Is Warren Buffett About to End a 40-Year Relationship?

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

U.S. stocks opened lower on Thursday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) down 0.15% and 0.21%, respectively, at 10:15 a.m. EST. Reuters cited "a disappointing outlook from Cisco Systems (NASDAQ: CSCO  ) " as one of the factors weighing on the market this morning, but as I pointed out in my review of Cisco's fiscal second-quarter earnings, the outlook wasn't disappointing and today's decline in the stock looks like a buying opportunity for long-term, value-oriented investors. Speaking of such investors, their spiritual leader, Berkshire Hathaway (NYSE: BRK-B  ) CEO Warren Buffett, may be on the verge of unwinding a very long-term shareholding -- that with Graham Holdings (NYSE: GHC  ) , formerly the Washington Post Co.

In an SEC filing, Graham Holdings said it was in discussions with Berkshire Hathaway regarding a transaction in which Berkshire would use its entire $1.1 billion Graham Holdings stake (roughly 28% of the company) to acquire an "as yet unformed subsidiary" that would house an undisclosed business and other assets. Those assets could include Berkshire shares that Graham Holdings owns.

What could the undisclosed business be? Following the sale of the flagship Washington Post newspaper to Amazon.com CEO Jeff Bezos, Graham Holdings' remaining assets include its Kaplan education group, six local U.S. television stations, a cable operator, online news site Slate, a social marketing company, and a hospice operator. In addition, at the end of September, Graham's pension plan held $228.6 million worth of Berkshire Hathaway shares.

Last August, at the time of the announcement of the sale of the Washington Post, I noted that Washington Post Co. shares had proved a mediocre investment over the past two decades, trailing the S&P 500 by more than 2.5 percentage points on an annualized investment (although starting at the time Buffett began accumulating shares, in 1973, the performance was much better, with an estimated annual return of 11.5%). Since then, shares of Graham Holdings have risen 16%.

In that context, it makes sense for Buffett to revisit the nature of his stake in Graham Holdings. The Oracle of Omaha is a long-term investor, and although he likes to boast that his favorite holding period is "forever," times, circumstances, and businesses change, and Warren Buffett is still at the helm to ensure the Berkshire adapts to those changes.

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  • Report this Comment On February 13, 2014, at 4:22 PM, oldfart65 wrote:

    Here's an OMG moment on BRK (a&b). I was doing some analysis on my portfolio on CAGR & ROI over 10 year period. I discovered that Berkshire is a

    VERY MEDIOCRE INVESTMENT. Both figures were about 6.5% over the 10 years. The 10 years included both a major decline followed by the increases since 2009. In fact it was 1% BELOW the S&P 500 (inc. dividends) as computed by Robt Shiller for the same period. I suspect that is because of the dividends which BRK does not pass on to its investors.

  • Report this Comment On February 13, 2014, at 7:29 PM, AnsgarJohn wrote:

    Seems similar to the deal Berkshire did recently. I believe it is a way to avoid paying capital gains tax.

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