger et.al.] investment in BYD was in place nearly half a decade before Berkshire started looking at BYD" IMO apparently misses my point that it was Munger who brought BYD to BRK's attention and who personally recommended that BRK should consider making an investment. AFAIK it has never been disclosed to what extent Munger played in the actual decision process that resulted in the investment. The fact that the deal put hundreds of millions of dollars of profit into Munger's pocket may be beside the point as you assert, or maybe not depending on one's point of view about expectations for standards of ethics for officials of publicly owned companies. I was simply pointing out that Munger and Buffett, who are very public advocates for high standards of ethics, may not have lived up to those standards themselves in this case. However you do appear to opine that five years is enough to excuse the lack of disclosure. Well, I disagree. IMO it would have been a simple thing to acknowledge Munger's personal stake in the deal, and the fact that it wasn't disclosed IMO raises legitimate questions about why it wasn't disclosed.

Finally as to your assertion that my premise is that "that this is a grand scheme by Charlie to boost his net worth" is once again putting words in my mouth that I didn't say. I don't know if Munger had a "grand scheme" and I didn't say that he did; and AFAIK you don't know either. I simply stated the fact that he owned the stake, that he apparently initiated the process that resulted in the BRK investment, and that his financial interest in the deal IMO wasn't timely disclosed. Anyway that isn't my premise. My premise is limited to my opinion that Munger's financial stake in BYD should have been timely disclosed (which IMO it wasn't), regardless of Munger's motive for causing BRK to make the investment, even if his role was limited. My conclusion following my premise is that the lack of timely disclosure appears IMO to be something less than the standard of ethics that Buffett and especially Munger have been quick to accuse others of violating.

BTW, since you appear to be on a first name basis with Munger please say "hi" to Charlie for me next time you see him. I'm confident that since he presents himself as a straight shooter who adheres to the highest standards of ethics, he won't be offended by my remarks pointing out his possible slip up.

Hilario - 5 years ago    Report SPAM
The author pays NO attention whatever to Buffetts take on newspapers...yes, he says the "free" internet availability of newspapers is unsustainable....The author misses Buffetts main contention, the internet CANNOT deliver small town news. Buffett distinguishes small community newspapers from all the rest. Small town papers, Buffett claims, will not go anywhere because they bring the small town local sports and obits, people will not stop wanting these things. If you grew up in a small town like many of us, you know how clear this is. The author mentions Huffpost, Huffpost aggregates top national news stories and interesting local stuff, and they make money. By comparison who would aggregate the boys basketball playoffs highlights in Cedar Rapids IA, or St Cloud MN? Who will bring the locals their sports and obituaries?

The only vehicle to bring small communities their news is the small town paper. Buffett sees value here as do many of us. The question going forward is, how will the small town papers who have online versions monetize them? The answer appears to be paywalls, but the newpaper industry is slow to do this. They are, understandably nervous of driving away their faithful customers who are probably not as tech savvy as the younger generation. The answer is that paying for the small town news is inevitable, people still want their news and they aren't going to stop wanting it if their only choice is to pay a small monthly fee. Once the paywalls are established as inevitable, the choice will be clear, get the paper version or the online, or go without your sports and obits. To me the result is obvious.
PHILCIR - 5 years ago    Report SPAM
Looks like Buffett bailed out his boy Charlie -- I ask you again, where are thoses dobermans that buffett believes should make up an elected BOD's who look out for the shareholders? BRK makes announcement of buying a BS chinese car co (actually PR to get his insurance into China so they can start ripoffing the chinese on reinsur that the chinese don't need - then web can take the $ and make crappy investments into small town newspapers and derivative contracts that he doesn't understand but thinks that he does).

Stock of crappy car up explodes and charlies bails out. Did the SEC investigate this?

Anyone see the 60 min piece with Howie Buffett - the son. Buffett choreographed the whole thing.....

"Son get up on that tractor and pretend you are one of them -- the public will love you."
Bob_in_Maryland - 5 years ago    Report SPAM
A business model can easily become "unsustainable" when it no longer provides a viable deliverable to the customer.

Warren maintains - to be sure - the recollection of a time when newspapers provided just that: a service that fulfilled, at reasonable cost to the customer, cost-benefits that could not be denied. (The Washington Post did just that during the "Watergate era".)

IMO, haven't seen such a performance in many, many moons.

In fact what we've seen is just the reverse - from too many sources. Bias, lack of objectivity, irrationality.

Which partially explains why we are where we are. If there is an industry in need of revitalization it's the newspaper and print media industry. This should appeal as a play on value.

Does the modality of the message matter if important, rational, influential and unbiased ideas are generated from any, given source? (Traditionally, journalists and newspapers editors have unprecedented access to information sources. Has this changed?) Do bloggers really assert similar access? Or do they rely on structured, formalized media sources, more often than not? While I have great respect for the Matt Drudge's and Arianna Huffungton's of this world, I don't see them as having a monopoly on ideas. In fact, from this perspective their primary service is to aggregate news more than originate it. At least it seems so to me.

The answers to such questions - let it be hoped - have some basis of inspiration for these moves. REAL leadership from the information related industries is seriously needed in our present era. If today's investment community can see the potential for synergy as it realates to these possibilities ... we COULD - one day - see these starting steps as quite significant. Insightful. Begging for opportunity.

Berkshire is inspiring, here.


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