The Warren Buffett Washington Post (NYSE: WPO) investment was a well-placed bet on a business with a wide moat and a strong competitive advantage. Buffett purchased 1.7 million shares of Washington Post at approximately $6 a share in 1973 – this $10.6 million investment made Berkshire Hathaway the second largest shareholder in the Post, second only to the Graham family.
Although the Post was founded in 1877 and had many years of operating history, it only went public in 1971 and was immediately beset with poor performance on the stock market.
What made Washington Post a Warren Buffett Investment
Buffett bought into the Post for several reasons:
First, his personal interest in journalism. He once remarked that had he not found his calling in investing, he would probably have become a journalist. He also worked for the Post as a paperboy when he was a teenager, and saved up much of his initial investment capital that way.
Second, the Post had monopoly-like characteristics. It was the dominant newspaper in Washington, D.C., and had a strong brand-name that was very well-respected nationally.
Third, the Post was selling for cheap during the 1973-1974 stock market slump. Despite going public at $6.50 a share, the Post had dropped to $4 a share. Buffett remarked in a talk to Columbia Business School students that the Post was probably worth about $400 million then, and anyone in the business would probably agree. Yet, the Post was selling for only $80 million when he made the purchase.
What subsequently happened is a reminder that succeeding as a value investor requires a long time horizon. Short-sightedness will not be rewarded. The Post continued to decline in value over the two years after Buffett made his purchase – the value of his investment fell by almost 20 percent. It took three years for the Post to finally gain enough in value to move past Buffett’s initial purchase price. After that, however, the Post proceeded to compound at almost 16% a year, making it one of Buffett’s most profitable investments.