Buffett's Crazy Comments Show Why He's Successful

After announcing last week that he wouldn't seek re-election as a board member of the Washington Post (NYSE: WPO  ) , Warren Buffett made it clear that Berkshire Hathaway (NYSE: BRK-B  ) isn't abandoning its longtime investment in the company. "We're going to keep every share of stock we have," he said. "I would never sell a share of the Post."

Never?

What's interesting about his comment is that the newspaper industry isn't protected by an enduring moat like, say, Coca-Cola (NYSE: KO  ) is. It's a dying business with little hope of turning around. How do I know? Buffett said so himself two years ago:

Twenty to 40 years ago, [newspapers] were essential to customers and advertisers. They had pricing power, but [it] essentiality has eroded. Erosion accelerated dramatically, and it won't end based on anything on the horizon. We do not see anything to reverse it. They are essential to advertisers only as long as they're essential to readers. Ten years ago, the head of The Buffalo News said that on an economic basis, Berkshire should sell The Buffalo News. We could have sold the business for hundreds of millions. Not so today.

He then gave his stance on selling newspaper investments: "As long as we're not losing money forever and there are no union problems, we won't sell. ... We'll play it out as long as we can."

To be fair to the Post, a decade of diversification has turned it into more than a newspaper. For-profit education and cable TV now make up substantially all of its operating profit. This, though, doesn't exactly turn the company into a durable franchise. If there are two industries whose futures look as scary as newspapers, it's for-profit education and cable TV.

So why, then, does Buffett hold a till-death-do-us-part attitude? I think his comment underlines a key reason Berkshire has been so successful. To a certain extent, Berkshire will stick with lousy investments because it has made a commitment to the company, its managers, and its employees.

Consider what Buffett once said about why businesses should sell to Berkshire instead of Wall Street:

You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever. Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.

Or this line, when a reporter asked Buffett why businesses looking to sell should come to him first: "If they care about the business and how the people are treated afterwards, Berkshire will be the best option."

That attitude is why Berkshire has been able to buy so many grade-A businesses at favorable terms. Businesses come to him. They want Berkshire to buy them because they know Buffett will respect the company and stick with the investment even when it languishes.

Let's go back to the Washington Post. When Berkshire began buying Post stock in 1973, nerves began rattling after the late Chairwoman Katharine Graham feared Buffett was attempting to gain control over the company her family built. "He's going to take over the Washington Post," she worried to friends, according to Buffett's biography The Snowball.

Buffett knew how worried Graham was. "When I first met with Kay, she was wary and scared. She was terrified by me. ... I could see that even though she had all the A [voting] stock, she was afraid of me. I mean, they had spent their whole life dreaming up and putting defenses around the stock."

He then reassured her in writing:

I also know that it is so important to you in this world that you're going to worry about it no matter what you've got. It's your whole life. I'm telling you that even though these teeth look like Little Red Riding Hood's wolf fangs, they really are baby teeth. ... I'll never buy another share of stock unless you're OK with it.

Snowball author Alice Schroeder continues: "That afternoon, Buffett -- who had spent $10,627,605 to buy twelve percent of the company -- signed an agreement with Graham not to buy any more of the Post stock without her permission."

Graham could have pursued any number of poison-pill actions to prevent Berkshire from making a significant investment in the Post. Instead, Buffett's don't-worry, I'm-not-here-to-harm-you attitude made him allies with Graham and the company's board.

The result: While the Post's future might look dim today, the investment is still a 63-bagger for Berkshire, not including dividends. In percentage terms, it might be Berkshire's best investment ever. And it may have never materialized without Buffett convincing the Post that he was a good guy.

When I first heard Buffett's comments about vowing to never sell a share of a dying company, I thought maybe he was losing it. Maybe his sentimental values were too strong. Maybe his technophobia put him in denial of newspapers' demise. But whenever I find myself second-guessing a great investor like Buffett, I stop and say, Look, there's a reason he's a billionaire and you're not.

As I thought about it more, it became clearer: Buffett's rich because he thinks about businesses as businesses -- commitments backed by people he trusts, and people who trust him -- not as tradable shares that can be bought or sold with abandon. That, more than anything, is what's made him so successful.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of Berkshire. Coca-Cola is a Motley Fool Inside Value pick. Coca-Cola is a Motley Fool Income Investor recommendation. The Fool owns shares of Berkshire Hathaway and Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (29) | Recommend This Article (99)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2011, at 4:44 PM, ozzfan1317 wrote:

    I've considered a investment in the post I already have a substanstial amount of my Net Worth in KO. Plan to hold it and NUE and MKC forever.

  • Report this Comment On January 25, 2011, at 5:01 PM, Fundament wrote:

    You must find your own way to become a billionaire. I am with your thoughts to short companies from the daily newspaper business. Here is a sheet of stocks from the branch with some fundamentals to sell short:

    http://long-term-investments.blogspot.com/2010/10/5-daily-ne...

    The whole industry is not healthy and has negative income ratios.

  • Report this Comment On January 25, 2011, at 5:28 PM, plange01 wrote:

    gm's fake obama inspired and aided bankruptcy on its way to court and likely to be ruled illegal.....

  • Report this Comment On January 25, 2011, at 8:45 PM, soycapital wrote:

    Great article about Mr Buffett. Showing that there is a little more to investing than chasing the hottest stock. "Watch your character; it becomes your destiny".

  • Report this Comment On January 25, 2011, at 9:20 PM, TMFDaddyO wrote:

    Nice article, Morgan.

  • Report this Comment On January 26, 2011, at 12:28 AM, Merton123 wrote:

    Nice article Morgan. In Warren's autobiography "Snowball" he states that what is really important to him is relationships. He measures success by saying that at the end of life true wealth is that the people who are supposed to love you actually do. He starts on in the book stating that one of the best books he ever read was Dale Carnegie "How to make friends and influence people". I agree with him. I am going to invest my Roth IRA money in Vanguard Total World Stock Index and dedicate most of my free time to helping people become healthy through yoga, develop friendships through Dungeons and Dragons, and facilitate classes on Ralph Waldo Emerson. I will also continue reading Motley Fool to keep my hand in on what is going on in the investment world

  • Report this Comment On January 26, 2011, at 2:01 AM, hdotmom wrote:

    I bought GE back in 2002. It wasn't untill Buffett bought it with his special dividend that it tanked for me and in addition my dividend was lowered too. Sure you can make money when you are treated special. I also own USG, What special treatment does he get from them? Now I stay away from anything he owns. He takes everything and leaves the ordinary invester nothing!

  • Report this Comment On January 26, 2011, at 8:39 AM, lantzer2 wrote:

    To the people who take up space annoying others, you should know we do remember you. We would rather choke than give you money. We who are seriously trying to learn from each other don't appreciate these unsolicited intrusions.

  • Report this Comment On January 26, 2011, at 9:53 AM, RLJBozeman wrote:

    Great article!

  • Report this Comment On January 26, 2011, at 10:57 AM, EquityBull wrote:

    If he doesn't sell and rides it to zero is it still a 63 bagger?

  • Report this Comment On January 26, 2011, at 11:04 AM, DPSIII wrote:

    Good read -- gives some perspective on what investing really shout be about. We are, after all, investing in our country in and our futures. Too many have forgotten that, and we all pay the price.

  • Report this Comment On January 26, 2011, at 11:40 AM, wrenchbender57 wrote:

    I admire Warren Buffet and think he has a lot to say that is helpful to investors. I own a fairly large amount (for me) of BRK.B stock. That being said, I do think that WB is in a different investing world than we are. He can do things that we cannot. None of us should hold a stock forever IMO. Find the good companies that pay dividends and buy them for sure. But, when we see an industry dying it is not in our best interests to ignore those signals. Sometimes it is just time to move on and find a company that is more relevant for the times we live in. None of us had the luxury of buying shares of WPO back then and making the profits he has made from it all of these years. WPO may have been a good investment when WB bought his shares but it is most certainly not a good investment now.

  • Report this Comment On January 26, 2011, at 12:33 PM, JustEconist wrote:

    Morgan wrote:

    "So why, then, does Buffett hold a till-death-do-us-part attitude? I think his comment underlines a key reason Berkshire has been so successful. To a certain extent, Berkshire will stick with lousy investments because it has made a commitment to the company, its managers, and its employees."

    I think this is a great misunderstanding of warren Buffet. Buffet main creed/ideology religion is to MAXIMIZE HIS RETURNS. He does this through his extensive relationship with rich and powerful (Obama,McCain, Goldman sachs,GE,Chinese companies) and therefore HAS LOTS OF "inside" information which non of us have.

    During the banking crises he lobyed extensively for saving too big to fail banks (since was a big share holder in a few including WELLS FARGO) a through his connection with Obama and MCCain campain (he would say the economy i s like a heart attack patient on his back and must be saved at any price) After bail out WELLS Fargo became much bigger.

    Somebody said :

    "In Warren's autobiography "Snowball" he states that what is really important to him is relationships. He measures success by saying that at the end of life true wealth is that the people who are supposed to love you actually do"

    THEN I LOVE TO SEE HIM invest to a health food company instead of investing and pushing Cocacola which it's sugary drinks contribute to high rate of diabetes all over the world (in my and many other people's opinions)

    I love him to invest some of his money in startup high tech companies (he doesn't and his excuse is that he doesn't understand the business)

    In short like any other investor he is maximizing his returns but I think Jobs, Gates, Allison,Fords of the world have contributed much more value to the world than buffet who hasn't created much

  • Report this Comment On January 26, 2011, at 5:48 PM, dstb wrote:

    There is no questioning Buffett's long term record but I believe that he does suffer from "nostalgia" in some of his investments.

    The Burlington Northern acquisition appeared to me to be nostalgia driven because he did not receive a particularly outstanding price and railroads require high capital outlays and have trouble covering their cost of capital if oil prices aren't very high and they can't raise prices. I think he wanted to own a railroad. Period.

    I can understand his commitment to companies that he purchased in their entirety but the Washington Post is not one of those investments. He merely owns stock. My personal opinion is that his opinion has been corrupted by nostalgia in this case as well.

  • Report this Comment On January 26, 2011, at 6:37 PM, adamhu wrote:

    "If he doesn't sell and rides it to zero is it still a 63 bagger?"

    Well, WPO has liquidation value probably over $2B.

    So if it were to ever sell everything and close shop, Mr. Buffett would still have made a 40 bagger.

    And this doesnt include dividends.

    Remember, a stock is worth discounted cashflow of all earnings plus liquidation value. That's what Ben Graham and Warren Buffett strongly believes.

    So to answer your question, it wouldn't be 63, but it could be more or less, depending on the timing of the cashflows.

  • Report this Comment On January 26, 2011, at 6:58 PM, TheDumbMoney wrote:

    @ dstb, if you want to understand Buffett's purchase of BNI, you should watch his excellent and informative 11/2009 interview (which covers multiple other topics as well) with Charlie Rose. Rose has interviewed Buffett a few times, but I think this is the link to the correct one:

    http://www.charlierose.com/view/interview/10711

    Briefly on BNI, if I recall his thinking it is as follows: 1) the USA will prosper this century, so more and more goods will be purchased and moved around here; 2) rail is, by far, the most efficient way to transport goods in the U.S.; 3) if anthropogenic global warming is happening, and/or as worries increase, rail will be even more favored, due to its huge energy-efficiency advantages; 4) there aren't that many alternative, safe places to park a ton of cash like BRK has and "move the needle"; 5) rail is an industry that inhernetly cannot possibly be outsourced to China, so it won't go away, thus lowering risk; 6) high capital investment requirements make it less attractive, yes, but also creates a massive barrier to entry -- moat, making it more attractive; 7) he is not looking for a fifty-bagger, he was looking for "a reasonable rate of return."

    Cumulatively, I think those are some pretty compelling rationales.

  • Report this Comment On January 26, 2011, at 7:16 PM, Merton123 wrote:

    The purchase of BNI makes sense when you look at industry trends (i.e., the move from slow trains to trains that travel over 100 miles an hour). The Wall Street Journal had a recent article about China moving to these super fast trains. As the price of oil continue to trends upwards the Oracle of Omaha investment in hindsight will seem very enlightened indeed. We all will have to transition out of our cars to public transit as in Europe. Cargo will more and more be taken by rail. He takes the long view of 5 to 10 years and invests accordingly.

  • Report this Comment On January 26, 2011, at 8:11 PM, dstb wrote:

    "Rail is, by far, the most efficient way to transport goods in the U.S."

    Only if the price of gas is high. Trucking is much more efficient when gas prices are reasonable. Railroads have huge capital expenditures. They must own and keep up their "road." Trucks do not.

    "If anthropogenic global warming is happening, and/or as worries increase, rail will be even more favored, due to its huge energy-efficiency advantages."

    This is ridiculous like the bogus global warming theories. Global warming is irrelevant to this investment. It comes down to gas prices pure and simple. Buffett is betting that gas prices will continue to rise and that trucking will not develop more cost efficient fuel in response (perhaps natural gas?) This may be true but it is a prediction nevertheless.

    "There aren't that many alternative, safe places to park a ton of cash like BRK has and "move the needle"

    Terrible excuse to make an investment. There are endless companies Berkshire could have purchased in the same price range. Or why not buy 5 companies or 10. If he wanted transports how about buying some asset light companies like CH Robinson or Expeditors International? These two alone would get close to Burlington's market cap.

    "Rail is an industry that inherently cannot possibly be outsourced to China, so it won't go away, thus lowering risk"

    This is true but neither will other modes of shipping. If he believes all other businesses are going to be outsourced to China then we are all screwed anyway.

    "High capital investment requirements make it less attractive, yes, but also creates a massive barrier to entry -- moat, making it more attractive"

    This is also true but if a company is not earning above its cost of capital over the long term it is a pointless investment. Two things are needed for the railroads to earn above their cost of capital:

    1) High gas prices

    2) The ability to raise prices. Unfortunately for the railroads every time they attempt to do this their customers complain and Congress talks about regulating the industry.

    "He is not looking for a fifty-bagger, he was looking for "a reasonable rate of return."

    And he won't get it.

  • Report this Comment On January 26, 2011, at 8:45 PM, TheDumbMoney wrote:

    @dstb, I'm just summarizing his arguments, as expressed in the interview. You argued it was just "nostalgia," and he "just wanted to own a railroad. Period." That is all you argued. I showed, no, he had reasonable arguments, and it was not nostalgia, and it was not just because he wanted to own a railroad.

    Now you are saying a different thing, that those are simply wrong. But that is totally different from your original post. Do you even understand the mental gear that your mind is slipping here? I frankly could care less whether you agree with Buffett's investent thesis, and have less than zero interest in arguing it with you. But he didn't buy the company because he wanted to own a train "period." That's all I'm saying.

    Thus, since your second post has absolutely nothing whatsoever to do with your first post, I'll substantively rest on my response to your first post. I did not mean to antagonize you, I thought you might honestly be interested in his actual investment rationale.

  • Report this Comment On January 28, 2011, at 1:38 PM, doctordonna wrote:

    Thank you Morgan for your responses to dumber...I for one appreciated your knowledge.

  • Report this Comment On January 28, 2011, at 2:00 PM, TheDumbMoney wrote:

    doctordonna, I don't get that. It's not that I don't appreciate any knowledge. (I don't even agree with all of Buffett's points myself.) It just irritates me when people respond to arguments I'm not making. Unless one literally thinks Buffett has gone senile, there is a large gap between disagreeing with Buffett's investment thesis, and saying he bought it just because he wanted to own a train, period. That's like saying he bought COP just because he wanted to own an oil company, period. No, he bought COP because he screwed up. The man makes mistakes, but the idea that Buffett would commit tens of billions of dollars of BRK equity so he could own a train is simply absurd. Maybe he screwed up on BNI, I can certainly see the reasoning, but I can 100% gaurantee you he didn't just buy it because he felt like owning a train.

    Now substantively, I do disagree with dstb on a few things anyway: for one thing, rail is so much more efficient than trucks on a unit of energy per pound of good equivalent, that it would be exceedingly unlikely for trucks ever to catch up, and certainly not with natural gas. On the other hand, I agree that global warming threats may well be overblown, as I indicated in what I thought was a very hedged comment on that subject, though strangely dstb's mind also slipped a gear in assuming that I agreed wholeheartedly with Buffett's global warming reasoning as well. It is my fault I suppose since I said I though Buffett's reasoning was "cumalitively" compelling. What I meant was that taken as a whole, this was a very rational thought process, and a compelling argument, which, even if wrong, offers no evidence that Buffett simply wanted to own a train.

  • Report this Comment On January 29, 2011, at 9:49 AM, NinjaHamster wrote:

    dumberthanafool - You are actually saying the opposite of what you clearly mean to say when you state "I frankly could care less whether you agree with Buffett's investent thesis" ... what you mean to say is that you COULDN'T care less. If you "COULDN'T care less" about something, it is because your care factor is already zero, ie. you don't care so it is impossible for you to care less than this. If you COULD care less it is because you DO currently care and hence it would be possible for you to care less than you currently do in the future.

  • Report this Comment On January 29, 2011, at 1:22 PM, TheDumbMoney wrote:

    @Ninja, nice try, but nevertheless that is the way the phrase is colloquially used. I still think you are one bad dude though, NinjaHamster!...

  • Report this Comment On January 29, 2011, at 11:06 PM, oblonsky1 wrote:

    @ninja

    actually the phrase "could care less" is tongue-in-cheek, meaning you are essentially saying "as if i could care any less." meaning, that you do not care. so indeed the colloquial phrase "could care less" is correct if you understand the tone. but i bet you could care less about that and will continue thinking "couldn't care less" is the correct phrase. sorry.

  • Report this Comment On January 30, 2011, at 1:19 AM, TheDumbMoney wrote:

    Irregardless....

  • Report this Comment On February 01, 2011, at 6:36 AM, deepestvalue wrote:

    Hdotmom: re:GE, Buffett the Great paid attention to the price he was paying in 2008! You paid a high price in 2002!

    Re the BNI purchase, Buffett the Great classifies it as a utility, 10 percent per year is what he gets on large amount of money, that too safely. In 2008 one could not do any better, At least not safely!

  • Report this Comment On February 02, 2011, at 12:25 PM, Sleddawg63 wrote:

    Buffett's the man. He' so much THEE MAN that when the headline "Buffett in hospital after fall" appeared last week I thought of him, not Jimmy.

  • Report this Comment On February 14, 2011, at 5:02 PM, hdotmom wrote:

    deepestvalue.....No at the time I didn't pay too much for it....I was doing quite nice and receiving a nice dividend .....And then Buffett got a special price with a special dividend.....and then the rest of us lost our nice dividend....Oh and then look at the stock price!!!!...I sure would like to be able to buy it at his price and with his dividend....you have to admit you would too.....and you could become rich just like him .......if only you got the special treatment he receives! But no....we are just the little people.....!

  • Report this Comment On July 14, 2014, at 2:24 AM, Bananabender wrote:

    Buffett is not an 'investor'. He is a corrupt crony capitalist. He buys businesses and then uses his power and influence to obtain benefits. The BNSF purchase is a perfect example - Buffett buys the company then makes sure that the Keystone XL pipeline is stopped.

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